Maxcon Constructions Pty Ltd v Ily Australia Pty Ltd
[2017] VCC 1769
•30 November 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised (Not) Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-17-03580
| MAXCON CONSTRUCTIONS PTY LTD | Plaintiff |
| v | |
| ILY AUSTRALIA PTY LTD | Defendant |
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JUDGE: | His Honour Judge Anderson | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6 November 2017 | |
DATE OF JUDGMENT: | 30 November 2017 | |
CASE MAY BE CITED AS: | Maxcon Constructions Pty Ltd v Ily Australia Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 1769 | |
REASONS FOR JUDGMENT
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Catchwords: Building contract – Final claim – Whether the principal was “in the business of building residences” – Whether the final claim was made in respect of the relevant “reference date” – Whether service of the final claim on the superintendent was service on the principal – Sections 7(2)(b), 9(2)(d) and 50 of the Building and Constructions Industry Security of Payments Act 2002 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Whitten QC and Mr M Sharkey | Diakou Faigen Lawyers |
| For the Defendant | Mr H Foxcroft QC | Colin Biggers & Paisley |
HIS HONOUR:
1 Ily Australia Pty Ltd (“Ily”) seeks to review orders made by Judicial Registrar Burchell on 2 October 2017 in which she gave judgment for Maxcon Constructions Pty Ltd (“Maxcon”) against Ily in the sum of $559.022.20 and made certain ancillary orders. The judgment arose from a “final claim” made by Maxcon pursuant to the Building and Construction Industry Security of Payments Act 2002 (Vic.) (“the Act”), in respect of the construction of a residential and commercial development in Punt Road, Cremorne.
2 Mr Foxcroft QC for Ily relied upon three matter which he submitted would justify the order being set aside:
a. the final claim was not made in respect of a “construction contract” to which the Act relates.
b. the final claim was not made in respect of the relevant “reference date” as defined by the Act; and
c. the final claim had not been served on Ily.
Whether there was a “construction contract” to which the Act related
3 Mr Foxcroft conceded that his submission in relation to this matter would only be sufficient to establish on a summary judgment application that there was a “real” rather than a “fanciful” prospect of a defence, that the Act does not apply to the construction contract, succeeding at trail.
4 However, the claim by Maxcon, although made by writ, was clearly a claim made under the Act. Judgment was given pursuant to an amended summons seeking judgment under the Act. In those circumstances, the provisions in the Civil Procedure Act 2010 and the Rules of Court in relation to obtaining summary judgment would appear to have little application.
5 The parties filed extensive affidavit material. Following an adjournment of the summons seeking judgment, Ily filed further material. There was no cross-examination of deponents. In the circumstances, the Court must construe the relevant statutory provisions in light of that evidence. This was the exercise undertaken by the Judicial Registrar. However, at the request of the parties the Judicial Registrar applied the summary judgment test. Nevertheless, the Judicial Registrar concluded that Ily had no real prospect of establishing that the Act did not apply to the construction contract between the parties.
6 I am similarly unpersuaded that the construction contract is not one to which the Act applies. I reach that conclusion on the evidence presented in the application, accepting that, in order to found the Court’s jurisdiction to make an order for judgment, it is Maxcon which bears the onus of proof.
7 The construction contract related to a development to construct five individual townhouses, 70 residential apartments, commercial premises and two levels of basement parking (“the development”). It was conceded that, accordingly, the contract was:
“A construction contract which is a domestic building contract within the meaning of the Domestic Building Contracts Act 1995 between the builder and a building owner (within the meaning of that Act), for the carrying out of domestic building work (within the meaning of that Act)”.
8 By section 7(2)(b) of the Act, the Act does not apply to such a construction contract:
“other than a contract where the building owner is in the business of building residences and the contract is entered into in the course of, or in connection with, that business”.
9 The issue for determination before the Judicial Registrar, and upon the present application, was whether Ily was a building owner “in the business of building residences”.
