Joye Group Pty Ltd v Cemco Projects Pty Ltd

[2021] NSWCA 211

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWCA 211

Hearing dates:

3 September 2021

Date of orders:

9 September 2021

Decision date:

09 September 2021

Before:

Basten JA at [1];
Macfarlan JA at [31];
Emmett AJA at [33]

Decision:

(1)   Allow the appeal and set aside order (2) made in the District Court on 30 April 2021 and order (2) entered on 17 May 2021.

(2)   Give judgment for the appellant in the sum of $175,190.55, being the sum of invoices JSA19293 and JS19794 and interest on those amounts.

(3)   Order that the respondent pay the appellant’s costs of the appeal and of the proceedings in the District Court.

Catchwords:

BUILDING AND CONSTRUCTION – progress payment claim – payment schedule – email refusing payment until work completed – failure to say why payment withheld – other documents not incorporated – use of contextual material – Building and Construction Industry Security of Payment Act 1999 (NSW), s 14

Legislation Cited:

Building and Construction Industry Security of Payment Act 1999 (NSW), ss 8, 14, 17, 20

Cases Cited:

Facade Treatment Engineering Pty Ltd (In liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247; 313 FLR 163

Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140

Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liq) (2019) 99 NSWLR 317; [2019] NSWCA 11

Style Timber Floor Pty Ltd v Krivosudsky (2019) 100 NSWLR 133; [2019] NSWCA 171

Category:

Principal judgment

Parties:

Joye Group Pty Ltd (Appellant)
Cemco Projects Pty Ltd (Respondent)

Representation:

Counsel:
N Simpson / S Woodland (Appellant)
R Thrift (Respondent)

Solicitors:
LM Legal (Appellant)
Bradbury Legal (Respondent)

File Number(s):

2021/152947

 Decision under appeal 

Court or tribunal:

District Court of NSW

Jurisdiction:

Civil

Citation:

[2021] NSWDC 151

Date of Decision:

30 April 2021

Before:

Strathdee DCJ

File Number(s):

2020/184715

Judgment

1. BASTEN JA: On 30 July 2019 the appellant, Joye Group Pty Ltd, entered into two subcontracts with the respondent, Cemco Projects Pty Ltd. The first involved the supply and installation of timber flooring; the second involved the installation of tiling, both at a development in Alexandria.

2. In the course of the construction work, seven payment claims were made under each contract. In particular, on 27 April 2020 payment claim 7 was made under the timber flooring contract in an amount of $112,043.11. The claim involved an amount of some $59,000 for completion of the original contract work, the balance being identified by reference to four items which were described as “variation work”.

3. The following day, 28 April 2020, payment claim number 7 was served under the tiling contract, in an amount of $54,517.65, identifying 10 separate items.

4. Section 14(4)(b) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (“Security of Payment Act”) requires that a person on whom a claim is served may provide a “payment schedule” to the claimant within 10 business days after the claim was served. Failure to provide a payment schedule in response to a payment claim gives rise to liability to pay the full amount of the claim on the due date for the progress payment, which in this case was 30 days from the date of the claim.

5. On 8 May 2020, an employee of the respondent sent an email to the appellant in the following terms:

“Dear Joye Group,

Please be advised that no payment for above Invoices, until all works been completed.”

The invoices were attached to the email and the subject was identified as “Claim 7 for Alexandria job”.

6. No payment having been received by the due dates, the appellant commenced proceedings in the District Court on 22 June 2020. The proceedings initially related to four payment claims. Liability for the earlier claims was conceded and judgment obtained by the appellant against the respondent with respect to those claims. With respect to the claims still in issue, identified as payment claims 7 under the respective contracts, the only question was whether the email of 8 May 2020 constituted a “payment schedule” for the purposes of the Security of Payment Act.

7. In its defence, the respondent alleged that it had suffered significant losses for which it proposed to claim a setoff, but accepted that those losses could only be recovered pursuant to separate proceedings. Despite the limited nature of the issue in dispute, a large volume of evidential material was tendered in the District Court and admitted without objection. Much of that material was also before this Court on the appeal. Much of it was entirely irrelevant.

8. The District Court dismissed Joye Group’s claims in relation to the outstanding matters, namely payment claims 7. ^[1] The present appeal challenges order (2) dismissing the proceedings relating to those claims. For the reasons which follow, the appeal should be allowed and there should be a judgment in favour of the appellant.

   1. Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWDC 151 (Strathdee DCJ).

Statutory scheme – payment schedules

9. The determination of the appeal turns on the operation of s 14 of the Security of Payment Act, which provides as follows:

14   Payment schedules

(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).

