May Constructions (Residential) Pty Ltd v GPZ Pty Ltd and 38 Williams Road Pty Ltd
[2017] VCC 54
•17 February 2017
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted Suitable for Publication |
AT MELBOURNE
COMMERCIAL DIVISON
BUILDING CASES LIST
Case No. CI-16-05586
| MAY CONSTRUCTIONS (RESIDENTIAL) PTY LTD | Plaintiff |
| v. | |
| GPZ PTY LTD and 38 WILLIAMS ROAD PTY LTD | Defendants |
---
JUDGE: | His Honour Judge Anderson | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 February 2017 | |
DATE OF JUDGMENT: | 17 February 2017 | |
CASE MAY BE CITED AS: | May Constructions (Residential) Pty Ltd v. GPZ Pty Ltd and 38 Williams Road Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 54 | |
REASONS FOR DECISION
---
Catchwords: Building contract – Payment claim response took account of previously certified liquidated damages – Whether liquidated damages wrongly deducted from claim – Adjudicator’s determination in favour of claimant – Subsequent judgment entered by the Court for the adjudicated amount – Review application lodged by respondent – Monies paid by respondent into its solicitors’ trust account – Intended as payment into a “designated trust account” of “alleged excluded amounts” pursuant to section 28B(6) of the Building and Construction Industry Security of Payments Act 2002 (Vic) – Procedural defects in the review application meant it was not considered on its merits – Whether monies in solicitors’ trust account held on the trusts created by section 28F(2) of the Act – Whether monies in trust should be paid to the claimant in satisfaction of its entitlements under the judgment.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L. M. Stanistreet | Piper Alderman |
| For the Defendants | Mr J. J. Whelen | GPZ Legal |
HIS HONOUR:
1May Constructions (Residential) Pty Ltd (“May Constructions”) entered into a written construction contract dated 3 September 2014 with 38 Williams Road Pty Ltd (“the owner”) for the construction of 7 apartments at 38 Williams Road Prahran (“the construction contract”).
2Since about March 2016, when May Constructions served payment claim number 17, it has been attempting to obtain payment for work carried out pursuant to the construction contract. The payment claim was not paid. Instead of pursuing the procedures under the Building and Construction Industry Security of Payments Act 2002 (“the Act”), May Constructions resubmitted the claim as part of payment claim number 19 dated 9 May 2016, by which a total of $128,502.32 (inclusive of GST) was claimed.
3The architect certified that an amount of $18,501.32 was owing by the owner to May Constructions. The certificate was treated as a payment schedule under the Act and the dispute was referred to an adjudicator. The adjudicator made a determination on 21 June 2016 that the owner was liable to pay to May Constructions the whole of its claim of $128,502.32.
4One of the critical matters considered by the adjudicator was the owner’s “claim to set off liquidated damages” of $110,000. The adjudicator accepted May Constructions’ submission that the owner’s claim “under the Act is barred, as an excluded amount, by either s.10B(2)(b)(ii) or s.10B(2)(c)”.
5The owner’s solicitors, GPZ Legal, made a “review application” dated 28 June 2016 in respect of the adjudicator’s determination. The application asserted that the adjudicator “erred by incorrectly identifying the [owner’s] case as one of seeking to set-off liquidated damages”. It was suggested that the adjudicator should have dealt with the matter on the basis that there had been “payment to [the owner] of liquidated damages by [May Constructions] prior to it issuing progress claim number 19”.
6The review adjudicator took the view (communicated to the parties on 14 July 2016) that he had “no jurisdiction to consider this matter because the review application is not valid” and that, as a consequence, “it is unnecessary for me to comment on the merits of the purported application”.