10 In summary, the evidence was that:
a. the Punt Road property comprised various parcels of land acquired by the Genser family since 1960;
b. the construction contract between Maxcon and Ily related to one development on part of the total property;
c. a development on adjoining land, also part of the Genser family acquisitions, was the subject of a six storey residential development application lodged on 5 December 2014 by Ily on behalf of the registered proprietor of the adjacent land;
d. Ily is the trustee of the “The 381 Trust”, a general purpose trust;
e. the construction contract with Maxcon had a contract price of $20,031,141.07 and involved a substantial residential and commercial development;
f. whilst some of the residential apartments had been acquired by family members or used in a serviced apartments business, the bulk of the residential development was for general sale to the public; and
g. whilst part of the commercial development was available for the architectural practice and the serviced apartment business conducted by members of the Genser family, other parts were to be sold to the public.
11 In my view, this evidence justifies a conclusion that Ily entered into the construction contract with Maxcon in connection with a “business of building residences”. The reasons for that conclusion:
a. Ily was incorporated on 18 October 2012. The trust deed is dated 18 October 2012. The contract with Maxcon is dated 20 March 2014. The development application in relation to the adjoining land was dated 5 December 2014.
b. there is no evidence of any other business activities by Ily, apart from its involvement in these two projects;
c. the construction contract was a large mixed residential and commercial development which was primarily for sale to the general public. The construction contract was for a large sum. The other steps involved in the final realisation of the project made it an extensive commercial undertaking.
d. whilst any one of these factors is not conclusive, the nature and scope of the project, its scale and the intended purchasers and the lack of any diverse business pursuits of Ily are the primary reasons for the conclusion.
Whether the final payment claim was made in respect of the relevant reference date
12 Maxcon alleges that it made its “final payment claim” on 28 August 2016. It says that it made the claim in accordance with clause 37.4 of the construction contract, which required the final payment claim to be given to the Superintendent by Maxcon “within 28 days after the expiry of the last defects liability period”. The defects liability period under the contract was for a period of 12 months commencing on the date a certificate of practical completion was issued by the Superintendent. The Superintendent issued the certificate of practical completion on 5 August 2015.
13 The relevant dates in 2016 are as follows:
a. 28 August 2016, final payment claim submitted by Maxcon to the Superintendent;
b. 8 September 2016, Superintendent issued a final certificate in the sum of $559,000 owing by Ily to Maxcon;
c. 9 September 2016, final certificate served on Ily by Maxcon;
d. 14 September 2016, notice of dispute served on Maxcon by Ily.
14 In these circumstances, Maxcon says that the relevant reference date for its entitlement to the final payment was expressly provided for in the construction contract as any date “within 28 days after the expiry of the last defects liability period” on 5 August 2016.
15 Mr Foxcroft submitted that this involved a misreading of section 9 of the Act. He asserted that the “express provision” referred to in section 9(2)(d) was the provision relating to “payment” of the final payment, and not to the claim for final payment. Clause 37.4 expressly provides for “payment” of the final payment “within 7 days after [Ily] receives the final certificate”. The final certificate was issued on 8 September 2016 and received by Ily from Maxcon on 9 September 2016.
16 Alternatively, if no express provision were made, the default provisions in s9(2)(d) would have the same result, and the relevant reference date would be the date of the “final certificate”.
17 The relevant provisions of the Act are:
a. section 4 – Definitions:
“progress payment means a payment to which a person is entitled under section 9, and includes … the final payment”
b. section 9 – Rights to progress payments:
“(1) On and from each reference date under a construction contract, a person –
(a) who has undertaken to carry out construction work under the contract; or
(b) who has undertaken to supply related goods and services under the contract –
is entitled to a progress payment under this Act, calculated by reference to that date.
(2) In this section, reference date, in relation to a construction contract, means –
…
(d) in the case of a final payment, if the contract makes no
express provision with respect to the matter, the date immediately following –
(i)the expiry of any period provided in the contract for the
rectification of defects or omissions in the construction work carried out under the contract or in related goods and services supplied under the contract, unless subparagraph (ii) applies; or
(ii) the issue under the contract of a certificate specifying
the final amount payable under the contract a final certificate…”
c. section 14 – Payment claims and payment schedules:
“…(5) A payment claim in respect of a progress payment that
is a final, single or one-off payment may be served only within-
(a)the period determined by or in accordance with
the terms of the constructions contract; or
(b)if no such period applies, within 3 months after the reference date referred to in section 9(2) that relates to that progress payment”.
