Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2015 0026

FAÇADE TREATMENT ENGINEERING PTY LTD (IN LIQ)	Applicant
v
BROOKFIELD MULTIPLEX CONSTRUCTIONS PTY LTD	Respondent

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JUDGES:	WARREN CJ, TATE and McLEISH JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	14 September 2015
DATE OF JUDGMENT:	14 October 2016
MEDIUM NEUTRAL CITATION:	[2016] VSCA 247
JUDGMENT APPEALED FROM:	[2015] VSC 41 (Vickery J)

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BUILDING AND CONSTRUCTION – Right to progress payments in Building and Construction Industry Security of Payment Act 2002 (‘BCISP Act’) s 9(1) – Reference to person who has undertaken ‘to carry out construction work’ or ‘supply related goods and services’ – Whether provisions available to companies in liquidation.

STATUTORY INTERPRETATION – Scope of BCISP Act – Consideration of text, context and purpose of Act – Provisions of BCISP Act pt 3 not available to companies in liquidation.

CONSTITUTIONAL LAW – Whether s 109 inconsistency arises between BCISP Act ss 16(2)(a)(i) and (4)(b) and Corporations Act 2001 (Cth) (‘Corporations Act’) s 553C – Where s 553C provides for set-off of mutual dealings with insolvent company – Where BCISP Act provides for summary judgment proceeding that precludes reliance upon cross-claims or defences – If ss 16(2)(a)(i) and (4)(b) available to companies in liquidation, they would ‘alter, impair or detract from’ operation of s 553C.

CORPORATIONS LAW – Where Corporations Act s 553C(2) precludes set-off where person had notice of company’s insolvency at time of giving credit to or receiving credit from company – Mutual dealings pursuant to contract entered into prior to company’s insolvency – Whether date for assessing notice of insolvency is date of entry into contract or date of conduct pursuant to or in breach of contract.

BUILDING AND CONSTRUCTION – Requirements for payment schedules under BCISP Act s 15 – Adequacy of reasons for withholding payment.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr I W Upjohn QC with Mr B G Mason	Aitken Partners
For the Respondent	Mr D J Williams QC with Mr M G Roberts QC	Norton Rose Fulbright

WARREN CJ
TATE JA
McLEISH JA:

TABLE OF CONTENTS

Facts ................................................................................................................................ 2

Legislative provisions ……………………………………………………………….. 9

          The BCISP Act ………………………………………………………………. 9

The Corporations Act ……………...……………………………………….. 16

The trial judge’s reasons ….......................................................................................... 17

Grounds of appeal and notice of contention ............................................................ 20

The scope of the BCISP Act — the notice of contention ......................................... 21

Parties’ submissions ……………………………………………………….. 22

Analysis ............................................................................................................ 25

          Federal jurisdiction and s 79 of the Judiciary Act ……………………… 35

The constitutional point — s 109 inconsistency .................................................... 37

          The judge’s reasons for finding a constitutional inconsistency ……… 39

Are s 16(2)(a)(i) and s 16 (4)(b) of the BCISP Act inconsistent with s 553C of the Corporations Act? ……...........................................................
47

Façade’s approach: BCISP Act restrictions are procedural and interim 47

Façade’s approach: concurrent operation — Veolia ………………….. 50

Finding of s 109 inconsistency with Trade Practices Act — Bitannia 53

Security of Payments legislation and insolvency — Grosvenor & Hamersley Iron ………………………………………………………..
60

          Automatic application of s 553C anterior to proceeding ……………... 66

          The practical effect on rights under Commonwealth law …………….. 72

Do the ‘roll-back’ provisions apply? ………………………………….. 75

Conclusion on s 109 inconsistency ………………….……………………. 82

Conclusion on grounds 1—4 ………………………………………………. 83

Section 553C(2) of the Corporations Act ………….……………………………….. 84

Proposed ground 6 …….……………………………………………………. 84

Proposed grounds 5 and 7 ……………………………………..................... 86

Parties’ submissions ………………………………………………….. 86

          Analysis ………………………………………………………………. 88

The email of 5 October 2012 ………………………………………………………… 96

Parties’ submissions ……………………………………………………….. 96

          Analysis …………………………………………………………................... 97

Other matters ………………………………………………………………………… 109

Conclusion …………………………………………………………………………… 109

- - -

This proceeding concerns a dispute between two parties to a construction contract to which the Building and Construction Industry Security of Payment Act 2002 (‘BCISP Act’) applies. The applicant subcontractor (‘Façade’) agreed to design, supply and install facade and curtain works for the respondent (‘Multiplex’). Façade issued payment claims which were not paid, or not paid in full, by Multiplex. Façade subsequently was placed into liquidation. Façade by the liquidator then sought to enter judgment against Multiplex pursuant to the BCISP Act to recover the outstanding amounts under the payment claims. The trial judge dismissed Façade’s proceeding, and Façade now seeks leave to appeal.

The proposed grounds of appeal raise a number of complex questions concerning the interpretation of the BCISP Act and its interaction with the Corporations Act 2001 (Cth) (‘Corporations Act’). These include the question of whether the BCISP Act only applies to claimants that are going concerns and whether s 16(2)(a)(i) and s 16(4)(b)(i) and 4(b)(ii) of the BCISP Act are constitutionally inconsistent with s 553C of the Corporations Act. For the reasons that follow, we construe the BCISP Act narrowly and conclude that s 9(1) of the BCISP Act does not create an entitlement to progress payments for persons who are in liquidation (that is, persons in respect of whom a winding-up order has been made). Part 3 of the BCISP Act is not available to persons in liquidation. While the adoption of this construction renders it strictly unnecessary for the Court to consider the issue of constitutional inconsistency, in deference to the judge and the parties we have examined this issue and have concluded that a relevant inconsistency exists. We would grant leave to appeal with respect to certain limited grounds, otherwise refuse leave, and dismiss the appeal.[1]
[1]We consider it unnecessary to decide one of the grounds, ground 8.

Facts

Façade and Multiplex entered into a subcontract dated 7 September 2011 for the design, supply and installation of facade and curtain works for the Upper West Side development at 613–614 Lonsdale Street and 204–240 Spencer Street in Melbourne (‘the Subcontract’).

The Subcontract satisfied the definition of a ‘construction contract’ under s 5 of the BCISP Act. Thus, the BCISP Act applied to the Subcontract. The BCISP Act voids any provision of a contract that excludes, modifies or restricts the operation of that Act.[2] Otherwise, the provisions of the Subcontract operated in conjunction with those of the BCISP Act.
[2]Section 48.

Under cl 3.1 of the Subcontract, Façade as subcontractor was required to execute and complete the work under the Subcontract in accordance with the requirements of the Subcontract. Multiplex was required to pay Façade the sum of A$12,250,000 (plus GST), adjusted for any additions or deductions required to be made under the Subcontract.

Clause 42.1 of the Subcontract set out terms for the submission of payment claims by Façade to Multiplex. Payment claims were to be submitted on the 25^th day of each month and were to include work done, or to be done, to the last day of the month.[3] Façade was required to deliver payment claims in a specified form, accompanied by supporting evidence and including all the information set out in cl 42.1A. Among the information required to be included in payment claims was ‘such information as Brookfield Multiplex reasonably requires in respect of the work the subject of the progress claims’[4] and a statutory declaration in the form at Annexure Part R to the Subcontract.[5] The statutory declaration required a representative of Façade to declare that, among other things, all employees, consultants, suppliers and secondary subcontractors engaged by Façade had been paid in full for their work in the period relevant to the payment claim.
[3]Part A item 35(a) to the Subcontract.
[4]Clause 42.1A(a).
[5]Clause 42.1A(c).

Within 14 days of receipt of a complying payment claim, Multiplex was required to assess the claim and then ‘may issue to [Façade] a payment schedule stating the amount of the payment which, in Brookfield Multiplex’s opinion, is to be made by Brookfield Multiplex to [Façade] or by [Façade] to Brookfield Multiplex.’ Clause 42.1 of the Subcontract went on to state:

Brookfield Multiplex shall set out in any payment schedule issued pursuant to this Clause 42 the calculations employed to arrive at the amount and, if the amount is more or less than the amount claimed by [Façade], the reasons for the difference and for withholding any payment. Brookfield Multiplex shall also set out, as applicable, in any payment schedule issued pursuant to Clause 42, the allowances made for —
(c)the value of work carried out by [Façade] in the performance of the Subcontract to the last day of the relevant month;
(d)amounts due (or which may become due) from [Façade] to Brookfield Multiplex;

(e) amounts paid previously under the Subcontract;
(f)amounts previously deducted for retention moneys pursuant to Annexure Part A; and

(g) retention moneys to be deducted pursuant to Annexure Part A,
arising out of the Subcontract resulting in the balance to [Façade] or Brookfield Multiplex, as the case may be.

Clause 42.8 of the Subcontract provided for set-offs in the following terms:

(a) Brookfield Multiplex may set-off or deduct from:
(i)any amounts due to [Façade], including any amounts in any payment schedule issued by Brookfield Multiplex; or
(ii)the amount available to Brookfield Multiplex if it exercises its rights under security,

any moneys due, or which may become due, from [Façade] to Brookfield Multiplex (whether under this Subcontract or otherwise).
(b)Even if an amount owed by [Façade] to Brookfield Multiplex under the Subcontract has not been included in a payment schedule by Brookfield Multiplex under this Subcontract, Brookfield Multiplex may separately recover the debt from [Façade].

Following the commencement of the Subcontract, Façade issued Multiplex with a number of payment claims pursuant to the BCISP Act. The two payment claims that are the subject of these proceedings are Payment Claim 18 and Payment Claim 19.

Façade submitted Payment Claim 18 on 23 August 2012. That payment claim sought $1,089,403 (plus GST) for works completed up to 31 August 2012. The parties agree that Payment Claim 18 was a valid payment claim under the BCISP Act.

On 11 September 2012, Multiplex issued Façade with a ‘recipient created tax invoice’ in relation to Payment Claim 18 for the amount of $598,155.80 (inclusive of GST). This amount was paid to Façade on 14 September 2012 by electronic funds transfer. Apart from this payment, Multiplex has not made any other payments towards Payment Claim 18. Multiplex did not serve a payment schedule pursuant to s 15 of the BCISP Act in response to Payment Claim 18.