(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.

10. Although a payment schedule was required with respect to each payment claim, there was no contention in this Court that the single email did not adequately identify the payment claims to which it related (there being two), nor that it did not indicate the amount of the claim that the respondent intended to pay, being in each case no amount. Section 14(2) was therefore satisfied.

11. The adequacy of the payment schedule turned on whether or not it indicated why the amount agreed to be paid was less than the amount claimed, as required by s 14(3). (Had the contract not provided for progress payments to be made by a date determined as the “reference date” the Security of Payment Act would have provided that the reference date was the last day of each month in which contract work was carried out: s 8(2).)

12. The provision of a payment schedule indicating that part or all of the claim is disputed, engages the entitlement of the claimant to apply for an adjudication pursuant to s 17 of the Security of Payment Act. Importantly, if an adjudication application is made, the party against whom the claim is made is entitled to file an adjudication response, but “cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant”: s 20(2B). The reasons given in the payment schedule therefore impose a critical constraint upon the scope of the adjudication.

13. The parties took the Court to a number of authorities, including Style Timber Floor Pty Ltd v Krivosudsky,^[2] Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liq), ^[3] Clarence Street Pty Ltd v Isis Projects Pty Ltd ^[4] and Facade Treatment Engineering Pty Ltd (In liq) v Brookfield Multiplex Constructions Pty Ltd. ^[5] However, it is sufficient in order to identify the relevant principles to refer to two only. The first explanation, which has since been treated as authoritative, is that given by Palmer J in Multiplex Constructions Pty Ltd v Luikens ^[6] in the following terms:

“[67] … The evident purpose of s 13(1) and (2), s 14(1), (2) and (3), and s 20(2B) is to require the parties to define clearly, expressly and as early as possible what are the issues in dispute between them; the issues so defined are the only issues which the parties are entitled to agitate in their dispute and they are the only issues which the adjudicator is entitled to determine under s 22. It would be entirely inimical to the quick and efficient adjudication of disputes which the scheme of the Act envisages if a respondent were able to reject a payment claim, serve a payment schedule which said nothing except that the claim was rejected, and then ‘ambush’ the claimant by disclosing for the first time in its adjudication response that the reasons for the rejection were founded upon a certain construction of the contractual terms or upon a variety of calculations, valuations and assessments said to be made in accordance with the contractual terms but which the claimant has had no prior opportunity of checking or disputing. In my opinion, the express words of s 14(3) and s 20(2B) are designed to prevent this from happening.

…

[76]   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.”

2. (2019) 100 NSWLR 133; [2019] NSWCA 171 (Bell P, Leeming JA and Simpson AJA).

3. (2019) 99 NSWLR 317; [2019] NSWCA 11 (Leeming, Payne and White JJA, Sackville and Emmett AJJA).

4. (2005) 64 NSWLR 448; [2005] NSWCA 391 (Mason P, Giles and Santow JJA).

5. [2016] VSCA 247; 313 FLR 163 (Warrant CJ, Tate and McLeish JJA).

6. [2003] NSWSC 1140.

14. Secondly, Leeming JA in Style Timber Floor, in identifying consequences of the statutory regime, stated:

“[45]   Fourthly, and perhaps most importantly for present purposes, the payment schedule serves two important functions under the Act. The first is to inform the claimant as to the metes and bounds of its dispute with the respondent, so that it can make an informed choice as to whether to engage the expedited pro tem adjudication procedures under Division 2. The second is to articulate the respondent’s case which will then be determined by the adjudicator. It will also enable adjudicators to assess whether to accept appointment as an adjudicator to a dispute. At the time an adjudication application is made, all that the claimant and the prospective adjudicator will know of the nature of the respondent’s side of the case is what is contained in its payment schedule.”

15. Further, in endorsing the reasoning in Luikens, Leeming JA continued:

“[47]   When dealing with the requirements of a payment claim, Palmer J’s analysis was endorsed by this Court in Clarence Street … at [31]. While it is clear that an abbreviated description, falling short of a pleading, will suffice, the passages emphasised indicate that the payment schedule must sufficiently describe the dispute so as to enable the claimant to determine whether to proceed in the knowledge of the nature of the case it will have to meet.

[48] It is established that even where a respondent proposes to pay no part of a payment claim, it is still required to indicate reasons in accordance with s 14(3). ^[7] That, with respect, must be so having regard to, inter alia, the limiting effect of s 20(2B). It was not suggested in this Court that s 14(3) did not apply to Style Timber Floor on the basis that it refused to pay the entirety of the claim.”