7The reasons for the review adjudicator’s conclusion were stated as follows:
“1. It is clear from the information provided that the [owner] did not provide a copy of the adjudication review application to the original claimant [May Constructions] within one business day after the application was made [a requirement by section 28D(4) of the Act];
2.The [owner] had not paid the adjudicated amount (other than the amounts alleged to be excluded amounts) to the claimant [a requirement by section 28B(5) of the Act];
3.There is no evidence that the [owner] has paid the alleged excluded amount of $110,000 into a designated trust account (which was required to be done on or before 28 June 2016) [a requirement by section 28B(6) of the Act]”.
8In fact, GPZ Legal’s “Trust Matter Ledger” records that, on 24 June 2016, in relation to “VIC Adjudication Application”, the sum of $130,702.32 was deposited in trust, for a “reason” stated to be, “part settlement part disbursements”.
9In an affidavit sworn on behalf of the defendants, the owner and GPZ Legal, Mr Nick Galatas a principal of GPZ Legal, stated that he sought the $130,702.32 deposited in the “firm’s trust account…for the purpose of commencing a statutory adjudication review under” the Act.
10Mr Galatas said that the amount of “$18,501.32 was paid to [May Constructions’] solicitors on 16 August 2016 [representing] the amount certified as owing to” [May Constructions] in the progress payment certificate responding to payment claim number 19. This amount was required by section 28B(5) of the Act to be paid to May Constructions as a pre-condition of making a Review Application.
11On 1 August 2016, upon the ex parte application of May Constructions pursuant to section 28R of the Act, I entered judgment for May Constructions against the owner in the total sum of $139,211.82 being the amount specified in the adjudication certificate dated 19 July 2016, relating to the adjudication by the adjudicator on 21 June 2016.
12Since the review adjudicator’s determination (notified to the parties on 14 July 2016) that the review application was not valid, the parties have been in dispute as to what should be done with the sum of $112,201 remaining in GPZ Legal’s trust account. That is the issue for determination in this proceeding.
13In a letter by GPZ Legal to the authorised nominating authority (Adjudicate today) dated 19 July 2016, the following statements were made:
a.the application for review was served by the owner on May Constructions on 4 July 2016;
b.the owner “rejects [May Constructions’] submission that its Application for Review is invalid because it was served out of time”;
c.“the short delay [in service of the review application] was not intentional”. May Constructions was “not prejudiced”. Time was not “of the essence”;
d.the “adjudicated amount other than the amounts alleged to be excluded amounts [required to be paid by section 28B(5) of the Act to be paid to May Constructions] was paid into our trust account by the [owner] before the Review Application was made. We attach a copy of our Trust Account Statement. We request [May Constructions’] bank account details in order to pay the amount other than the amount alleged to be an excluded amount”. [This was apparently the reason for the payment of $18,501.32 on 16 August 2016 to May Constructions from the monies held in trust by GPZ Legal];
e.the “application for review is not invalid by reason of the provision of section 28B(5)”;
f.the “alleged excluded amount [was paid] into a designated trust account” [as required by section 28B(6) of the Act], by the payment of “the relevant sum into our Trust Account on or before 28 June 2016”;
g.the “application for review is therefore not invalid by reason of the provisions of section 28B(6)”;
h.there was a “misunderstanding and error of the Adjudicator in not finding that [May Constructions] has included in its final progress claim an amount exceeding the amount to which it is entitled because it failed to reduce its claim by the amount [of] the previously agreed liquidated damages amount, as constituting a deduction in the payment schedule of an excluded amount”;
i.the owner “does not claim that the inclusion of this sum [by May Constructions in payment claim number 19] constituted an inclusion of an excluded amount but rather, that it was an inclusion by [May Constructions] of an amount which ought not have been included because it had been agreed it would be paid by adjustment of the balance of the value of the contract works”;
j.“By reason of the Adjudicator characterising the sum of $110,000 as an excluded amount and then including it in his adjudicated amount, the adjudicated amount includes an excluded amount. The [owner] agrees it ought not have included as an excluded amount but the adjudicator having done so, the review application is validly brought”;
k.as a consequence, the owner submitted that the review adjudicator “must consider and determine the Review Application on its merits”.