Façade submitted Payment Claim 19 on 27 September 2012.[6] The payment claim sought $539,347 (plus GST) for works completed up to 30 September 2012. That figure was calculated from the sum of the value of works executed according to the original contract ($11,117,200) and variation works ($42,344), minus the amount already paid by Multiplex ($10,620,197). A table attached to the payment claim listed seven items of original works,[7] and another table listed four items of variations.[8] As required by cl 42.1A of the Subcontract, the payment claim was accompanied by a statutory declaration in the form of Annexure Part R.
[6]The letter from Façade to Multiplex attaching Payment Claim 19 is dated 24 September 2012, but the parties agree that the payment claim was submitted to Multiplex on 27 September 2012.
[7]These were: preliminaries, balustrades, podium wall and roof glazings, shopfronts, apartment windows and doors, curtain wall panels, and aluminium folded screens.
[8]These were: hotel expenses, a flight ticket, changing of glass on elevation, and powder coating.

Multiplex did not make any payments towards Payment Claim 19. While Multiplex initially contested the validity of Payment Claim 19 ultimately this was not pursued.

On 5 October 2012, an employee of Multiplex sent an email to an employee of Façade regarding Payment Claim 19 (‘the 5 October 2012 email’). The substance of the email was as follows:

We advise that we cannot reasonably consider the submitted Progress Claim 19 as valid on the following grounds:
— Pursuant to Subcontract Clause 42.1A(a) – BMC has reason to believe that the submitted Statutory Declaration is inaccurate with regard to item 3, please resubmit.
— BMC is unable to ascertain the extent to which items being claimed are for materials that are unfixed, including details of security provided if required under the Subcontract – values attached to certain items would suggest that they do include amounts for unfixed materials.
We also note the requirements for payment claims requested in the attached correspondence of 18^th September (attached) and the subject of RCTI #26 have yet to be provided by FTE and as such Progress Claim 18 remains invalid.
Upon FTE remedy of the above and attached Brookfield Multiplex will be in a position to issue FTE with a payment schedule.

The ‘attached correspondence of 18^th September’ appears to refer to an email from Ryan Treweek of Multiplex to Andrew Batt of Façade on that date, with the subject line ‘RE: UWS – FTE Payments’. In that email, Mr Treweek referred to ‘confusion on site of Subcontractors who have amounts outstanding but have not received any consistent communication from [Façade] as to when and under what terms these amounts will be settled.’ Mr Treweek also noted Multiplex’s concern at the apparent lack of underlying cash balances available to Façade to complete the works. Mr Treweek stated in his email:

Accordingly, in order for [Multiplex] to continue its current payment scenario, we require the following from [Façade] prior to the release of our next payment on the 28^th September 2012.
1. A full cost to complete cash flow forecast to be performed …
2.A written acknowledgement from your company directors of this forecast and declaration that funds will be made available to meet [Façade’s] obligations as they fall due so as not to cause further delay on site.
3.Broken down allocation of all funds from Payment 26 due 28^th September and the proposed timing of these payments.
4.Update to the Statutory Declaration (attached) to include specific exceptions where contractors or suppliers have not been paid in accordance with their contractual terms.
5.An updated inventory list of all facade materials currently claimed off-site and an updated transfer of ownership letter (pervious [sic] attached).

The email concluded by suggesting a meeting between Façade and Multiplex.

Also on 5 October 2012, Multiplex served Façade with a show cause notice pursuant to cl 44.2 of the Subcontract. That clause provided that ‘[i]f [Façade] commits a breach of this Subcontract, Brookfield Multiplex may give [Façade] a written notice to show cause.’ Clause 44.3 then set out the requirements for a show cause notice.

In its show cause notice, Multiplex alleged that Façade was in breach of the Subcontract as it had: included false statements in statutory declarations provided to Multiplex in support of payment claims; failed to proceed with the Subcontract works with all due expedition; and failed to rectify defects as directed. The notice specified the time by which cause must be shown as 9:00 am on 10 October 2012.

Façade responded to the show cause notice by a letter dated 9 October 2012. Façade denied that it had breached the contract, set out its refutations of Multiplex’s show cause notice, and concluded that Multiplex should not exercise the right under cl 44.4 of the Subcontract to take the works out of Façade’s hands or terminate the Subcontract.

On 10 October 2012, Multiplex served notice on Façade taking the works out of Façade’s hands. The notice set out the alleged breaches of the Subcontract by Façade, and the grounds on which Multiplex reached the view that Façade had failed to refute the allegations. Multiplex also alleged in the notice that Façade had effectively abandoned the Subcontract works since 8 October 2012. The notice concluded:

In light of [Façade’s] failure to show cause, Brookfield Multiplex advises that as of 4.00pm today it will proceed to take out of the hands of [Façade] all remaining work under the Subcontract. As a result, [Façade] will not be entitled to any further payment until a payment becomes due (if at all) under clause 44.6[9] of the Subcontract.

[9]Clause 44.6 concerns the adjustments to be calculated on completion of the Subcontract works when the works have been taken out of the hands of the subcontractor.

On 12 October 2012, outside the time period prescribed by s 15(4)(b) of the BCISP Act,[10] an employee of Multiplex sent an email to Façade which stated:

Brookfield Multiplex does not consider that [Façade] has submitted a valid payment claim in accordance with the requirements of the Subcontract, in that it has: [list of reasons given, including the reasons stated in 5 October 2012 email.]
Nonetheless, in order to preserve its position in relation to any claim under the Security of Payment Act, Brookfield Multiplex has provided a payment schedule in response to the payment claim within the time required under the Subcontract and the SOP Act for doing so.
As is evident from the payment schedule, no monies are due to [Façade]. Even if monies had been certified as due to [Façade] in respect of this payment claim, no payment would be required to be made for the reason that the Subcontract Works have been taken out of the hands of [Façade] as of Tuesday 9 October 2012. … Additionally, no payment would be due as a result of the failure of [Façade] to provide a legitimate statutory declaration as to payment under clause 42.1A(c) or to provide the information reasonably required by Brookfield Multiplex in respect of the payment claim.

[10]Section 15(4)(b) stipulates the time for providing a payment schedule to be the time required by the construction contract or within 10 business days after the payment claim is served, whichever time expires earlier.

Attached to the email was a document titled ‘Subcontractor Payment Schedule’. That document contained copies of the tables of works items submitted by Façade in its payment claim, which had been hand-annotated to show amounts marked down by Multiplex. It also contained a page of typed notes explaining these mark-downs, including, for example, that certain works claimed were incomplete. The Schedule gave the value of work completed during the relevant period in a negative figure, namely $2,563,820.

On 25 October 2012, Façade served on Multiplex a demand for payment of the sum of $1,193,469.20, being the unpaid portion of Payment Claim 18 and the full amount of Payment Claim 19. Façade asserted that this amount was due and payable under the BCISP Act. Multiplex did not make payment.

Façade is now in liquidation, the Supreme Court having made winding up orders on 6 February 2013.

Façade commenced proceedings on 26 September 2014 seeking payment of $1,193,469.20 pursuant to s 16 of the BCISP Act in respect of Payment Claims 18 and 19. That amount comprised $600,187.50 in respect of Payment Claim 18 and $593,281.70 in respect of Payment Claim 19.

The proceeding was heard by a judge of the Trial Division. During the proceeding, Multiplex alleged that Façade was liable to it under a proposed counterclaim for completion costs (amounting to $1,858,468) and liquidated damages (amounting to $10,309,650) under the Subcontract. This raised the question of whether s 553C of the Corporations Act applied to allow Multiplex to set off any amounts it owed with respect to Payment Claims 18 and 19.

On 24 February 2015, the judge dismissed Façade’s proceeding with costs.[11]
[11][2015] VSC 41 (‘Reasons’).

Legislative provisions
The BCISP Act

The main purpose of the BCISP Act is ‘to provide for entitlements to progress payments for persons who carry out construction work or who supply related goods and services under construction contracts.’[12] Section 3 of the BCISP Act states:
[12]Section 1. ‘Construction work’ is defined in s 5, ‘related goods and services’ is defined in s 6, and ‘construction contract’ is defined in s 4.

(1)The object of this Act is to ensure that any person who undertakes to carry out construction work or who undertakes to supply related goods and services under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services.
(2)The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to that payment in accordance with this Act.
(3)The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves—
(a)the making of a payment claim by the person claiming payment; and
(b)the provision of a payment schedule by the person by whom the payment is payable; and
(c)the referral of any disputed claim to an adjudicator for determination; and
(d)the payment of the amount of the progress payment determined by the adjudicator; and
(e)the recovery of the progress payment in the event of a failure to pay.

(4) It is intended that this Act does not limit—
(a)any other entitlement that a claimant may have under a construction contract; or
(b)any other remedy that a claimant may have for recovering that other entitlement.

The BCISP Act has equivalents in all the other Australian States and Territories.[13]
[13]Building and Construction Industry (Security of Payment) Act 2009 (ACT); Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the NSW Act’); Construction Contracts (Security of Payments) Act (NT); Building and Construction Industry Payments Act 2004 (Qld) (‘the Qld Act’); Building and Construction Industry Security of Payment Act 2009 (SA); Building and Construction Industry Security of Payment Act 2009 (Tas); Construction Contracts Act 2004 (WA) (‘the WA Act’).

The BCISP Act commenced operation in January 2003. In the second reading speech introducing the BCISP Bill, the then Minister for Planning stated that:

The bill gives effect to the government’s commitment to securing payment for contractors, subcontractors, consultants and others in the building and construction industry, which has been a major concern in the industry for some time. Accounts of small businesses and companies failing due to larger companies going broke or refusing to pay, and issues relating to cash flow problems, are prevalent within the industry. Up until now, Victoria has been one of the few states across Australia without legislation protecting subcontractors and others involved in the industry that have legitimate claims against defaulting companies.
…
The bill substantially adopts the recommendations of the industry task force which was appointed by the government to review the remedial action that may be taken to address poor payment practices under building and construction contracts. The main thrust of the task force recommendations was for the introduction of legislation reflecting the New South Wales Building and Construction Industry Security of Payment Act 1999 which has proved successful in that jurisdiction. The bill is modelled on the provisions and processes of the New South Wales Act and this has the benefit of allowing building and construction firms with national operations to be subject to common payment requirements in both jurisdictions.[14]

[14]Parliamentary Debates, Victoria, Legislative Assembly, 21 March 2002, 426–7 (Mary Delahunty, Minister for Planning).

In 2004, the Building Commission (now the Victorian Building Authority) conducted a review of the BCISP Act. The Commission produced a discussion paper which was distributed to industry for comment. An industry working group was subsequently established which proposed amendments to the BCISP Act. The result of this process was the Building and Construction Industry Security of Payment (Amendment) Act 2006, which was passed in July 2006 and which mostly came into effect in March 2007. The amendments included expanding the payments that could be claimed under the BCISP Act; clarification of what could be claimed; expanding the availability of adjudication; and a number of other matters.

The right to progress payments is created by s 9(1) of the BCISP Act. That provision states:

On and from each reference date[15] 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 under this Act, calculated by reference to that date.

[15]The term ‘reference date’ is defined in s 9(2).