7. Barclay Mowlem v Tesrol Walsh Bay [2004] NSWSC 1232 at [15]-[16]; Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA) Pty Ltd [2007] QSC 333 at [24].

16. It was not suggested by the present respondent that its refusal to pay any amount did not engage the obligation in s 14(3) to “indicate why”.

Application of principles

17. The relevant general terms of each subcontract were the same. Each provided in clause 23.1 for “progress claims” which the subcontractor was entitled to make in accordance with item 14 in the contract schedule. Item 14 provided that progress claims could be made “on the 25^th day of each month, and payments to be 30 days end of month” [sic].

18. Self-evidently, a statement to the effect, “we do not intend to pay your claim” does not provide a reason for non-payment. Further, a statement that “we will not pay your claim until …” is not even a statement that part or all of the claim will not be paid, but merely a statement as to when some or all may be paid. It leaves open the possibility that there is no dispute between the parties that the work the subject of the claim has been carried out.

19. Even if there were only one item the subject of the payment claim, a refusal to make a payment until the work had been completed would not address the possibility that some work had been carried out in the period preceding the claim, for which payment had not been made and for which there was an entitlement to payment, both under the contract and under the Security of Payment Act. In fact, both the payment claims in issue contained several separate items. The purported payment schedule did not suggest that no work had been undertaken under the contracts prior to the respective payment claims, nor whether it was accepted that some work had been done (the details of which were not specified), but still no payment would be made. It therefore did not satisfy the purposes the statutory scheme was designed to serve.

20. In dealing with the requirement for reasons, the primary judge stated:

“[25]   In my view the defendant’s email of 8 May 2020 satisfies these requirements and is sufficiently particularised to enable the plaintiff to understand the issues between the parties in broad terms. The email states: ‘Please be advised that no payment for the above Invoices, until all works completed’. That is, in my mind, clear enough terms—it is a statement of the amount that the defendant proposed to be made, namely no payment, and the reason for the defendant withholding payment, namely that the payment was not then owed because the work was incomplete. In Style Timber Flooring … at [2], Bell P held that this is:

‘not a licence for informality or an excuse for vague, generalised objections to payment’.

[26]   However, whilst there may be circumstances in which a court would look at the wording encapsulating the reasons for withholding payment and may not understand it exactly because it may be cryptic or abbreviated, those persons within the building industry would understand, as I find that the plaintiff would have understood in these proceedings. The plaintiff’s suggestion that it could not understand the issues between the parties is disingenuous in the least.”

21. To describe the appellant’s conduct in court as “disingenuous” was inappropriate. There was substance to the appellant’s contentions. Indeed, the judge then proceeded to consider the background of communications which were said to demonstrate the clarity with which the issues between the parties had been identified. However, the inferences drawn from that material were not properly open for the purposes for which it was relied upon.

22. As counsel for the respondent correctly noted, surrounding communications may be relied upon for one of two purposes. First, other documentary material may be incorporated by reference into a payment schedule. In Style Timber Floor Leeming JA stated, as to both payment claims and payment schedules, that they must be in writing. He continued:

“[76] … It may be accepted that the requirement under s 14(3) may be satisfied by incorporating another document by reference. It is perhaps arguable that a payment schedule could incorporate a conversation by reference. But in the present case, the submission lacks any evidentiary foundation.”

23. Whilst accepting the possibility of documents being incorporated by reference, Bell P said that “any document or documents to be so incorporated would need to be identified with sufficient particularity so that the recipient to the schedule knew what was being incorporated.” ^[8] There was no attempt, either express or by necessary inference, in the email of 8 May 2020 to incorporate any other document into what purported to be a payment schedule.

    8. Style Timber Floor at [3] (Simpson AJA at [82] agreeing).

24. The second use which the respondent submitted could be made of surrounding communications was to explain the meaning of statements in the payment schedule. In principle, it may be accepted that not only communications but other contextual evidence may be necessary and relevant to allow an adjudicator (or the court) to understand the scope of terms used in a payment schedule (or in a payment claim). That is not this case: there was no term used in the 8 May 2020 email which required interpretation. Rather, what was sought to be achieved by reference to extraneous documents was to create a sufficient degree of particularly in the absence of incorporation. That course is not available. A payment schedule is not to be reconstructed by reference to external materials, so as to give it a degree of particularity which it simply did not enjoy.

25. In any event, the exercise failed at a factual level. With respect to the timber flooring, only one email was relied upon. It was an email dated 30 March 2020 from the respondent’s site foreman, being in effect a direction to the appellant. The email read:

“As discussed late last week and this morning, all timber flooring and timber stairs will be completed before the easter break (COB Thursday 9/4/2020)

Currently 1 man onsite installing timber treads, man power to increase from tomorrow.”