18 Mr Foxcroft submitted that clause 37.4 of the construction contract “is devoid of a reference date” for the final claim. Certainly, clause 37.4 makes no specific provision for a “reference date”, and does not refer to the Act as, for example, had the contract considered by the New South Wales Court of Appeal in Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113.
19 Clause 37.2A of the construction contract does refer specifically to the Act, where it authorises the Superintendent to “issue payment schedules pursuant to the Security of Payment Act as agent of the principal on the reference dates set out in sub-clauses 37.1 and 37.2”. However, neither clauses 37.1 or 37.2 uses the words “reference date”, although in my view it is clear that a relevant reference date for the purpose of the Act can be “determined by or in accordance with the terms of the contract”.
20 Clause 37.1 provides in relation to “progress claims” that:
“The Contractor shall claim payment progressively in accordance with item 38 for the contract sum to the date of the progress claim up to a maximum of such proportion of the guaranteed maximum price as equals the percentage of WUC [work under the contract] completed to that date”.
21 Item 33 reads as follows: “Progress claims (sub-clause 37.1) … Times for progress claims … 26th day of each month for WUC done to the 24th day of that month”.
22 Clause 37.4 provides in relation to “final payment claim and certificate” that:
“Within 28 days after the expiry of the last defects liability period, the Contractor shall give the Superintendent a written final payment claim endorsed ‘Final Payment Claim’ being a progress claim together with all other claims whatsoever in connection with the subject matter of the contract”.
23 Clause 34.6 provides a procedure for the Superintendent to issue a “certificate of practical completion”.
24 Clause 35 provides in relation to “defects liability” that, “The defects liability period stated in Item 32 shall commence on the date of practical completion at 4.00pm”. Item 32 reads as follows: “Defects Liability Period (clause 35) … 12 months”.
25 Mr Foxcroft made the following submissions as to how the provisions in relation to the “final payment operate”:
a. “express provision [had been made in the construction contract] with respect to the matter”, under section 9(2)(d). The relevant “matter” is defined in section 9(1)(a) as “a progress payment” to which the claimant is “entitled” and which is “calculated by reference to [the reference] date” under the construction contract;
b. the final payment is required by clause 37.4 to be “paid by the Principal to the Contractor … within 7 days after the debtor receives the final certificate”. The “debtor” might be either the Contractor or the Principal under the contract, depending on amounts the Principal may set off against the Contractor’s final payment claim;
c. the reference date for the final payment must therefore be “within 7 days [of receipt of] the final certificate”;
d. alternatively, if there is no “express provision” in the construction contract, there is virtually the same result as section 9(2)(d)(ii) applies and the “reference date” is “the date immediately following” a “final certificate” under the construction contract which specifies “the final amount payable”.
26 In my view, these submissions should not be accepted for the following reasons:
a. section 9 deals with a claimant’s “rights” or “entitlement” to a progress payment, including a “final payment”;
b. by section 9(1), a claimant who has carried out construction work is “entitled to a progress payment under this Act” –
i. “on and from each reference date”;
ii. “calculated by reference to that date”;
c. the definition of “progress payment” in section 4 “includes … the final payment … or … a single or one-off payment”. Final payment is a specie of progress payment;
d. by section 9(2) “reference date” is defined as meaning either –
i. “a date on which a claim for a progress payment may be made”; or
ii. “a date by reference to which the amount of a progress payment is to be calculated …”;
e. these dates must be “determined by or in accordance with the terms of the contract”;
f. it is only if “the contract makes no express provision with respect to the matter”, that reference must be made to the following sub-paragraphs of section 9(2):
i. sub-paragraph (b) for “progress payments” generally, not being a “single or one-off payment” or a “final payment”;
ii. sub-paragraph (c) for a single or one-off payment;
iii. sub-paragraph (d) for a “final payment”;
g. this interpretation is reinforced by reference to section 14(5);
h. in the present case, the construction contract, by clause 37.4, makes express provision in relation to when a claim for a progress payment (in the nature of a final payment) may be made and, when the amount of the final payment is to be calculated;
i. by clause 37.4, the “final payment claim” is to be made “within 28 days after the expiry of the last defects liability period”. The defects liability expired 12 months after 4.00pm on the date the Superintendent issued a certificate of practical completion. The final payment claim must be so endorsed and must be “a progress claim together with all other claims whatsoever in connection with the subject matter of the contract”.
