Fulconstruction Pty Ltd v ABP Consultants Pty Ltd

[2016] VCC 1732

IN THE COUNTY COURT OF VICTORIA Revised
(Not) Restricted
Suitable for publication

AT MELBOURNE

COMMERCIAL DIVISION
BUILDING CASES LIST

Case No. CI-16-04517

FULCONSTRUCTION PTY LTD	Plaintiff
v.
ABP CONSULTANTS PTY LTD	Defendant

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	18 November 2016
DATE OF JUDGMENT:	25 November 2016
CASE MAY BE CITED AS:	Fulconstruction Pty Ltd v. ABP Consultants Pty Ltd
MEDIUM NEUTRAL CITATION:	[2016] VCC 1732

REASONS FOR JUDGMENT

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Catchwords:             Building Contract – Payment claim under the Building and Construction Industry Security of Payments Act 2002 (Vic) – Project management services – Whether “building…advisory…services” – Dispute as to whether the arrangement was a joint venture agreement or a “construction contract” – Payment to be made at the end of project of 50% share of profits – Whether consideration for construction work to be “calculated otherwise than by reference to the value of the…services supplied” (section 7(2)(c)) – Sufficiency of the identification of the “services to which the progress payment relates”.

Practice and procedure – Nature of the process for determining a proceeding for judgment pursuant to section 16(4) of the Act.      

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr N. Phillpott of Counsel	Nevile & Co
For the Defendant	Mr A. Ritchie of Counsel	Lovegrove & Cotton

HIS HONOUR:

1Fulconstruction Pty Ltd (“Fulcon”) seeks to recover the sum of $272,639.75 from ABP Consultants Pty Ltd (“ABP”) as an unpaid progress payment pursuant to the Building and Construction Industry Security of Payment Act 2002 (Vic) (“the Act”).

2The application is opposed on the basis that:

a.the Act does not apply because:

i.the arrangement between Fulcon and ABP was not a “construction contract” as defined in the Act;

ii.alternatively, section 7(2)(c) of the Act excluded the arrangement because the consideration payable for the services to be supplied was to be calculated otherwise than by reference to the value of the services provided;

b.the payment claim by Fulcon was not valid because:

i.it did not sufficiently identify the services to which it related, in breach of section 14(2)(c) of the Act;

ii.payment was not due until after the completion of the project.

Procedure adopted to determine the application

3The proceeding was commenced by originating motion and came on for hearing pursuant to a summons dated 10 October 2016. When the matter first came on before me on 28 October 2016, it was clear that there were likely to be significant disputes of fact between the parties in relation to the question of the nature of the agreement between the parties and the terms as to payment. There was also likely to be a dispute about whether ABP had first received the payment claim more than 10 days before it filed a payment schedule.

4Fulcon had filed affidavit material sworn by a director, Antonio Fulfaro, deposing to a conversation with Peter Pascuzzi, a director of ABP, on 26 July 2015. Mr Fulfaro said that Mr Pascuzzi told him he was involved in “a project to construct 18 townhouses” in Boronia. He asked Mr Fulfaro to “manage the project and be site supervisor”. They agreed that Mr Fulfaro’s fee would be “10% of the construction costs, to be invoiced and paid… after the slab stage, and after the frame stage, then periodically throughout the project”. It was also agreed that Mr Fulfaro would receive “50% of any savings we make to the construction costs”.

5At the first hearing, it was anticipated that ABP would allege that the agreement between the parties, whereby Fulcon became involved in the project, was a joint venture arrangement similar to the development they were then engaged in at East Bentleigh.

6At that time, I discussed with counsel how the disputed facts should be dealt with by the Court. Ordinarily, applications under the Act are dealt with summarily on affidavit material. It is clear that the legislation was intended to be a speedy process for the interim recovery of progress payments; a process described as “pay now, argue later”.

7By section 47 of the Act, recovery under the Act does not prevent a party pursuing rights under the construction contract that it might have apart from the Act. Occasionally, the process has been described as a “summary judgment” application, including by the Court of Appeal in Façade Treatment Engineering Pty Ltd (in liq.) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247. It is apparent, however, that this is not the standard summary judgment process governed by section 62 of Civil Procedure Act 2010 where the “real prospect of test” is applied. In those circumstances, if the affidavit material raised a defence which was not “fanciful”, the proceeding could not be determined summarily but must go to trial.