The procedure for recovering progress payments is set out in pt 3 of the BCISP Act. The first step is to serve a payment claim in accordance with s 14. Section 14 states:

(1)A person referred to in section 9(1) 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 construction contract concerned, is or may be liable to make the payment.

(2)       A payment claim—
(a)       must be in the relevant prescribed form (if any); and
(b)       must contain the prescribed information (if any); and
(c) must identify the construction work or related goods and services to which the progress payment relates; and
(d) must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount); and

(e) must state that it is made under this Act.

(3) The claimed amount—
(a) may include any amount that the respondent is liable to pay the claimant under section 29(4);[16]

(b) must not include any excluded amount.[17]

[16]Section 29 relates to circumstances where the claimant suspends work. Section 29(4) obliges the respondent to pay the claimant the amount of any losses or expenses the claimant incurs in exercising the right to suspend the carrying out of construction work, or the supply of related goods and services, as a result of the respondent’s removal from the contract of any part of the work or supply.

[17]Section 10B defines ‘excluded amounts’ to include any amount that relates to a variation of the construction contract that is not a claimable variation, and amounts claimed under the construction contract for compensation due to the happening of an event such as amounts relating to latent conditions; time-related costs; changes in regulatory requirements; and amounts claimed for damages for breach of the construction contract or for any other claim for damages arising under or in connection with the contract.

Subsections (4)–(9) go on to stipulate further requirements for a valid payment claim.

Section 15 sets out how the recipient of a payment claim responds to the claim. It relevantly provides for the respondent to a payment claim to provide a payment schedule indicating, amongst other things, the amount the respondent proposes to pay. It states:

(1)A person on whom a payment claim is served (the respondent) may reply to the claim by providing a payment schedule to the claimant.

(2) A payment schedule—
(a) must identify the payment claim to which it relates; and
(b)must indicate the amount of the payment (if any) that the respondent proposes to make (the scheduled amount); and
(c)must identify any amount of the claim that the respondent alleges is an excluded amount; and

(d) must be in the relevant prescribed form (if any); and
(e) must contain the prescribed information (if any).
(3)If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent’s reasons for withholding payment.

(4) If—
(a) a claimant serves a payment claim on a respondent; and
(b)the respondent does not provide a payment schedule to the claimant—
(i)within the time required by the relevant construction contract; or
(ii)within 10 business days after the payment claim is served;

whichever time expires earlier—

the respondent becomes liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates.

At the time of the relevant events in this proceeding, there was no prescribed form or prescribed information as referred to in sub-ss (2)(d) and (e).[18] This remains the case.[19]
[18]See Building and Construction Industry Security of Payment Regulations 2003.
[19]See Building and Construction Industry Security of Payment Regulations 2013.

Section 16 sets out the consequences for a respondent that fails to provide a payment schedule. It relevantly states:

(1) This section applies if the respondent—
(a)becomes liable to pay the claimed amount to the claimant under section 15(4) as a consequence of having failed to provide a payment schedule to the claimant within the time allowed by that section; and
(b)fails to pay the whole or any part of the claimed amount on or before the due date for the progress payment to which the payment claim relates.

(2) In those circumstances, the claimant—
(a) may—
(i)recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction; or
(ii)make an adjudication application under section 18(1)(b) in relation to the payment claim; and

(b)may serve notice on the respondent of the claimant’s intention—
(i)to suspend carrying out construction work under the construction contract; or
(ii)to suspend supplying related goods and services under the construction contract.

(3) A notice referred to in subsection (2)(b) must state that it is made under this Act.
(4)If the claimant commences proceedings under subsection (2)(a)(i) to recover the unpaid portion of the claimed amount from the respondent as a debt—
(a)judgment in favour of the claimant is not to be given unless the court is satisfied—
(i)of the existence of the circumstances referred to in subsection (1); and
(ii)that the claimed amount does not include any excluded amount; and

(b) the respondent is not, in those proceedings, entitled—
(i) to bring any cross-claim against the claimant; or
(ii)to raise any defence in relation to matters arising under the construction contract.

Section 18 sets out the circumstances in which a claimant may apply for adjudication of a payment claim. These circumstances include where a payment schedule has been provided but the scheduled amount is less than the claimed amount or the respondent fails to pay the scheduled amount.[20] They also include where a payment schedule has not been provided and the respondent fails to pay the claimed amount.[21] In the latter case, the claimant is required to notify the respondent of the claimant’s intention to apply for adjudication, and to give the respondent an opportunity to provide a payment schedule within two business days after receiving the claimant’s notice.[22]
[20]Section 18(1)(a).
[21]Section 18(1)(b).
[22]Section 18(2).

Pursuant to s 21, a respondent who has provided a payment schedule may lodge a written response to the claimant’s adjudication application.[23] That response ‘may contain any submissions relevant to the response that the respondent chooses to include’.[24] Section 21(2B) contemplates that the response may include reasons for withholding payment that were not included in the payment schedule. It states:

If the adjudication response includes any reasons for withholding payment that were not included in the payment schedule, the adjudicator must serve a notice on the claimant—
(a) setting out those reasons; and
(b)stating that the claimant has 2 business days after being served with the notice to lodge a response to those reasons with the adjudicator.

[23]Sections 21(1), (2)(a) and (2A).

[24]Section 21(2)(d).

An adjudicator is required to determine the amount of the payment (if any) to be paid by the respondent to the claimant, the date on which that amount is payable, and the rate of interest payable.[25] Where the respondent has served a payment schedule, the adjudicator in making a determination is required to take into account all of the respondent’s submissions in support of that schedule.[26] This would include any reasons for withholding payment, additional to those set out in the payment schedule, provided by the respondent in its written response to the adjudication application.

The Corporations Act

[25]Section 23(1).

[26]Section 23(2)(d).

Part 5.6 of Chapter 6 of the Corporations Act deals with the winding up of companies. Section 553(1) provides:

Subject to this Division and Division 8, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date,[27] are admissible to proof against the company.

[27]‘Relevant date’ in relation to a winding up is defined in s 9 to mean ‘the day on which the winding up is taken because of Division 1A of Part 5.6 to have begun’.

Section 553C then provides for set-off of mutual claims. It provides that, in the context of the winding up of an insolvent company, a party to whom the company owes a debt is entitled to set off that debt against any sum it owes to the company. It states:

(1)Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:
(a)an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and
(b)the sum due from the one party is to be set off against any sum due from the other party; and
(c)only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.

(2)A person is not entitled under this section to claim the benefit of a setoff if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.

Section 553C also existed in the Corporations Law. It was inserted into the Corporations Law by the Corporate Law Reform Act 1992 (Cth), but similar provisions have existed in bankruptcy legislation for many years.[28]
[28]See Bankruptcy Act 1966 (Cth) s 86 and the discussion in Old Style Confections Pty Ltd v Microbyte Investments Pty Ltd (in liq) [1995] 2 VR 457, 461 (Hayne J); Ansett Australia Holdings Ltd v International Air Transport Association (2006) 60 ACSR 468; [2006] VSCA 242 [103]–[109] (Nettle JA).

The trial judge’s reasons

The judge considered the following issues in his judgment:

(a) whether the 5 October 2012 email satisfied the requirements for a payment schedule pursuant to s 15 of the BCISP Act;

(b) whether the claim for payment pursuant to s 16 of the BCISP Act fails because pt 3 of the BCISP Act, including s 16, is invalid to the extent that it is inconsistent with the operation of s 553C of the Corporations Act; and

(c) whether Multiplex was precluded from relying upon s 553C of the Corporations Act because it was on notice of Façade’s insolvency.

On the first issue, the judge first observed that there is no prescribed form for payment schedules.[29] He referred to cases where courts have stated that the requirements of security of payments legislation should be applied in ‘a commonsense practical manner’[30] and not from ‘an unduly critical viewpoint’.[31] They must ‘apprise the parties of the real issues in the dispute’, but need not be ‘as precise and as particularised as a pleading in the Supreme Court’.[32] A party seeking to withhold payment in a payment schedule is permitted ‘some want of precision and particularity’ in stating the reasons for withholding payment, ‘as long as the essence of “the reason” for withholding payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in adjudication’.[33]
[29]Reasons [26].
[30]Ibid [29], quoting Protectavale v K2K Pty Ltd [2008] FCA 1248 [11] (‘Protectavale’).
[31]Reasons [29], quoting Protectavale [2008] FCA 1248 [11], which in turn quoted Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA Pty Ltd) [2007] QSC 333 [20].
[32]Reasons [30], quoting Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 [76].
[33]Reasons [30], quoting Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 [78].

Façade had argued before the judge that the 5 October 2012 email did not satisfy the requirements for a payment schedule in s 15 of the BCISP Act for two reasons. First, as the email denied that a valid payment claim had been submitted by Façade, it did not purport to operate as a payment schedule. Second, contrary to s 15(2)(b), it did not specify the amount Multiplex proposed to pay Façade in response to the payment claim.[34]
[34]Reasons [34].

The judge rejected these arguments and concluded that the 5 October 2012 email did satisfy the requirements of s 15 of the BCISP Act. He held that it was ‘clear from a plain reading of the 5 October email, when read as a whole, that Multiplex did not propose to pay anything to Façade’.[35] The 5 October 2012 email therefore satisfied the requirements of s 15(2)(b). The email also satisfied the requirements of s 15(3), as it stated that Multiplex regarded Payment Claim 19 as invalid and set out the reasons for the claimed invalidity.[36]
[35]Reasons [36].
[36]Reasons [38].

On the constitutional issue, the judge first canvassed the purposes and operation of the BCISP Act and s 553C of the Corporations Act as described in the case law.[37] He described Multiplex’s alleged counterclaims against Façade, being $1,848,658 to complete the Subcontract work and $10,309,650 in liquidated damages.[38] Having regard to the material before him, the judge was satisfied that Multiplex had potential claims that it intended to advance,[39] and that the quantum of those counterclaims, if proved, was likely to exceed the amounts sought by Façade pursuant to the BCISP Act.
[37]Reasons [40]–[51], [60]–[65].
[38]Reasons [66].
[39]Reasons [69].

The judge observed that the potential for inconsistency arose between s 16(4) of the BCISP Act, which precludes a respondent to proceedings to recover an unpaid payment claim from bringing any cross-claims or defences, and the right to set-off in s 553C of the Corporations Act. The judge set out the principles for s 109 inconsistency from Telstra Corporation Ltd v Worthing[40] and applied those principles to conclude that a relevant inconsistency arose between the BCISP Act and the Corporations Act. We will discuss the judge’s reasoning on this point in more detail later in our judgment.[41]
[40](1999) 197 CLR 61 (‘Telstra v Worthing’).
[41]See [103]–[120] below.