27 The relevant dates in relation to the present construction contract are:
5 August 2015 certificate of practical completion issued by the Superintendent and commencement of the 12 months defects liability period;
4 August 2016 expiry of the defects liability period;
28 August 2016 date of the final payment claim;
2 September 2016 28th day after the expiry;
8 September 2016 final certificate issued by the Superintendent;
14 September 2016 notice of dispute served by the Principal.
28 By section 9(2)(a)(i), the claim was required to be made, “as determined by or in accordance with the terms of the contract”, on any date between 5 August and 2 September 2016. As a final payment claim, the “amount” of the payment will be calculated on the basis that “all … claims whatsoever” must have been submitted with the final payment claim. The next step was the issue of a final certificate “evidencing the moneys finally due and payable between the Contractor and Principal on any account whatsoever in connection with the subject matter of the contract … except for” certain specified matters including fraud, latent defects, computation errors and disputes the subject of written notice within seven days.
29 In these circumstances, it would be an artificial approach to construe both section 9 of the Act and clause 37.4 of the construction contract as providing for the “reference date” before which the final payment claim could not be served, as being the date of receipt of the final certificate. This is apparent from the analysis previously undertaken and the following further matters:
a. the “final certificate” is anticipated by the contract as the Superintendent’s determination of what “moneys [are] finally due and payable” between the parties;
b. in making that determination, the Superintendent would ordinarily consider the Contractor’s final payment claim and any set-off by the Principal;
c. payment is due to be made “by the Principal or the Contractor … within 7 days after the debtor receives the final certificate”;
d. there is provision for the mediation procedures in the construction contract to be initiated by the service of a notice of dispute within seven days;
e. the procedures under the Act for the recovery of progress payments, including a final payment, do not permit the Principal to raise a set-off.
30 Accordingly, I am satisfied that the final payment claim was made in accordance with the requirements of section 9 of the Act in relation to the relevant reference date.
Whether the final payment claim was served on the defendant
31 Section 14(1) of the Act provides that a payment claim may be served “on the person who, under the construction contract concerned, is or may be liable to make the payment”. Section 50(1) provides that:
“Any … document that by or under this Act is authorised … to be served on a person may be … served on the person … by delivering it to the person personally; or … in any other manner specified in the relevant construction contract”.
32 Clause 7 of the construction contract provides for the “service of notices and provision of documents”. The clause provides that:
“A notice (and other documents) shall be deemed to have been given and received … if addressed or delivered to the relevant address in the contract or last communicated in writing to the person giving the notice …”
33 In the Annexure to the construction contract, Items 1 and 2 describe the Principal as “Ily Australia Pty Ltd ATF The 381 Trust” with the address “381 Punt Road, Richmond, Victoria, 3121”. Items 5 and 6 describe the Superintendent as “First Urban Pty Ltd” with the address “1 Cobden Street, South Melbourne, Victoria, 3205”.
34 Clause 20 of the construction contract, in relation to the “Superintendent”, provides as follows:
“The Principal shall ensure that at all times there is a Superintendent, and that the Superintendent independently performs all valuations, assessments and Certifications required by the contract reasonably and in good faith. Except where the Superintendent is required to act as valuer, assessor or certifier by the contract, the Superintendent acts as agent of the Principal. In acting as agent of the Principal, the Superintendent is not required to act independently or reasonably and in good faith.