14The letter was referred by the authorised nominating authority to “the previously appointed review adjudicator” who advised that “the position set out in his correspondence dated 14 July 2016 remains unchanged”.
May Constructions’ applications
15By an Originating Motion and a Summons issued by May Constructions, both dated 15 December 2016, the following relief was sought:
a.a declaration that the sum of $112,201 held in GPZ Legal’s trust account was “held on trust for [May Constructions] pursuant to section 28F(2)” of the Act, and for payment of that amount to May Constructions;
b.alternatively, that a garnishee summons be filed and served on GPZ Legal in respect of the amount standing to the credit of the owner in GPZ Legal’s trust account.
Application by the owner for the adjournment of the Summons
16Upon the return of the Summons on 10 February 2017, defendants’ counsel, Mr Whelen, sought an adjournment of the Summons on the following grounds:
a.the owner wished to make an application out of time to review the determination of the adjudicator dated 21 June 2016;
b.the owner’s solicitors had expected that upon the return date of the summons, the Court would not proceed to hear the substance of May Constructions’ applications but would simply give directions for the further conduct of the proceeding.
17May Constructions had supported its applications by an affidavit of Peter William May sworn 15 December 2016. A responding affidavit by Nick Galatas was sworn on 10 February 2017. Mr Galatas’s affidavit included in its exhibits letters from him to May Constructions’ lawyers dated 8 February 2017 and 9 February 2017.
18The letter dated 8 February 2017 commences as follows:
“We refer to your client’s summons for hearing this Friday 10 February 2017. In preparing for the hearing it has become apparent that the underlying adjudication determination, and hence the judgment at the heart of your client’s summons, is susceptible to being quashed for jurisdictional error because the relevant Payment Claim #19 was invalid”.
19I note that, in the letter, Mr Galatas had anticipated a “hearing” on 10 February and said that the owner had been “preparing for the hearing”. Further, Mr Whelen had prepared a “memo” for Mr Galatas on 8 February and Mr Galatas had responded in writing to Mr Whelen on that day. There is no suggestion that the owner or his lawyers simply expected that a directions hearing would be held on 10 February.
20Mr Whelen handed to the Court a letter from May Constructions’ lawyers, Piper Alderman to the “Directions Court” (copied to the defendants’ solicitors) in response to an administrative mention notice which required a response by 9 February 2017. The letter referred to the summons returnable on 10 February and noted that, “we anticipate further orders as to the conduct of the proceedings will be made upon the return of the summons”.
21In my view, this letter was simply alerting the Court’s Civil Directions Group to the fact that the administrative mention process was unnecessary because the matter would be before the Court, upon the return of the Summons, the following day.
22In fact, the summons itself noted that upon the return of the Summons, “The Court may as appropriate:
1.hear and determine the application;
2.give the judgment or make the order;
3.place the proceeding in the list of cases for trial and give directions for the filing and service of affidavits or otherwise”.
23In this proceeding, the plaintiff’s affidavit was sworn at the commencement of the case on 15 December 2016. The defendants relied upon the extensive affidavit of Mr Galatas. Although the affidavit was only sworn on 10 February 2017, it may have been served in unsworn form the previous evening.
24The Court will rarely defer the hearing of a summons and will usually only adjourn a summons and give directions if a party has been unable to file responding material or if, as a result of the determination of the summons, the proceeding is not concluded and further steps are required.
25The present application sought alternative relief. If the Court ordered the filing of a garnishee summons, further directions would have been required.
26The substantive reason for the owner seeking the adjournment of the Summons was the belief that the original adjudication was “susceptible to being quashed for jurisdictional error”. This was not for the reason advanced in the review application (that the adjudicator should have found that May Constructions had previously paid the liquidated damages, and was seeking to claim it back in progress claim no.19), but rather on the basis that “Payment claim #19 was invalid”.