The judge stated that in the event that Multiplex evinced an intention not to proceed with its alleged counterclaims, Façade could seek declaratory relief before proceeding to obtain judgment pursuant to s 16 of the BCISP Act.[42]
[42]Reasons [84].

Given the judge’s conclusion on s 109 inconsistency, he did not consider whether the BCISP Act should be construed as intending to operate only when the parties are going concerns.[43]
[43]Reasons [86].

The judge then turned to consider whether Multiplex was precluded from relying upon s 553C of the Corporations Act because of s 553C(2), which provides that a person is not entitled to claim the benefit of a set-off if, at the time of giving credit to or receiving credit from the company, the person had notice of the fact that the company was insolvent.

Façade submitted that the relevant time under s 553C(2) for assessing whether Multiplex had notice of Façade’s insolvency was the time when Multiplex became liable to make progress payments in response to Payment Claims 18 and 19, being 23 August 2012 and 27 September 2012. Multiplex, in contrast, submitted that the relevant time was the date of entry into the Subcontract, being 7 September 2011.[44]
[44]Reasons [90]–[91].

The primary judge relied upon Grapecorp Management Pty Ltd (in liq) v Grape Exchange Management Euston Pty Ltd,[45] Old Style Confections Pty Ltd v Microbyte Investments Pty Ltd (in liq)[46] and JLF Bakeries Pty Ltd (in liq) v Baker’s Delight Holdings Ltd[47] to conclude that the relevant time to assess whether Multiplex had notice under s 553C(2) was the date on which the Subcontract was executed.[48] Since it was not suggested that there were indications of Façade’s insolvency at that date, s 553C(2) did not preclude Multiplex from relying on the set-off under s 553C.
[45](2012) 265 FLR 33 (‘Grapecorp’).
[46][1995] 2 VR 457 (‘Old Style’).
[47](2007) 64 ACSR 633 (‘JLF Bakeries’).
[48]Reasons [97]–[98].

Grounds of appeal and notice of contention

Façade advanced eight proposed grounds of appeal, grouped around three issues: the constitutional issues (grounds 1–4); the application of s 553C(2) of the Corporations Act (grounds 5–7); and whether the 5 October 2012 email constituted a valid payment schedule (ground 8).

In addition, Multiplex contended in its notice of contention that the decision of the trial judge should be affirmed on the additional ground that the BCISP Act only applies to claimants that are going concerns. In oral submissions, counsel for Multiplex clarified that Multiplex’s position is that it is the making of the winding-up order that is the cut-off for the application of the BCISP Act.

We will address the issues broadly in the following order:

(1) First, we consider the scope of the BCISP Act and the grounds raised by Multiplex’s notice of contention, in accordance with the general precept that questions of the construction and operation of legislation should be resolved first before constitutional validity.[49] The text, context and purpose of the BCISP Act provide a number of indications that the entitlement to progress payments under s 9(1) of the Act is only available to persons who have undertaken to, and are capable of, carrying out construction work and/or supplying related goods and services. Consequently, we conclude that s 9(1), and therefore pt 3 of the BCISP Act, is not available to persons in liquidation.
[49]North Australian Aboriginal Justice Agency Ltd v Northern Territory (2015) 326 ALR 16, 19 [11] (French CJ, Kiefel and Bell JJ).

(2) Secondly, we consider the constitutional issues. We conclude that the judge was correct in finding that s 16(2)(a)(i) and ss 16(4)(b)(i)–(ii) of the BCISP Act are inconsistent with s 553C of the Corporations Act. Once a company has gone into liquidation, and where there are mutual dealings so that s 553C is engaged, a payment claim cannot be enforced by means of a summary judgment under s 16(2)(a)(i) of the BCISP Act, and there is no scope for the ousting of the cross-claims or defences under s 16(4)(b). Thus, if we are wrong with respect to the narrow application of pt 3 of the BCISP, as a matter of construction, then, in any event, Façade could not invoke the protection of s 16(2)(a)(i) and ss 16(4)(b)(i)–(ii) because they are inoperative with respect to Façade.

(3) Thirdly, we consider the question of whether Multiplex cannot have the benefit of s 553C because of the exception in s 553C(2). We conclude that the relevant time for determining notice of insolvency for the purposes of s 553C(2) was the time of entry into the Subcontract. As Multiplex did not have notice of Façade’s insolvency at that time, s 553C(2) does not apply in this case.

(4) Finally, we consider the issue of whether the 5 October 2012 email constituted a valid payment schedule. We conclude, contrary to the trial judge, that it did not. However, in view of our conclusions on the other issues, this does not affect the outcome of the application, which is that leave to appeal should be granted only with respect to certain grounds, leave should otherwise be refused, and the appeal be dismissed.

The scope of the BCISP Act — the notice of contention

Multiplex’s notice of contention put forward two grounds on which the trial judge’s decision should be affirmed:

1.The [BCISP Act] must be construed as only intending to operate when a claimant (as referred to in section 13 of the BCISP Act) is a going concern.
2.In circumstances where [Façade] ceased to be a going concern when it was placed into liquidation on 6 February 2013, [Façade] is not entitled to the benefit of the interim statutory progress payment regime established by the BCISP Act.

As stated above, Multiplex clarified in oral submissions that its position is that the BCISP Act should not apply once a person seeking payment has been placed into liquidation.

In one sense, the arguments raised by Multiplex’s notice of contention, if successful, are simply another path towards the same result as that achieved by the s 109 inconsistency argument: namely, that Façade is unable to rely upon the BCISP Act to enter summary judgment against Multiplex because it has been placed into liquidation. It is for this reason that the trial judge, having found s 109 inconsistency, did not consider the question of the scope of the BCISP Act. Nonetheless, as the issues raised by the notice of contention involve questions of construction which are distinct from those considered under s 109 of the Constitution, and as questions of construction ought be determined first, we consider it desirable to set out our views on the grounds in the notice despite the judge not having addressed the issue.

Parties’ submissions

In oral submissions, counsel for Multiplex accepted that there are no express words in the BCISP Act limiting that Act’s operation in the manner contended for by Multiplex. Rather, Multiplex’s argument was that that limitation should be read into the BCISP Act, having regard to its objectives.

Multiplex identified the overriding objective of the BCISP Act as being to ensure prompt payment to assist those in the construction industry who depend on cash flow for their continued existence. Once a party enters into liquidation, it no longer requires cash flow to conduct construction work or to supply related goods and services. In those circumstances, Multiplex submitted, the party should not be entitled to the benefit of the interim payment regime established by the BCISP Act. Multiplex noted that payments made under the BCISP Act are intended to be interim in nature. However, where the claimant is in liquidation, any payment made to the claimant is in effect final because the funds may be distributed among creditors and therefore unable to be recovered by the respondent. Further, Multiplex submitted that if the State legislature had intended to interfere with the long-standing regime of set-off, this would have been expressly stated in the BCISP Act. Counsel for Multiplex submitted in the hearing that it would be very surprising if the State legislature intended to change the law of insolvency set-off ‘by a side wind’ when there was nothing to that effect stated in the BCISP Act, the second reading speech or the explanatory memorandum.

Multiplex submitted that the limitation that it urged could be derived from s 9(1) of the BCISP Act. Section 9(1) states[50] that ‘a person’ who has undertaken to carry out construction work or supply related goods and services under a construction contract is entitled to a progress payment under the BCISP Act. Section 14, regarding payment claims, is available to ‘a person referred to in section 9(1)’, who is defined as ‘the claimant’. The sections that follow regarding payment schedules, the consequences of not responding to a payment claim, and the adjudication of disputes, all refer to ‘a claimant’. Multiplex argued that the reference in s 9(1) to a ‘person’ could be read to mean ‘those who have undertaken to do things and are doing them’ (emphasis added), excluding those who previously made undertakings but are in liquidation and thus unable to fulfil those undertakings.
[50]See above at [31].

Multiplex relied upon the New South Wales decision of Young CJ in Eq in Brodyn Pty Ltd v Dasein Constructions Pty Ltd,[51] in which his Honour expressed the view that the NSW Act did not apply where the subcontractor seeking payment was not a going concern. Multiplex submitted that the BCISP Act was enacted some three years after the NSW Act, and was plainly modelled on it. Therefore, the Victorian Parliament can be taken to have intended the BCISP Act to operate similarly to the NSW Act.
[51](2005) 21 BCL 443 (‘Brodyn’).

Multiplex accepted that the Queensland Court of Appeal’s observation in R J Neller Building Pty Ltd v Ainsworth,[52] with respect to the cognate Queensland legislation, the Qld Act, that it was intended to shift the risk of insolvency to the owner of a building (or the head contractor) rather than to the builder (or subcontractor), was applicable to the BCISP Act. In Neller Keane JA (with whom Fraser JA and Fryberg J agreed) observed that the legislature had ‘assigned to the owner’[53] the risk that the subcontractor might not be able to refund moneys ultimately found to be due to the owner. He said:

The [Qld] Act proceeds on the assumption that the interruption of a builder’s cash flow may cause the financial failure of the builder before the rights and wrongs of claim and counterclaim between builder and owner can be finally determined by the courts. On that assumption, the [Qld] Act seeks to preserve the cash flow to a builder notwithstanding the risk that the builder might ultimately be required to refund the cash in circumstances where the builder’s financial failure, and inability to repay, could be expected to eventuate. Accordingly, the risk that a builder might not be able to refund moneys ultimately found to be due to a non-residential owner after a successful action by the owner must, I think, be regarded as a risk which, as a matter of policy in the commercial context in which the [Qld] Act applies, the legislature has, prima facie at least, assigned to the owner.[54]

[52](2009) 1 Qd R 390 (‘Neller’).

[53]Ibid 401 [40].

[54]Ibid. The analysis by Keane JA was followed in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393, 437 [207] (McDougall J), 407 [52] (Spigelman CJ), Cardinal Project Services Pty Ltd v Hanave Pty Ltd (2011) 81 NSWLR 716, 720 [6], and in Sugar Australia Pty Ltd v Southern Ocean Pty Ltd [2013] VSC 535 [95], [99].

Multiplex submitted that Neller, when read properly, did not undermine Multiplex’s position. Multiplex drew a distinction between the risk of insolvency before and after liquidation. The risk identified in Neller was the risk present where a builder or subcontractor is teetering on the edge of insolvency — that is, pre-liquidation. That, Multiplex submitted, is a different landscape to the present circumstances, where Façade is in liquidation.

Façade submitted that giving the BCISP Act a broad scope so that it applies to companies in liquidation would further the statutory objects of liquidation. It would assist a liquidator seeking to realise a company’s property to have recourse to the expedited procedure in the BCISP Act. Façade relied upon Veolia Water Solutions & Technologies (Australia) Pty Ltd v Kruger Engineering Australia Pty Ltd [No 3][55] in support of this argument which we discuss below.
[55][2007] NSWSC 459 (‘Veolia’).