8Such an approach would appear to cut across the whole purpose of the legislation. Usually, the applications permit only limited defences to be raised under the Act, including whether:

a.the claim is in respect of a “construction contract”;

b.the progress claim satisfied the formal requirements of the Act (section 14(2));

c.the claim was made prematurely before the applicable reference date;

d.variations were properly claimable;

e.the timing and sufficiency of any payment schedule complied with the Act.

9At the preliminary hearing of this matter, I anticipated that there may have to be cross-examination of witnesses on critical issues so that the Court could adjudicate upon the contested facts. In the event, this was the process adopted at the hearing. Both Mr Fulfaro and Mr Pascuzzi gave evidence. At my suggestion, they each gave evidence in chief about contentious conversations before being cross-examined generally. With the co-operations of counsel this process was completed efficiently and the hearing concluded, with submissions in about 3 hours.

10However, notwithstanding this experience, I am not confident that the procedure followed was the correct one, or would be appropriate in all cases. The options open, as to the process to follow, would appear to be as follows:

a.approach the matters as an ordinary summary judgment application. In this regard, the “real prospect of success test” would appear to be inappropriate unless the test was somehow applied as if it were a final hearing rather than a summary application, with the court being able to fully apply the purpose of the legislation to determine whether any defence should succeed;

b.the application might be approached as any other proceeding commenced by originating motion seeking statutory relief. The application might be able to be dealt with summarily, alternatively it may require directions for there to be a (hopefully speedy) trial of the proceeding because of likely contested evidence. Occasionally, in respect of such statutory processes, the Courts have cautioned that they should only be used where there is unlikely to be contested facts. It is possible, however, that such a restriction might cut across the intention of the Act to provide a summary process and determination;

One further difficulty with this approach is that the final decision on the application will, because of section 47 of the Act, be effectively an interim decision capable of being re-litigated at a later time. Therefore, the court making the decision under the Act may feel constrained in making finding on matters of credit, or at least expressing the basis for those findings where it may constrain a later tribunal which deals with the matter and makes a final determination of contractual rights;

c.the payment schedule provisions of the Act are the process by which contested fact cases may be excluded. If a respondent intends to rely upon the sort of argument which involves the testing of evidence, usually that issue should have been raised in a payment schedule; otherwise the summary process in the Act would be available. However, the way in which the payment schedule provisions of the Act have been interpreted does not exclude all cases where there are contested facts.

11These are issues for another day, and hopefully at some stage an authoritative decision. In the present case, the procedure adopted was sufficient to determine the application.

“Construction contract”

12Mr Pascuzzi gave evidence that he and Mr Fulfaro had commenced a joint venture development in 2014 comprising eight apartments at East Bentleigh. Fulcon had contracted with the owners as the builder and Fulcon and ABP agreed to share the construction costs and any profit.

13In relation to Boronia Road, Mr Pascuzzi said that ABP proposed to enter a building contract with two separate owners of adjoining properties to construct 18 townhouses for a total price of $3.3m with payments to be made progressively for the work.

14During meetings between the owners and Mr Fulfaro and Mr Pascuzzi in May 2015, it was agreed that Fulcon would act as the project manager with administrative support from ABP. ABP would pay the construction costs from the progress payments received, and at the end of the project Fulcon and ABP would equally share the profits.

15Both versions of the arrangement given by Mr Fulfaro and Mr Pascuzzi have similar elements:

a.ABP had building contracts with the owners;

b.Fulcon was to carry out the project management responsibilities on the project;

c.upon the completion of the project, Fulcon and ABP would share either “any savings we make to the construction costs” (Mr Fulfaro) or the profit from the project (Mr Pascuzzi).

16The critical difference was that Mr Fulfaro said progress payments would be made throughout the project; after the slab stage and the frame stage and then monthly. Mr Pascuzzi said that no payments would be made until the project was completed and the profit could be ascertained.

17In this regard, there was critical evidence about the four progress payments made by Fulcon to ABP. Fulcon’s first tax invoice (BOR 1) is dated 17 December 2015 for $50,195. There is no dispute that the invoice included a tipping fee for $195 for which Mr Fulfaro provided a receipt to Mr Pascuzzi.