This was the only exchange relating to the timber flooring contract. It pre-dated payment claim 7 by four weeks. It indicated that there was ongoing work at the time and more expected to be done. It provided no element of particularity as to the content of the payment schedule in relation to the timber flooring claim.

26. The Court was taken to a number of emails relating to the tiling contract. The earliest was sent at 6:52pm on 6 May 2020. It referred to incomplete works and rectification work. It asked that all works be completed by COB Friday 8 May. The principal of the appellant replied two minutes later agreeing that everything would be done by that date. At 9:45am on 8 May, the respondent’s site foreman sent an email noting that “[n]o tilers onsite works still not completed”. A further email at midday on 8 May referred to a telephone conversation and an agreed completion date of 15 May.

27. These emails demonstrated that there was work which remained to be done. What they did not demonstrate was which, if any, of the items identified in payment claim 7 had not been done prior to the reference date, which was 25 April 2020. The only email which identified any work to be done was the email of 6 May 2020. If that had been included in the payment schedule (which it was not) there would have been a live issue as to whether it referred to any of the items in the payment claim. That question may have been open to clarification by extraneous evidence; alternatively, it might itself have lacked the particularity to make it part of a valid payment schedule. However, as it did not purport to be part of a payment schedule, that issue need not be explored.

Conclusion

28. The appellant was entitled to succeed with respect to its claim for payment of the two amounts identified in payment claim 7 under each contract. It claimed, and was entitled to, pre-judgment interest from the date of which those payments were due. In accordance with a note sent following the hearing of the appeal, the parties agree that, if successful, the appellant is entitled to judgment in an amount of $175,190.55.

29. The appellant also claimed, in its notice of appeal, its costs of the trial. After the judgment was delivered in the District Court the parties agreed (no doubt because at that stage each had enjoyed a degree of success) that there should be no order as to costs. That was formalised in order (2) entered on 17 May 2021. (Order (1) on that date added a sum of interest to the amount for which the appellant had obtained judgment.) Having now proved entirely successful, the appellant is entitled to its costs, both of the trial and in this Court. Order (2) of 17 May 2021 will need to be set aside to give effect to that conclusion.

30. The Court should make the following orders:

1. Allow the appeal and set aside order (2) made in the District Court on 30 April 2021 and order (2) entered on 17 May 2021.

2. Give judgment for the appellant in the sum of $175,190.55, being the sum of invoices JSA19293 and JS19794 and interest on those amounts.

3. Order that the respondent pay the appellant’s costs of the appeal and of the proceedings in the District Court.

31. MACFARLAN JA: I agree with the orders proposed by Basten JA and with his Honour’s reasons for judgment. I add the following observations.

32. The email that the respondent in the present case relied upon as a “Payment Schedule” within the meaning of s 14 of the Security of Payment Act (see [5] above) in my view plainly did not conform with s 14 of that Act, which required it to give a reason for non-payment of the Payment Claim. Either the email is to be read as stating no reason at all for non-payment (and therefore not conforming with s 14) or as conveying the implicit assertion that the appellant had no entitlement to progress payments until completion of the works. This assertion would however have been in direct contradiction of s 8 of the Act which confers a right to progress payments irrespective of what the relevant contract provides (see also ss 3(2) and 34). In response, counsel for the respondent argued that the sufficiency of any reason given in the Payment Schedule was a matter for any adjudicator who might be appointed. That in my view is however not so when the purported reason flies in the face of the statute. Such a “reason” is not a reason at all for the purposes of the Act.

33. EMMETT AJA: The question in this appeal is whether an email dated 8 May 2020 (the May Email) sent by the respondent, Cemco Projects Pty Limited (Cemco), to the appellant, Joye Group Pty Limited (Joye), constituted a “payment schedule” within the meaning of s 14 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act). On 30 April 2021, for reasons published on that day, a judge of the District Court (the primary judge) concluded that the May Email constituted a payment schedule and, accordingly, that Joye was not entitled to recover the amounts of two invoices, No JSA19293 in the sum of $112,043.11 and No JS19794 in the sum of $54,517.65 respectively. Joye has now appealed from that decision to this Court.

34. Section 8 of the Security of Payment Act relevantly provides that, on and from each reference date under a construction contract, a person who has undertaken to carry out construction work under the construction contract is entitled to a progress payment. Under s 13, a person 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. Under s 14(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. A payment schedule must identify the payment claim to which it relates and must indicate the amount of the payment, if any, that the Respondent proposes to make (the Scheduled Amount). Under s 14(3), if the Scheduled Amount is less than the claimed amount, the payment schedule must indicate why the Scheduled Amount is less and, if it is less because the Respondent is withholding payment for any work, the Respondent’s reasons for withholding payment.