Façade raised two arguments against interpreting the BCISP Act so that it does not apply to builders in liquidation who are seeking payment. The first was that it would invite respondents to payment claims to ‘brazen it out’. While the BCISP Act might provide for an expedited process, the reality is that there can be delays. A recalcitrant debtor might seek to delay the process so that the risk of insolvency comes to fruition. Secondly, Façade submitted that the interpretation sought by Multiplex was contrary to the words used by the BCISP Act. Façade argued that s 9(1) uses the word ‘person’, and a company in liquidation remains a person until de-registered at the conclusion of the winding-up process.

Analysis

The issues raised by the notice of contention were considered by Young CJ in Eq in Brodyn.[56]
[56](2005) 21 BCL 443.

In Brodyn the subcontractor, Dasein Constructions Pty Ltd (‘Dasein’), went into voluntary administration the day after it was sued for liquidated damages in a sum greater than a judgment debt it had obtained under the NSW Act.

The circumstances were that Dasein was a party to a construction contract with Brodyn Pty Ltd (‘Brodyn’). In mid-June 2003 Brodyn gave Dasein a notice alleging that Dasein had repudiated the contract and purporting to accept that repudiation as bringing the contract to an end. In late-June 2003 Dasein served Brodyn with a purported payment claim. Brodyn responded and a further round of the exchange of documents ensued. In September 2003 Brodyn served a payment schedule contending that money should be deducted for incomplete work and rectifying defects and alleged that Dasein had breached the contract by not furnishing a statutory declaration as to payment of workers. Dasein made an adjudication application and the adjudicator made a determination in Dasein’s favour. An adjudication certificate was issued and filed in the District Court giving rise to a judgment in favour of Dasein for $183,493.64. On 30 October 2003 Brodyn issued a statement of liquidated claim in the District Court against Dasein claiming damages of $385,441.93. On 31 October 2003, Dasein went into voluntary liquidation. Shortly after Dasein became subject to a deed of company arrangement. Brodyn lodged a proof of debt which was rejected in full by the administrator of the deed.

Brodyn unsuccessfully sought to set aside the District Court judgment. It sought to appeal. On 10 May 2004 Dasein undertook to take no steps to enforce the District Court judgment upon the condition that Brodyn lodge with the Registrar a bank guarantee to pay to Dasein $265,000 in the event that the appeal was unsuccessful or abandoned. The appeal was dismissed.

Brodyn brought proceedings before Young CJ in Eq, seeking a declaration that it was entitled to set off an amount in excess of $183,493.64 against a District Court judgment obtained by Dasein under the NSW Act. Young CJ in Eq described ‘the vital questions’ in the proceeding as being ‘the effect of any claim for set off where there is a judgment debt under s 25 of the [NSW] Act in place and also what should happen to the bank guarantee’.[57] Section 25(1) of the NSW Act (‘Filing of adjudication certificate as judgment debt’), under which Dasein was awarded its adjudication certificate, permits an adjudication certificate to be filed as a judgment debt in any court of competent jurisdiction and, under s 25(4), restricts the bringing of any cross-claim or defence if the respondent seeks to have the judgment set aside.[58] It is somewhat similar to s 16 of the BCISP Act with which the judge was here concerned (‘Consequences of not paying claimant where no payment schedule’), in that it denies the availability of a cross-claim or defence with respect to a judgment debt obtained under the relevant statute[59] but it further provides that, in proceedings to have the judgment set aside, there is to be no challenge to the adjudication determination and the unpaid portion of the amount due is to be paid into court as security. Section 25 of the NSW Act is largely equivalent to s 28R of the BCISP Act.
[57]Ibid 445 [10].
[58]The terms of s 25(4) of the NSW Act are set out in [132] below.
[59]The equivalent of s 16 of the BCISP Act is s 15 of the NSW Act and s 19 of the Qld Act.

Young CJ in Eq found that the administrator should have admitted the proof of debt for $486,371.57. Brodyn’s counsel were content to have the proof admitted for $262,388.65 which Young CJ in Eq considered was the minimum sum due to Brodyn. He held that there was a constitutional inconsistency between the NSW Act and the Corporations Act. This is discussed later.[60] In the alternative, he considered that the NSW Act should be construed so that it only applies to ‘going concerns’. On this latter approach, he stated:

It is clear that the mischief addressed by the Act was to assist subcontractors and others who depended on cash flow for their continued existence. The Act was to alter the effect of delays in adjudicating claims between head contractors and subcontractors by compelling the payment of monies to the subcontractors in advance of settling the real dispute so that the subcontractor would have cash flow so that his business could continue. The Minister said when introducing the Bill that it was to prevent, inter alia, pressure being put on subcontractors because of delays in adjudication where there was a cross claim. The Minister said: ‘There will be no more legal delays’. He then went on to say that the changes ‘will improve cash flow throughout the building and construction industry’. Of course, I should remark that whilst it is true that there are no more legal delays, unfortunately legal delays are usually necessary in order to do justice. In the instant case the head contractor has already been in three courts and spent $130,000 and has not been able to have its claim adjudicated upon because, as soon as it did raise its claim, the subcontractor went into voluntary administration.
It is now faced with a situation where although it has established its claim on the evidence before me, the administrator is arguing that it is necessary for it to pay the full amount of the provisional District Court judgment to the administrator who will then use it to pay his own fees and to fund further litigation and there will not be a ghost of a chance of the just claim of the head contractor ever being paid.
To my mind the Act does not go that far. It only intends to operate when the head contractor and the subcontractor are going concerns. Once the subcontractor ceased to be a going concern, it no longer needs cash flow and the mischief to be covered by the Act is not present in that situation. No-one forced the subcontractor to go into voluntary administration. It elected to do so and in my view the protection of the BCISP Act ceased at that point and the Commonwealth law as to adjustments of rights under administration and later under a [deed of company arrangement] came into play.[61]

[60]See [114]–[119] below.

[61]Brodyn (2005) 21 BCL 443, 452 [85]–[87].

We pause to note that in reaching his conclusion on the construction of the NSW Act, Young CJ in Eq focused on the purposes underlying the Act, rather than the text used in the provisions of the Act. Multiplex adopted a similar approach on the notice of contention, relying largely upon policy arguments to support its position that the BCISP Act should be interpreted so that it does not apply to builders or subcontractors that are in liquidation.

However, as the High Court has stated on numerous occasions, the starting point for the task of statutory construction is the statutory text.[62] Of course,

[t]he statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text. Legislative history and extrinsic materials cannot displace the meaning of the statutory text. Nor is their examination an end in itself.[63]

[62]See Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27, 46 [47] (Hayne, Heydon, Crennan and Kiefel JJ) (‘Alcan’) and the authorities cited therein; Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503, 519 [39] (French CJ, Hayne, Crennan, Bell and Gageler JJ) (‘Consolidated Media’).

[63]Consolidated Media (2012) 250 CLR 503, 519 [39] (French CJ, Hayne, Crennan, Bell and Gageler JJ).

What, then, can be gleaned from the text of the BCISP Act? Section 1 states that the purpose of the Act ‘is to provide for entitlements to progress payments for persons who carry out construction work or who supply related goods and services under construction contracts’ (emphasis added). Thus, the very first provision of the BCISP Act suggests that the protection it offers is targeted to persons who are acting pursuant to a construction contract.

Section 9(1) creates a right to progress payments to a person ‘who has undertaken to carry out construction work under the contract’ or ‘who has undertaken to supply related goods and services under the contract’. Unlike s 1, s 9(1) refers to a person who ‘has undertaken’ to do certain things, rather than a person who is doing those things in the present. But in its ordinary meaning, the word ‘undertake’ connotes an expectation of performance. It is also significant that s 9(1), in creating a person’s entitlement to progress payments under the BCISP Act, emphasises that person’s undertaking to perform actions under the construction contract, rather than, say, the person’s status as a party to the contract. The text of s 9(1) accords importance to the actions of carrying out construction work and supplying related goods and services.

Therefore, it is open to interpret s 9(1) in two ways. The first is that it is available to any person who has undertaken to carry out construction work or supply related goods and services under a construction contract. The second is that it is only available to a person who not only has undertaken to carry out construction work or supply related goods and services, but also continues to perform such activities.

Interpreting s 9(1) in the latter manner would have flow-on effects for the availability of the pt 3 procedure for recovering progress payments. Section 14, which provides for the service of payment claims, is available to ‘[a] person referred to in section 9(1) who is or who claims to be entitled to a progress payment’. Such a person is defined as ‘the claimant’. The term ‘the claimant’ is then subsequently used throughout pt 3. Thus, a respondent who fails to provide a payment schedule to ‘the claimant’ may become liable to pay the claimed amount to ‘the claimant’ under s 15(4); and ‘the claimant’ may then, pursuant to s 16(2), recover the unpaid amount in a court or make an adjudication application. Adopting the narrower interpretation of s 9(1) would mean that the term ‘the claimant’ is only apt to cover persons who still carry out construction work or who still supply related goods and services pursuant to the construction contract. Consequently, once a winding-up order is made in respect of a builder, such that it only continues to exist for the purpose of being wound up, it would cease to be a claimant for the purposes of pt 3 of the BCISP Act. It would therefore lose the right to issue payment claims under s 14, or recover unpaid amounts pursuant to s 16(2).

There are a number of factors that favour the narrower interpretation of s 9(1), an interpretation which we adopt. We have already referred to s 1, which focuses on persons acting pursuant to a construction contract. A similar focus is evident in s 16(2)(b). Under that provision, where a respondent has failed to provide a payment schedule and thereby becomes liable to pay the claimed amount, the claimant may serve notice on the respondent of its intention to suspend construction work or the supply of related goods and services. Section 16(2)(b) therefore contemplates a claimant who is still carrying out construction work or supplying goods and services.

As has been observed by the courts on numerous occasions, pt 3 of the BCISP Act (or its interstate equivalents) is intended to create an interim payment regime.[64] Section 47(1) of the BCISP Act provides that the regime instituted by pt 3 does not affect the rights of the parties under the construction contract. Courts or tribunals deciding matters under the construction contract must allow for any amount paid pursuant to pt 3, and may make orders for the restitution of any such amount paid.[65] The BCISP Act therefore envisages that a respondent making a payment pursuant to pt 3 may be entitled to claw back some or all of that payment in the future. However, as Multiplex submitted, in the case where the claimant is in liquidation, any payment made by the respondent pursuant to the BCISP Act would enter the general pool for distribution to the claimant’s creditors. The respondent would be unlikely to see much if any of the amount returned, even if the respondent is vindicated in future legal proceedings. In that sense, if pt 3 of the BCISP Act was held to compel payment to a builder in liquidation, such a payment would become final in effect, rather than provisional as intended by the BCISP Act. We consider that these considerations are also powerful ones in the context of the constitutional issue.
[64]See, eg, Brodyn (2005) 21 BCL 443, 445 [15] (Young CJ in Eq); Grocon Constructors Pty Ltd v Planit Cocciardi Joint Venture [No 2] (2009) 26 VR 172, 202 [110]–[111] (Vickery J); Cardinal Project Services Pty Ltd v Hanave Pty Ltd [2011] NSWCA 399 [6] (Basten JA).
[65]Section 47(3).