18Mr Fulfaro said that the $50,000 included GST and was calculated at about 10% of the slab stage. In fact, ABP received $531,243.94 for the “base stage” under the two contracts, which sum apparently included some variations.

19Shortly after ABP received this amount, it paid $50,000 to each of Fulcon and ABP. In the books of account, each of these payments is described as a “progress payment”.

20Mr Pascuzzi said that Mr Fulfaro approached him stating that he was “going to need some money”. Mr Pascuzzi said he told Mr Fulfaro, “OK, at this point we will pay ourselves $50,000 each”. A cheque for $50,195 (including the tipping fee) was given to Mr Fulfaro.

21In a Notice of Default served by ABP on Fulcon on 23 August 2016, it is recorded that, “Prior to the issuance of the occupancy permits for all 18 townhouses it was agreed that ABP and Fulcon each receive a payment of $50,000 on completion of the base stage for all 18 townhouses which was to be deducted from the final draw of the profit share”.

22In the payment schedule delivered by ABP on 13 September 2016, in response to Invoice BOR 4, it is stated that, “Pursuant to the Agreement, the claimant was to receive payment of $50,000 on the completion of the base stage for all 18 townhouses and would thereafter receive 50% profit share upon completion and issuance of the occupancy permits for all 18 townhouses”.

23In a letter from ABP’s solicitors to Fulcon’s solicitors dated 18 October 2016 it is stated that by the “Joint Venture Agreement” between the parties, “$50,000 each would be released to both ABP and Fulcon on completion of the base stage for all 18 townhouses… It is evident from the alleged first tax invoice known as BOR 1 that the arrangement was for the release of $50,000 as there was no reference to any ‘stage’ of the work”.

24Mr Pascuzzi said that the solicitors also prepared the Notice of Default and the payment schedule and that he was the person who, on behalf of ABP, had given instructions to the solicitors. He said, however that the passages from the three documents prepared by the solicitors quoted above were “incorrect”.

25I indicated to ABP’s counsel Mr Ritchie that he should give consideration to calling ABP’s solicitor, Mr O’Donnell (who had sworn an affidavit and was in court during the hearing) as a witness before closing his case. Mr Ritchie, after seeking instructions over the lunch adjournment, declined the opportunity. In the circumstances, I consider that I should assume that Mr O’Donnell would not have been able to give evidence on the issue of the instructions the solicitors had received which would have assisted ABP’s case.

26Mr Fulfaro’s evidence also had unsatisfactory aspects. Mr Fulfaro was asked how the sums he claimed for invoices POR 3 and POR 4 were calculated. He variously answered the question that he had calculated the figures by reference to the work that had been performed, as a percentage of the amount ABP had received, based on his experience with doing similar work on other jobs and by taking into account the amounts remaining in the building contracts and the work not yet completed. It seemed that the amounts invoiced were on estimate largely based on his assessment of the usual cost to reach the same stage in similar projects and how much of his 10% fee he had previously claimed.

27In relation to the specific matters raised by ABP by way of defence:

a.project management and supervision services have been held to come within the definition of “services related to construction work” being “building…advisory…services” in the meaning of “related goods and services” in section 6(1)(b)(iii) (see Smith v Coastivity Pty Ltd [2008] NSWSC 313 (“Coastivity”) per McDougall J and Eldelbrand Pty Ltd v H M Australia Holdings Pty Ltd [2012] NSWCA 31 (“Eldelbrand”);

b.the project management and supervision services might be performed as part of the responsibilities of a party to a joint venture agreement and still come within the definition of “construction work” in the Act (see Coastivity and Eldelbrand);

c.what “essentially involved a profit sharing arrangement”, as in this case where Mr Fulfaro says that he was to receive in addition “50% of any savings we make to the construction costs”, may be excluded from the definition of construction work by section 7(2)(c) as such a payment would appear to be an “amount payable calculated other than by reference to the value of the work carried out”.

28In relation to the issue raised in sub-paragraph (c), in Coastivity, McDougall J at para [62] said that “the notion of an entitlement to share in profit is fundamentally inconsistent with the concept of value, or valuation, as it is used in the relevant section of the Act”.

29In Eldelbrand, Bathurst CJ (with whom McColl JA and Tobias AJA agreed) quoted the passage from Coastivity, but later at paras [47] – [52] found that section 7(2)(c) did not apply where, apart from regular instalments, a “bonus amount” of “50 percent of savings below a targeted budget” was to be payable “within seven days of an invoice, after direct reconciliation following occupation and/or building completion”.