27The letter from GPZ Legal dated 8 February 2017, stated the reason for this assertion:
“As a matter of substance, the real vice here is that Payment Claim # 19 comprised, in large part, a mere re-submission of Payment Claim # 17 and to that extent was invalidated by section 14(8) of the BCISPA; see Jotham Property Holdings Pty Ltd v Cooperative Builders Pty Ltd [2013] VSC 552 and Commercial Industrial Construction Group Pty Ltd v King Construction Group Pty Ltd [2015] VSC 426”.
28This assertion was disputed by May constructions on the following factual bases:
a.payment claim no.17 related to the period ending 29 February 2016 and was made in early March 2016. Payment claim no.19 included claims for further work which related to “the reference date of 28 April 2016”. These later claims were not made in respect of the same reference date under the construction contract as those in payment claim no.17;
b.the amount claimed in payment claim no.17 was still unpaid when payment claim no.19 was served.
29Mr Whelen relied upon the decisions of Jotham Property Holdings Pty Ltd v Cooperative Builders Pty Ltd (“Jotham”) and Commercial Industrial Construction Group Pty Ltd v King Construction Group Pty Ltd (“Commercial Industrial”) as standing for the proposition that a payment claim could not be repeated in a later payment claim.
30In Jotham, at paragraphs 37 to 59, Vickery J discussed the interaction between sections 14(8) and 14(9) of the Act. Vickery J rejected the claimant’s submission in that case “that section 14(9) does not operate to prevent a claimant for a progress claim including in a current payment claim an amount that has been the subject of a previous claim if the amount has not been paid, and this is so whether the current payment claim is a new payment claim which has not been claimed before, or is merely a full repetition of a previous payment claim” (at paragraph 40, emphasis added).
31Justice Vickery at paragraph 48 referred to a New South Wales Supreme Court case citing two judges in a New South Wales Court of Appeal decision who “expressed a clear view against the repetitious lodging of payment claims seeking to enforce the same claim”.
32At paragraph 43 (and repeated by Vickery J in Commercial Industrial at paragraph 103), Vickery J stated the appropriate construction to be applied was as follows:
“On a plain reading s 14(9) provides that, if another and earlier payment claim has been made, but the amount of that earlier claim had not been paid, the unpaid amount may be included in a later and different payment claim which covers different construction work or the supply of different goods and services, calculated by reference to a different reference date under the construction contract” (emphasis added).
33Mr Whelen made no further submissions after I had given him time to consider the matters raised in discussion about what principle the two cases actually stood for. As to the issue of whether payment claim no.17 remained unpaid when payment claim no.19 was served, I shall discuss later the reasons for my conclusion that it had not been paid.
34In the circumstances, I am not persuaded that there would be any useful purpose in adjourning May Constructions’ Summons. The Owner had failed to properly pursue an application to review the adjudicator’s determination. It also failed to issue a proceeding for judicial review of the adjudicator’s determination within the period of 60 days from the determination on 21 June 2016.
35Further, the owner had failed to demonstrate any basis upon which any application for review would be likely to succeed (particularly one made out of time and after judgment had been entered on the basis of the adjudication).
Should the money in GPZ Legal’s trust account be paid to May Constructions?
36May Constructions’ counsel, Mr Stanistreet, relied upon the fact that:
a.the adjudication made 21 June 2016 had not been successfully challenged by the Review Application;
b.judgment had been entered by the Court for the amount of the adjudication on 28 July 2016 pursuant to section 28R of the Act.
37Accordingly, it was submitted that the amount paid into the “designated trust account” by the owner on about 24 June 2016 pursuant to section 28B(6) of the Act, as a pre-condition of its application for review of the adjudication determination, was held on behalf of May Constructions on the trust referred to in section 28F(2) of the Act.
38Section 28F(2) of the Act provides as follows:
“(2) Subject to subsection (3), money held in a designated trust account (including any interest accruing to that money) is taken to be held on the following trusts –
(a)to the extent to which the money is required to satisfy the claimant’s entitlements, the money is to be applied in satisfaction of those entitlements;
(b)to the extent to which any of the money remains in the account after the claimant’s entitlements have been fully satisfied, the money is to be paid to the respondent”.