The answer to the proper interpretation of the scope of s 9(1) lies in the text. We note, however, that, the textual interpretation we have arrived at finds support in the extrinsic materials.[66] The second reading speeches for both the BCISP Act and for the NSW Act on which the BCISP Act was modelled[67] indicate that a driving concern underpinning the introduction of the respective Acts was cash flow problems within the construction industry. In the second reading speech for the BCISP Bill, the Minister for Planning referred to ‘[a]ccounts of small businesses and companies failing due to larger companies going broke or refusing to pay, and issues relating to cash flow problems’.[68] In the second reading speech for the NSW Bill, the Minister for Public Works and Services referred to ‘[h]undreds of subcontractors in New South Wales [who] struggle to survive when they do not receive money owed to them for work undertaken. They do not have the cash flow allowing them to keep on working while waiting for payment.’[69] Of course, cash flow problems cease to be a concern when a company enters into liquidation.
[66]See Interpretation of Legislation Act 1984 s 35.
[67]See above at [29].
[68]Parliamentary Debates, Victoria, Legislative Assembly, 21 March 2002, 426 (Mary Delahunty); see above at [29].
[69]Parliamentary Debates, New South Wales, Legislative Assembly, 8 September 1999, 104 (Morris Iemma).

Furthermore, the set-off procedure in s 553C has a long history[70] and it is to be presumed that the State Parliament was aware of its existence at the time of the introduction of the BCISP Act. This factor on its own has limited force, but taken together with the textual and contextual indications already canvassed, it further tips the balance in favour of a narrow interpretation of s 9(1).
[70]Ansett Australia Holdings Ltd v International Air Transport Association (2006) 60 ACSR 468; [2006] VSCA 242 [103]–[109] (Nettle JA).

In our view, therefore, s 9(1) creates an entitlement to progress payments only for persons who have undertaken to, and continue to, carry out construction work or supply related goods and services. The term ‘the claimant’ used throughout pt 3 is commensurately limited. Consequently, the payment regime in pt 3 of the BCISP Act is not available to companies in liquidation, since such companies cannot carry out construction work or supply goods and services, and thus do not satisfy the requirements for ‘a claimant’.

We have noted that in Brodyn, Young CJ in Eq considered that the scope of the NSW Act was limited to persons who are ‘going concerns’. This was the language adopted by Multiplex in its notice of contention. Of course, the concept of a ‘going concern’ is different to that of a company in liquidation. A company may cease to be a going concern before a winding-up order is made. As a practical matter, it is generally easier to identify when a company enters into liquidation than it is to identify when it ceases to be a going concern. In oral submissions, Multiplex eschewed reliance on the ‘going concern’ formulation and instead argued that the scope of the BCISP Act excluded companies in liquidation. Hence, it is unnecessary for us to consider further whether the BCISP Act should be even more narrowly interpreted to only apply to companies that are going concerns.

In response to the notice of contention, as we mentioned above, Façade relied upon the observations of the Queensland Court of Appeal in Neller that the BCISP Act and its interstate equivalents were intended to shift the risk of a builder’s (or subcontractor’s) insolvency to the owner (or head contractor).[71] So much may be accepted. However, once a builder enters into liquidation, it is no longer a question of the risk of insolvency; insolvency is a certainty. Relevantly, Neller did not involve a builder in administration or liquidation. Rather, the owner wished to resist making a payment to the builder because the builder was a two-dollar private company operating an overdraft secured over real property where the security was not provided by it and with a charge registered over its assets and undertakings. Therefore, the observations by Keane JA in Neller were concerned with the situation where the builder may be teetering on the edge, but has not yet fallen over. In those circumstances, preserving the builder’s cash flow might still be able to rescue the builder from insolvency. There is, therefore, a sound policy reason under the BCISP Act for allocating the risk of the builder’s insolvency to the other party. Once the winding-up process has commenced, however, that rationale no longer applies. A narrow interpretation of s 9(1) of the BCISP Act is consistent with the observations made by the court in Neller.
[71](2009) 1 Qd R 390, 401 [40] (Keane JA, Fraser JA and Fryberg J agreeing), quoted above at [64] above.

Façade also relied upon the policy argument that interpreting the BCISP Act narrowly would undermine the purposes of that Act, as it would invite owners or head contractors to find ways of delaying payment until the builder entered into liquidation. However, the timeframes imposed by the BCISP Act are short. The deadlines for a respondent to respond to a payment claim or respond to an adjudication application, and the deadline for an adjudicator to make a determination, are all within 10 business days (or in the latter case, within 15 business days with the claimant’s consent). The claimant can therefore pursue enforcement within a relatively short period. Of course, delays may occur in enforcement and a builder already in a perilous financial state may enter into liquidation in a matter of months, as was the case here. However, in our view this consideration does not justify construing the legislation so that it confers benefits on companies in liquidation in the manner for which Façade contends. In the usual case, the legislation is designed to help avoid builders going into liquidation. The fact that this goal will not always be achieved, and may sometimes be frustrated, is not a reason for construing the statute so that it has an operation wider than the statutory purpose we have identified.

We note for completeness that counsel for Façade relied upon Veolia. In Veolia, Kruger Engineering Australia Pty Ltd (‘Kruger’), the subcontractor, had obtained an adjudication determination in its favour in respect of a payment claim given to Veolia Water Solutions & Technologies (Australia) Pty Ltd (‘Veolia’) under the NSW Act in July 2006. Kruger recovered judgment in respect of that determination, pursuant to s 25(1) of the NSW Act. It was subject to a deed of company arrangement dated 26 April 2006. Veolia lodged a proof of debt with the administrator for a significantly greater sum than the judgment debt. It then sought orders that the execution of the judgment procured by Kruger be stayed permanently and the securities given by Veolia as the price of the stay to date be returned to it.

McDougall J held that the circumstances did not justify the grant of a permanent stay as the cross-claim had not been established and nor was Veolia presently entitled to the return of the security given by it. He went on to make the following observations, relied upon by Façade:

I am not sure that it is correct to say that the [NSW Act] has no application to companies in administration. The object of Pt 5.3A of the Corporations Act is set out in s 435A:
435A Object of Part
The object of this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that:
(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b)if it is not possible for the company or its business to continue in existence — results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.

Cash flow is of obvious importance to the first aspect of this statutory object; and getting in debts in an orderly manner is of obvious importance to the second. It is at least arguable that the purpose underlying the [NSW Act] is as relevant to a company in administration, in that it will tend towards achieving the statutory object of administration, as it is to a company that is trading as a going concern.[72]

We do not consider these observations to be pertinent to this case. The circumstances under consideration in the present proceeding do not involve pt 5.3A[73] but instead concern a company in liquidation in relation to which s 553C of the Corporations Act might operate.[74]

[72][2007] NSWSC 459 [76]–[77].

[73]‘Administration of a company’s affairs with a view to executing a deed of company arrangement’.

[74]McDougall J’s observations about s 553C are considered in the context of the constitutional issue at [130]–[137] below.

In the result, s 9(1) of the BCISP Act does not create an entitlement to progress payments for persons who are in liquidation (that is, persons in respect of whom a winding-up order has been made). This is because such persons no longer carry out construction work or supply related goods and services pursuant to a construction contract. On the construction we adopt, pt 3 of the BCISP Act is not available to persons in liquidation. It is not available to Façade. We uphold Multiplex’s grounds in the notice of contention.

Given our conclusions on construction, which have the effect that Façade cannot avail itself of the protection afforded by pt 3 of the BCISP Act, it is strictly unnecessary for us to consider the issue of constitutional inconsistency. Nevertheless, in the event that we are wrong with respect to the construction issues, and in deference to the judge below, and the parties, and acknowledging that the question of inconsistency was fully argued before us, we proceed to consider that question. We first make some preliminary observations about the fact that the proceeding before the judge was heard in federal jurisdiction.

Federal jurisdiction and s 79 of the Judiciary Act

It was accepted by both parties that here the judge was exercising federal jurisdiction. Although the proceeding for summary judgment was brought under the BCISP Act in a State Court the reliance upon s 553C of the Corporations Act, and the allegation of an inconsistency under s 109 of the Constitution, converted the entire proceedings to a proceeding in federal jurisdiction[75] within the meaning of s 76(i), s 76 (ii) and s 77 (iii) of the Constitution. Federal jurisdiction was exercised by the Court pursuant to s 39(2) of the Judiciary Act 1903 (Cth). The laws applicable to the proceeding are those provided for under s 79(1) of the Judiciary Act which reads:
[75]Felton v Mulligan (1971) 124 CLR 367, 373–4.

79 State or Territory laws to govern where applicable
(1) The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable.

Where a State law applies to a proceeding in a court exercising federal jurisdiction it applies as a ‘surrogate federal law’.[76] A State law does not apply in federal jurisdiction by its own force.[77] A State law will be ‘picked up’ by s 79 of the Judiciary Act and applied in proceedings in federal jurisdiction if there is no other Commonwealth law which ‘otherwise provides’. The test for whether a Commonwealth law ‘otherwise provides’, within the meaning of s 79, is distinct from the test which applies to a question of s 109 inconsistency, the former requiring that the provisions be irreconcilable.[78]
[76]Solomons v District Court (NSW) (2002) 211 CLR 119, 134 [20]–[23].
[77]Ibid 134 [21].
[78]Northern Territory v GPAO (1999) 196 CLR 553, 576, 588 [80]–[81].

Façade submits that, as the proceeding was heard in federal jurisdiction, there is no scope for a s 109 inconsistency to arise between the BCISP Act and the Corporations Act. It submits that the provisions are not irreconcilable; in particular, it submits that s 16(4)(b) does not affect substantive rights because a final account of all claims has still to be taken under the Subcontract.