30Chief Justice Bathurst at paras [44] and [45] expressly declined to follow the decision of Einstein J in Bramblers Australia Ltd v Davenport [2004] NSWSC 120 where Einstein J had apparently decided that section 7(2)(c) does not apply “where at least part of the consideration payable was calculated by reference to the value of the work”. Chief Justice Bathurst appears, from his later finding, to which I referred above, to have concluded that the “bonus amount” was appropriately calculated and payable on a defined reference date. However, inherent in that decision, Bathurst CJ regarded it as necessary that no part of the “consideration payable for the services” must be excluded by section 7(2)(c).

31The decision on this point in Eldelbrand is criticised by the learned authors of Jacobs, Security of Payment in Australian Building and Construction Industry (5th edition, 2014) at paragraph 93.6070 as not being consistent with a number of authorities decided in relation to a related issue “to the effect that an adjudicator in determining value [under section 23 of the Act] is not required to following the determination thereof provided by a certificate under the terms of the agreement”. I consider, however, that I am bound to follow the decision of the Court of Appeal in Eldelbrand, not only as a matter of hierarchical precedent but also because I respectfully agree with the reasoning of the Chief Justice.

32In the present case, I do not consider that the arrangement for the bonus payment, in the terms of Mr Fulfaro’s evidence, has the degree of certainty, as to the method of calculation or the timing of any payment, that would take Mr Fulfaro’s project management services outside the exclusion from the definition of construction work contained in section 7(2)(c).

Invoice BOR 4 does not sufficiently identify the work to which it relates

33Invoice BOR 4, dated 11 August 2016, includes:

a.“previous claimed and unpaid amounts under invoice POR 2 $68,894.75”;

b.“previous claimed and unpaid amounts under invoice BOR 3 $99,945.00”;

c.the further amount of $103,800.00 for 10% of certain work in the “fixing stage” and other defined work.

34There is no complaint about the claim relating to invoice BOR 2 or the further amount claimed in BOR 4. Invoices BOR 2 and BOR 3 were included in invoice BOR 4 because the earlier invoices did not include the statement required by section 14(2)(e) that the payment claim was made under the Act.

35Invoice BOR 2 had described the work claimed as “10% of frame stage”, which by reference to the ABP building contracts, had a defined meaning. Invoice BOR 3, however, simply referred to “10% of stage payment”. Invoice BOR 2 had been submitted on 22 May 2016 and invoice BOR 3 on 9 July 2016. The claim in invoice BOR 3 was therefore made more than one month after BOR 2 and might have, therefore, been regarded as a monthly payment, subsequent to the payment claims at “slab stage” and “frame stage”.

36However, the reference to “stage payment” in invoice BOR 3 is unclear. In ABP’s building contract for 193 Boronia Road, the six town houses were to have six payments at “base stage”, “frame stage”, “lock up stage”, “fixing stage” and a final payment upon completion.

37The ABP building contract for 189 and 191 Boronia Road was in a different format and the extracts exhibited do not set out the times for payment. Payments appear to be payable upon a certificate granted by the architect.

38In these circumstances, I do not accept that for the purpose of section 14(2)(c) invoice BOR 3, and the simple reference to it in BOR 4, contained “an identification of the work which is sufficient to enable [ABP] to understand the basis of the claim and provide a considered response to it”, being the test formulated by Vickery J in Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010 VSC 106 at para [51].

39The claim first made in invoice BOR 3, and repeated in claim BOR 4 is a claim for $99,000 for “10% of stage payment” and $945 for “tipper trailer loads of rubbish”. The amounts claimed included GST. If I had been otherwise satisfied that the Act applied, I would have severed the reference to invoice BOR 3 from invoice BOR 4, save for the rubbish loads.

40The total amount claimed in the four progress claims was $322,834.75 of which $50,195 had been paid. For the reasons I have set out above, I do not consider that any sums can be recovered under the Act as claimed in invoice POR 4. Accordingly, it is appropriate that the proceeding, including the summons dated 10 October 2016, be dismissed.

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Certificate

I certify that these 8 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 25 November 2016.

Dated: 25 November 2016

Carla Cianfaglione  

Associate to His Honour Judge Anderson