35. On 30 July 2019, Joye and Cemco entered into two subcontracts relating to work to be carried out on a building site at Mitchell Road, Alexandria. One subcontract was for supplying and installing timber flooring (the Timber Contract) and the other subcontract was for installing tiles (the Tiling Contract). The subcontracts were in relevantly the same terms and comprised:

• a formal instrument of agreement;

• subcontract conditions;

• completed schedule to the subcontract conditions; and

• further subcontract documents identified in a schedule to the subcontract conditions.

36. Recital “C” of the formal instrument stated that Joye had agreed to execute certain work under the subcontract. Clause 20.1 of the contract conditions provided that Joye was to ensure that subcontract works reached practical completion by the date for practical completion specified in the schedule. Clause 23.1 provided that Joye was to claim payment progressively in accordance with item 14 in the schedule. The amount of the subcontract sum to be paid by Cemco to Joye was specified in an item in the schedule.

Timber Subcontract

37. On 30 March 2020, Cemco sent an email to Joye with respect to “Mitchell road”. The email stated as follows:

“As discussed late last week and this morning, all timber flooring and timber stairs will be completed before the easter break (COB Thursday 9/4/2020)

Currently 1 man onsite installing timber treads, man power to increase from tomorrow.”

38. On 27 April 2020, Joye sent an email to Cemco with respect to “Claim 7 for Alexandria job Timber”, attaching tax invoice No JSA19293 dated 27 April 2020 in the sum of $112,043.11. The invoice claimed the sum of $59,262.50 for the following item:

“This claim for Alexandria timber flooring project by 27/04/20, 14.45% of total contract completed”.

The invoice also claimed four other items totalling the balance in respect of “Variation Work”.

Tiling Subcontract

39. On 28 April 2020, Joye sent an email to Cemco “Claim 7 for Alexandria job Tiling”, attaching tax invoice No JS19794 dated 28 April 2020 in the sum of $54,517.65. Invoice No JS19794 included eight items for “Tiling Installation Services, Labour Only” and two items for “Extra screeding for ground floor (300mm)”.

40. On 6 May 2020, Cemco sent an email to Joye under the subject “Incomplete works”. The email relevantly said as follows:

“As discussed today over the phone please ensure all incomplete works are completed by COB Friday 8/5/2020, this includes rectifying tiles on level 2, all grouting works, missing floor watses [sic], chipped tiles.

Regarding the limestone tiles, please ensure ef-ex is applied in the correct procedure. This is not only for level 2 as level 1 and ground floor also have evident spots

1.   All tile surfaces are cleaned of any dust and wiped down and dry

2.   Floor tiles are protected and taped around the edges of the floor and wall junction to avoid any run-off from the ef-ex product, if this product is not applied properly and evenly applied it will stain the tile

3.   Once the ef-ex is applied a re coat of the sealer is required.

Please have someone experienced to undertake these works”.

41. On 6 May 2020, Joye responded as follows:

“That’s is [sic] fine I sent Alan and two other boys tomorrow I will make sure everything be done by the date”

42. On 8 May 2020, Cemco sent a further email to Joye in reply saying:

“No tilers onsite works still not completed”.

The Purported Payment Schedule

43. On 8 May 2020, Cemco sent the May Email to Joye with respect to “Claim 7 for Alexandria job”. The May Email said as follows:

“Please be advised that no payment for above Invoices, until all works been completed [sic].”

While no invoices were mentioned, copies of invoices No JS19794 and No JSA19293 were attached to the May Email. The question is whether the May Email constituted a payment schedule within the meaning of s 14 of the Security of Payment Act.

44. Specifically, the question is whether the May Email indicated why the Scheduled Amount, being nil, is less than the amount claimed in the two invoices and stated Cemco’s reasons for withholding payment of the invoices. The primary judge considered that, having regard to the earlier emails set out above, which could be incorporated into the May Email, the May Email constituted a payment schedule in respect of both of the payment claims constituted by the invoices.

45. I have had the advantage of reading in draft form the reasons of Basten JA for concluding that the primary judge erred. I agree with his Honour that it is not possible to determine from the May Email or the other emails precisely what work Cemco was asserting had not been completed. I agree with his Honour’s reasons and the orders proposed by him.

**********

Endnotes

Decision last updated: 09 September 2021