We consider that Façade’s submission should be rejected because it fails to appreciate that the sequence in which these issues are to be addressed is to consider the inconsistency question first to determine if there is a valid State law and only then, if the law is held to be valid, to turn to s 79 of the Judiciary Act. Basten JA identified the approved sequence in Bitannia Pty Ltd v Parkline Constructions Pty Ltd[79] when he said:

[T]he authorities which expressly address the issue require this Court to consider, first, the proper construction of the State law and, secondly, whether, so construed, it is inoperative because of inconsistency with a Commonwealth law. The third step is to determine whether, even if not inconsistent with a Commonwealth law, it is nevertheless not ‘picked up’ by s 79, because a Commonwealth law otherwise provides.[80]

Palmer J did not accept the plaintiff’s arguments. He observed:

For a respondent merely to state in its payment schedule that a claim is rejected is no more informative than to say merely that payment of the claim is ‘withheld’: the result is stated but not the reason for arriving at the result. Section 14(3) requires that reasons for withholding payment of a claim be indicated in the payment schedule with sufficient particularity to enable the claimant to understand, at least in broad outline, what is the issue between it and the respondent. This understanding is necessary so that the claimant may decide whether to pursue the claim and may know what is the nature of the respondent’s case which it will have to meet if it decides to pursue the claim by referring it to adjudication.[260]

[260]Luikens [2003] NSWSC 1140 [70].

In respect of the second item of work, the second defendant had claimed the value of the work at $334,401. The plaintiff asserted that there had been an agreement between the plaintiff and the second defendant that the work would be awarded to another subcontractor in order to alleviate delay. The plaintiff asserted a right to set-off against the second defendant’s claim the amount the plaintiff had paid to the other subcontractor. The plaintiff’s payment schedule had indicated this in very truncated form. The summary on the front page of the schedule had stated ‘Back charges/contra charges/scope deletions (BC1-BC16)’. In the attachment to the summary, under the heading ‘Back charges/contra charges/scope deletions’, the plaintiff had written: ‘BC1 Deletion of southern tenancies wall panels (by others)’, and then two figures representing the amounts of the deductions claimed by the plaintiff and second defendant ($434,010 and $334,401 respectively).

Palmer J held that the adjudicator had erred in determining that the payment schedule had not sufficiently indicated the plaintiff’s reasons for withholding payment for this item of work. He observed:

A payment claim and a payment schedule are, in many cases, given and received by parties who are experienced in the building industry and are familiar with the particular building contract, the history of construction of the project and the broad issues which have produced the dispute as to the claimant’s payment claim. A payment claim and a payment schedule must be produced quickly; much that is contained therein in an abbreviated form which would be meaningless to the uninformed reader will be understood readily by the parties themselves. A payment claim and a payment schedule should not, therefore, be required to be as precise and as particularised as a pleading in the Supreme Court. Nevertheless, precision and particularity must be required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute.
…
Section 14(3) of the Act, in requiring a respondent to ‘indicate’ its reasons for withholding payment, does not require that a payment schedule give full particulars of those reasons. The use of the word ‘indicate’ rather than ‘state’, ‘specify’ or ‘set out’, conveys an impression that some want of precision and particularity is permissible as long as the essence of ‘the reason’ for withholding payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication.[261]

[261]Ibid [76], [78].

Palmer J held that while the statements in the plaintiff’s payment schedule had been somewhat cryptic, having regard to the second defendant’s familiarity with the industry and the history of the building project, they were sufficient to indicate to the second defendant the reason for non-payment of its claim.[262]
[262]Ibid [79].

The principles stated by Palmer J in Luikens were endorsed by the NSW Court of Appeal in Clarence Street Pty Ltd v Isis Projects Pty Ltd, albeit that that case concerned the validity of a payment claim rather than a payment schedule.[263]
[263](2005) 64 NSWLR 448, 455 [31] (Mason P, Giles and Santow JJA agreeing).

In Barclay,[264] the plaintiff as subcontractor and defendant as principal were parties to a construction contract. The plaintiff served a payment claim on the defendant. The payment claim included an amount for variations, an amount for costs incurred as a result of extensions of time, and an amount for works under the contract. The defendant claimed to have responded to the payment claim by a letter which stated:
[264][2004] NSWSC 1232.

Further to ongoing communications between us concerning Progress Claim No 13 and the EOT claim it is apparent that the Parties are in Dispute under Clause [sic] 30 and 40. Pursuant to clause 25A of the building Agreement it is considered appropriate that we refer the matter to the Independent Certifier nominated in the Agreement for an assessment and determination of the matters detailed below.
Progress Claim No 13 — Issue of Variations not Agreed
Variation Numbers [list of numbers] are in dispute with the Principal and Superintendent [sic] view being that these Variations formed part of the Contractors [sic] Design & Construct Risk, and that the proper procedures for lodgement and assessment of Variations have not been followed and that as such payment by the Principal of these Variation Claim [sic] made up to Progress Claim No 13 and in any future claims is not required.
EOT and Associated Costs Claim and Liquidated Damages
It is the view of the Principal and the Superintendent that the Claim made is invalid for the reasons detailed in their correspondence to the Contractor dated 12 May 2004 pursuant to Clause 33.2 and Clause 35.5 of the Agreement. An assessment by the Independent Certifier is required, in the first instance, to identify if the EOT and associated costs claim submitted by the Contractor has been made in accordance with the Agreement. Should the Independent Certifier determine that the claim has been lodged in accordance with the Agreement an assessment on the detail of the Claim should be undertaken.
It is the view of the Superintendent and Principal that Liquidated Damages in the amount of $145,000 are due and payable by the Contractor. The Independent Certifier is to assess the liability of the Contractor for payment of Liquidated Damages.
We will deliver over the course of the next two days copies of all correspondence and associated information to the nominated Independent Certifier …[265]

[265]Ibid [9].

The letter did not expressly state the amount that the defendant proposed to pay, and nor did it expressly state that the defendant proposed to pay nothing to the plaintiff.[266]
[266]See Barclay Mowlem Construction Ltd v Tesrol Walsh Bay Pty Ltd [2004] NSWSC 716 [5].

The plaintiff submitted that the letter did not satisfy the requirements for a payment schedule set out in ss 14(2)(b) and (3) of the NSW Act, which are the same as the requirements in ss 15(2)(b) and (3) of the BCISP Act. These are the requirements to indicate the amount of payment that the respondent proposes to make, and to indicate reasons for withholding payment.

In deciding Barclay, McDougall J adopted the approach taken by Palmer J in Luikens. McDougall J regarded the approach in Luikens as being ‘consistent with the evident intention of the legislature, that entitlement to progress payments should be resolved expeditiously, that this be done with a minimum of formality and expense.’[267] Applying that approach, he found the letter to be a valid payment schedule. On whether the letter satisfied the requirement that a payment schedule indicate the amount of payment, McDougall J observed that it was clear from the defendant’s letter, read as a whole, that the defendant proposed to pay nothing to the plaintiff.[268] On whether the defendant had satisfied the requirement to indicate the reasons for withholding payment, the plaintiff had argued that the letter had not given adequate reasons, because it had only raised concerns with some of the variations in the payment claim, but nonetheless purported to withhold payment altogether. McDougall J rejected this argument, observing that:

[Section] 14(3) requires in substance that the respondent to a payment claim indicate in its payment schedule its reasons if it proposes to pay less than the claimed amount. The subsection is not concerned with the adequacy or sufficiency of those reasons. (There may be a limiting case where what is indicated cannot in any real sense of the word ‘reasons’ be described as reasons, but this is not such a case, and I therefore do not propose to consider that question.) If the reasons are inadequate, the claimant will no doubt proceed to adjudication. In that event, the respondent will be limited, in its adjudication response, to the reasons given in the payment schedule (s 20(2B)).[269]

[267]Barclay [2004] NSWSC 1232 [13].

[268]Ibid [17].

[269]Ibid [26].

In relation to the claim for costs associated with the extensions of time, McDougall J noted that the defendant’s letter referred to an earlier letter, which had given two reasons for rejecting those costs. His Honour was of the view that ‘it is legitimate to read the two letters together; and … when this is done, [the defendant] gave reasons for not accepting this aspect of the payment claim.’[270]
[270]Ibid [28].

Multiplex also relied upon the decision in Springs Golf Club.[271] That case was decided on the basis that judicial intervention in an adjudication determination was not warranted. However, Rein AJ did consider, in obiter, whether a letter from the plaintiff to the first defendant constituted a payment schedule. The letter referred to a previous meeting between the parties, listed various items in dispute and the amount claimed by the plaintiff under each one, and noted that at the meeting, the plaintiff had offered the first defendant $30,310.00 ‘as last and final payment’. Rein AJ considered that letter sufficiently indicated the amount the plaintiff proposed to pay the first defendant, and sufficiently indicated reasons for why the plaintiff was withholding payment.
[271][2006] NSWSC 344.

In Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA) Pty Ltd,[272] the first respondent subcontractor submitted an invoice to the applicant listing amounts for three items. The applicant responded to the invoice by an email. The email confirmed receipt of the invoice, but indicated that the applicant declined to accept the invoice and suggested that the parties meet on site ‘to clarify the situation and to find a solution for both sides’. The email noted a number of complaints relating to the first item in the invoice (additional labour expended on original works), including the use of unskilled workers, the lack of suitable tools and the poor way in which materials were stored on site.
[272][2007] QSC 333 (‘Minimax’).

One of the issues considered by Chesterman J in Minimax was whether the applicant’s email constituted a payment schedule under the Qld Act. Chesterman J observed:

The Act emphasises speed and informality. Accordingly one should not approach the question whether a document satisfies the description of a payment schedule … from an unduly critical viewpoint. No particular form is required. One is concerned only with whether the content of the document in question satisfies the statutory description. To constitute a payment schedule the applicant’s email of 14 December had to:
(i) identify the payment claim to which it related, and
(ii)state any amount which the recipient of the payment claim proposed to make in response to it.
(iii)Importantly, if that amount is less than the amount claimed the payment schedule … must state why it is less.

If these three criteria are satisfied the document will be a payment schedule. How they are expressed, with what formality or lack of it, and with what felicity or awkwardness, will not matter.[273]

[273]Ibid [20]–[21].

Chesterman J held that the first of the two requirements he had set out were clearly satisfied. The statement in the email that the applicant did not accept the first respondent’s invoice ‘can only mean that it did not propose to make any payment pursuant to it.’[274] However, Chesterman J was not satisfied that the requirement to indicate reasons for withholding payment was satisfied. The complaints raised by the applicant’s email all related to the first item in the invoice. No reasons were given for withholding payment for items two and three, notwithstanding that the applicant had indicated that it would not accept the invoice in its totality. The email was therefore incomplete if it was intended to be a payment schedule.[275]
[274]Ibid [23].
[275]Ibid [28].