…
All notices and other documents required to be given by the Principal may be given by the Superintendent”.
35 Clause 37.2A includes the provision that, “The Superintendent may issue payment schedules pursuant to the Security of Payment Act as agent of the Principal on the reference dates set out in sub-clause 37.1 and 37.2”.
36 The procedure in clauses 37.1 to 37.2A for “progress claims” provides for:
a. the Contractor to give a written progress claim to the Superintendent;
b. the Superintendent within 10 business days to issue a progress certificate to the Principal and the Contractor. However, the Superintendent may issue a progress certificate even if “the Contractor does not make a progress claim in accordance with Item 33” of the contract;
c. the Contractor within five business days after the issue of a progress certificate by the Superintendent, to issue a tax invoice to the Principal for the amount of the progress certificate;
d. the Principal to pay the tax invoice within 15 business days of receipt from the Contractor of the later of the tax invoice or a revised approved construction program.
37 The procedure in clause 37.4 for the “final payment claim” provides for:
a. the Contractor to give a written final payment claim to the Superintendent within 28 days of the expiry of the defects liability period;
b. the Superintendent to issue a final certificate to both the Contractor and the Principal within 42 days of the expiry of the defects liability period;
c. the moneys certified as due under the final certificate must be paid by the ‘debtor” within 7 days “after the debtor receives the final certificate”;
d. before the seventh day after the issue of the final certificate, a notice of dispute may be served initiating the mediation procedures under the contract.
38 Maxcon relies upon the fact that:
“On 28 August 2016 Maxcon served on the Superintendent, on behalf of Ily, the final payment claim in respect of the works at the site in the sum of $559,002.20 inclusive of GST”
And that,
“On 8 September 2016 the Superintendent, on behalf of Ily, served on Maxcon the final progress certificate pursuant to clause 37.4 of the contract certifying payment to Maxcon by Ily in respect of the works at the site in the sum of $559,022.20 inclusive of GST”.
39 Apparently the Superintendent’s certificate was first received by Ily on 9 September 2017 when the certificate was sent to it by Maxcon. Ily served a notice of dispute under clause 42 of the construction contract. The notice principally relied on the failure of Maxcon “to remedy defects as directed by the Superintendent in the Notice of Practical Completion addressed to the Contractor and dated 5 August 2015”.
40 In Metacorp Australia Pty Ltd v Audeco Construction Group Pty Ltd [2010] VSC 199; (2010) 30 VR 141, Vickery J at paragraphs 142 and 143 stated that, “a payment claim may be served upon any person who, under the construction contract concerned, is or may be liable to make payment, or has the actual or ostensible authority of such a person to accept service…Receipt of a payment claim by the respondent or its servant or agent with actual or ostensible authority to receive it, for the purposes of s 14(1) of the Act, constitutes service”.
41 At paragraph 160, Vickery J stated his conclusion as follows: “Accordingly, in this case the superintendent was acting as the agent of Metacorp, when he received Andeco’s payment claim 15, having its actual or ostensible authority to do so. Service on the respondent’s superintendent in this case was service upon Metacorp, being the person who ‘is or may be liable to make the payment’ within s 14(1) of the Act”.
42 In my view, service of the final payment claim on the Superintendent was good service of the claim on Ily for the purposes of section 14(1) of the Act, as by operation of section 50(1) and clause 20 of the construction contract, the final payment claim was:
a. required by clause 37.4 of the construction contract to be given to the Superintendent;
b. alternatively, if required to be given to the Principal itself, clause 20 nonetheless permitted the Contractor to serve the document on the Superintendent “as agent ” of the Principal.
Conclusion and proposed orders
43 In the circumstances, the review of the orders of Judicial Registrar Burchell made on 2 will not succeed. I will order that upon review of the orders of Judicial Registrar Burchell made on 2 October 2017, the orders are confirmed.
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Certificate
I certify that these 13 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 30 November 2017.
Dated: 30 November 2017.
Zeinab Ali
Associate to His Honour Judge Anderson
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