In Protectavale,[276] the subcontractor had submitted to the principal an invoice for works purportedly carried out pursuant to the construction contract between them. The solicitor for the principal responded saying that the subcontractor owed the principal damages for breach of contract exceeding the amount in the invoice; that the invoice was not a payment claim since it related to a final rather than progress payment; and that the invoice contained inadequate and incomplete information. The subcontractor subsequently submitted to the principal a revised invoice. The solicitor for the principal again responded, referring to the previous correspondence between the parties and requesting confirmation that the subcontractor would not seek to enforce under the BCISP Act the claim made in its invoice.
[276][2008] FCA 1248.

Finkelstein J found that the subcontractor’s invoice did not constitute a valid payment claim. In obiter, he also considered whether, if his conclusion about the validity of the payment claim was incorrect, the principal had served a valid payment schedule. The principal had sought to rely on its various communications in aggregate to constitute a payment schedule. Finkelstein J rejected this approach, stating:

One purpose of a payment schedule is to articulate the reasons for withholding payment or offering to pay less than the claimed amount with a degree of precision and particularity to apprise the contractor of the case it will have to meet if it decides to pursue an adjudication: Multiplex Constructions [2003] NSWSC 1140 at [69]-[70]. Another purpose is to set the limits for an adjudicator if there is to be a dispute about the claim. In my view a payment schedule cannot artificially be constructed out of a series of documents by showing that those documents in combination contain all the necessary information required of a payment schedule. It also should be evident that, viewing the matter objectively, it was intended that the documents constitute a payment schedule. That is not the position here.[277]

[277]Ibid [29].

Here, the issues to be considered are whether the 5 October 2012 email satisfied the requirements in ss 15(2)(b) and (3) of the BCISP Act, and, more broadly, whether the email constituted a payment schedule in circumstances where it did not purport to be one.

Section 15(2)(b) requires a payment schedule to ‘indicate the amount of the payment (if any) that the respondent proposes to make’. It is evident from reading the 5 October 2012 email as a whole that Multiplex did not intend to pay Façade anything in relation to Payment Claim 19 as submitted. The email requested that Façade resubmit documentation, and also stated that Multiplex ‘will be in a position’ to issue a payment schedule once the identified issues have been addressed — suggesting that Multiplex was not in such a position at the time of sending the email. This was sufficient to ‘indicate’ to Façade that no payment was forthcoming. In this respect, we adopt the observations of Palmer J in Luikens regarding the use of the word ‘indicate’, which suggests that some lack of precision is permissible as long as the essence of what the respondent is intending to do is sufficiently communicated to the claimant.[278] We note the parallels that can be drawn here between the 5 October 2012 email and the relevant pieces of correspondence in Barclay[279] and Minimax,[280] both of which did not expressly state that the respondent intended to pay the claimant nothing, but both of which were regarded as sufficiently indicating that the respondent would be paying ‘nil’ in response to the payment claim.
[278][2003] NSWSC 1140 [78].
[279][2004] NSWSC 1232.
[280][2007] QSC 333.

Next, it is necessary to consider whether the 5 October 2012 email satisfied the requirement in s 15(3) that it indicate Multiplex’s reasons for withholding payment from Façade. We adopt the observations of Palmer J in Luikens that s 15(3) requires reasons to be indicated ‘with sufficient particularity to enable the claimant to understand, at least in broad outline, what is the issue between it and the respondent’.[281] Absolute precision is not required, and cannot be expected given the reasonably short period within which a respondent is required to prepare a payment schedule (being at most 10 days).[282] Previous dealings between the parties form part of the context relevant to deciding whether the reasons have been indicated with sufficient particularity.[283] The concern is to ensure that the claimant has sufficient information to make a decision whether or not to pursue the claim.[284]
[281][2003] NSWSC 1140 [70].
[282]BCISP Act s 15(4)(b).
[283]Luikens [2003] NSWSC 1140 [77].
[284]Ibid [70], [78].

In this case, the 5 October 2012 email gave two bases on which Multiplex did not consider Payment Claim 19 to be valid (and thus did not propose to pay Façade). The first was that Multiplex regarded Façade’s statutory declaration, submitted with the payment claim, to be inaccurate with respect to the third item, which was a declaration that all consultants, suppliers and secondary subcontractors engaged by Façade on the works had been paid in full. The second was that Multiplex was unable to ascertain the extent to which items being claimed for were for materials that were unfixed. Façade submits that these two complaints are inadequate reasons for the purposes of s 15(3) of the BCISP Act. Façade notes that the reasons are ones that Multiplex regarded as going to the validity of the payment claim, which Multiplex now no longer contests. The 5 October 2012 email, Façade argues, is merely a ‘holding position’. This is evident from the conclusion of the email, which states that upon Façade remedying the defects identified in the email, Multiplex ‘will be in a position to issue [Façade] with a payment schedule’.

It is important to note that reasons for withholding payment do not need to be ultimately vindicated to constitute adequate reasons for the purposes of a payment schedule; so much so is evident from the presence of s 21(2B), which permits respondents to add additional reasons for withholding payment at the adjudication stage. As observed in Luikens and Barclay, given the speed with which payment schedules are expected to be produced, the reasons contained within them should not be over-scrutinised.

Nevertheless, the reasons do need to give the claimant an indication of the objections taken to the claims made in the payment claim. In this case, the 5 October 2012 email raised two complaints relating to the general conduct of the Subcontract by Façade, but neither went to any of the particular items claimed in Payment Claim 19. This distinguishes the circumstances of the present case from the payment schedules in Luikens, Barclay and Springs Golf Club, which were all responsive to the particular claims that had been made, albeit to varying degrees.

There is a stark contrast between the reasons given in the 5 October 2012 email and the itemised markdowns on the ‘Subcontractor Payment Schedule’ sent by Multiplex to Façade on 12 October 2012.[285] Further, the complaints raised in the 5 October 2012 email are procedural hurdles rather than concerns about the substance of the payment claim. They were not reasons for denying the substance of the claims made in the payment claim, but reasons why Multiplex did not intend to pay at that moment. In our view, reasons of this nature do not satisfy the requirement in s 15(3) of the BCISP Act. It would be contrary to the intention of the BCISP Act, which sets short time periods for the issuing of payment claims, payment schedules, adjudication applications, and the like, to allow a respondent to effectively seek to extend the statutory time period under the BCISP Act by raising procedural, but not substantive, reasons for withholding payment.[286]
[285]See above at [21].
[286]We also observe that the 5 October 2012 email seems to fall well short of the requirements for payment schedules in cl 42.1 of the Subcontract, which called not only for reasons for withholding payment but also ‘the calculations employed to arrive at the amount’: see above at [7].

This leads into the final issue raised by Façade in relation to the 5 October 2012 email, namely, that the email did not purport to be a payment schedule. So much may be accepted. As mentioned, it is clear from the terms of the 5 October 2012 email that the email was not intended to be a payment schedule. The email ends by saying that upon Façade remedying the defects identified in the email, Multiplex ‘will be in a position to issue [Façade] with a payment schedule’. Façade argues that in these circumstances, the 5 October 2012 email could not be a valid payment schedule.

There is no requirement in the BCISP Act that a document must indicate that it is a payment schedule in order to satisfy the s 15 requirements. It is open for regulations to be made to prescribe the form and content of payment schedules, but this has not been done. In these circumstances, and having regard to the fast-paced nature of the regime created by the BCISP Act, and the availability of adjudication procedures to resolve disputes that arise, it would be inappropriate to overlay requirements for payment schedules above and beyond those listed in s 15. We note the comments of Finkelstein J in Protectavale that it is a necessary requirement for a payment schedule that ‘viewing the matter objectively, it was intended that the documents constitute a payment schedule’.[287] In our view, in answering the question of whether a document constitutes a payment schedule, the focus of the assessment must be on whether the document meets the requirements of s 15. The objective intention of the document may be relevant in making that assessment. In this case, the 5 October 2012 email is not a payment schedule, not because it implicitly disavows that fact, but because it does not give reasons satisfying the requirement in s 15(3) of the BCISP Act.
[287][2008] FCA 1248 [29].

It follows that, if it were necessary to decide, ground 8 should be upheld. However, in light of our conclusions on the other grounds, the making good of this ground does not change the result.

Other matters

In its written submissions, Multiplex further relied on the fact that, even if Façade was successful in obtaining summary judgment, the circumstances of the case weighed heavily in favour of a stay being granted. Façade put forward a number of arguments as to why this was not the case. Having regard to the conclusions that we have reached on the grounds of appeal, it is not necessary for us to consider this issue.

Conclusion

Façade’s proposed grounds of appeal raised a number of substantial questions concerning the construction of the BCISP Act and its interaction with the Corporations Act. We would therefore grant leave to appeal in respect of grounds 1–5 and 7. We dismiss the appeal in respect of those grounds. We refuse leave to appeal on ground 6, as that ground did not have a real prospect of success.[288] It is unnecessary for us to decide ground 8.
[288]Supreme Court Act 1986 s 14C.

- - -

*Facts* ................................................................................................................................	2
*Legislative provisions* ………………………………………………………………..	9
The BCISP Act ……………………………………………………………….	9
The Corporations Act ……………...………………………………………..	16
*The trial judge’s reasons* …..........................................................................................	17
*Grounds of appeal and notice of contention* ............................................................	20
*The scope of the BCISP Act — the notice of contention* .........................................	21
Parties’ submissions ………………………………………………………..	22
Analysis ............................................................................................................	25
Federal jurisdiction and s 79 of the Judiciary Act ………………………	35
*The constitutional point — s 109 inconsistency* ....................................................	37
The judge’s reasons for finding a constitutional inconsistency ………	39
*Are s 16(2)(a)(i) and s 16 (4)(b) of the BCISP Act inconsistent with s 553C of the Corporations Act?* ……...........................................................	47
Façade’s approach: BCISP Act restrictions are procedural and interim	47
Façade’s approach: concurrent operation — Veolia …………………..	50
Finding of s 109 inconsistency with Trade Practices Act — Bitannia	53
Security of Payments legislation and insolvency — Grosvenor & Hamersley Iron ………………………………………………………..	60
Automatic application of s 553C anterior to proceeding ……………...	66
The practical effect on rights under Commonwealth law ……………..	72
Do the ‘roll-back’ provisions apply? …………………………………..	75
Conclusion on s 109 inconsistency ………………….…………………….	82
Conclusion on grounds 1—4 ……………………………………………….	83
*Section 553C(2) of the Corporations Act* ………….………………………………..	84
Proposed ground 6 …….…………………………………………………….	84
Proposed grounds 5 and 7 …………………………………….....................	86
Parties’ submissions …………………………………………………..	86
Analysis ……………………………………………………………….	88
*The email of 5 October 2012* …………………………………………………………	96
Parties’ submissions ………………………………………………………..	96
Analysis …………………………………………………………...................	97
*Other matters* …………………………………………………………………………	109
*Conclusion* ……………………………………………………………………………	109

[2016] VSCA 247

14 October 2016