39Mr Whelen submitted that:
a.the only basis upon which May Constructions had asserted in its Summons that a trust arose in its favour in relation to the money held in GPZ Legal’s trust account, was that the money was “held on trust for [May Constructions] pursuant to section 28F(2) of the…Act”;
b.the review application issued by the owner on 28 June 2016 was not a valid application pursuant to the Act and therefore the payment into GPZ Legal’s trust account on about 24 June 2016 was not a valid payment into a “designated trust account” for the purposes of section 28B(6) of the Act;
c.accordingly, the monies presently in GPZ Legal’s trust account were not held on trust for May Constructions pursuant to section 28F(2) of the Act.
40In this regard, I note that until a day or so before the hearing of the Summons, the owner and its lawyers had asserted that:
a.the owner had intended to lodge a valid review application;
b.the purported non-compliance with the review procedures under the Act, relied upon by the review adjudicator, did not make the review application “invalid” and the application should be considered and determined “on its merits”. In fact, GPZ Legal by its letter dated 19 July 2016 reserved the owner’s rights “should it become necessary to do so”, to seek a Declaration “that its Review application must be determined on its merits”;
c.the purported non-compliance included a “failure to pay alleged excluded amounts into a designated trust account”, although as shown on the “Trust Account Statement” submitted, the owner “paid the relevant sum into [the GPZ Legal] Trust Account on or before 28 June 2016”;
d.that on about 24 June 2016, Mr Galatas arranged for the owner to pay $130,702.32 into GPZ Legal’s trust account “for the purpose of commencing a statutory review under the…Act”.
41Apart from the non-compliance with the Act referred to by the review adjudicator as being fatal to the review application proceeding to a consideration of the merits, May Constructions asserted in a letter from its lawyers to the authorised nominating authority dated 6 July 2016, that “no evidence of payment into a designated trust account has been provided” to May Constructions.
42Section 28F(1) of the Act provides that:
“(1) On paying money into a designated trust account in accordance with section 28B, the respondent must give the claimant notice of that payment together with particulars identifying the account and the recognised financial institution with which the account is kept”.
43Upon the hearing of the Summons, Mr Whelen did not seek to pursue an argument based on the validity of the review application. Instead he relied solely upon an argument raised for the first time in Mr Galatas’s affidavit, as follows:
a.“the statutory trusts ordinarily imposed by section 28F of the [Act] were never imposed on the funds” in GPZ Legal’s trust account (paragraph 9);
b.Mr Galatas had accepted that he was “mistaken in pursuing…a statutory adjudication review [because such a review] is only available if and to the extent that the adjudicated amount includes an ‘excluded amount’ (as defined in section 10B of the [Act])” (paragraph 11);
c.“as the adjudicated amount did not include any relevant ‘excluded amount’, the statutory trusts imposed by section 28F of the [Act] did not arise” (paragraph 13).
Did May Constructions “pay” the owner $110,000 for liquidated damages?
44It is necessary to consider the submission that “the adjudicated amount did not include any relevant ‘excluded amount’”. This submission has as its basis the assertion that May Constructions had “agreed” to pay, and had paid, the owner liquidated damaged of $110,000 prior to payment claim number 19. Therefore, it was said, the adjudicator was wrong:
a.in allowing this sum as part of the amount said to be owing to May Constructions; and
b.by suggesting that it had been the owner who had deducted liquidated damages, an “excluded amount”, from the payment claim.
45The owner has asserted that May Constructions’ “agreed” to pay, and had paid, the liquidated damages. At the hearing, Mr Whelen submitted that the following steps constituted the “agreement” and the “payment by May Constructions”:
a.payment claim number 17 was for the period ending 29 February 2016 and was apparently served in early March 2016;
b.the architect’s progress payment certificate dated 24 February 2016 (and presumably issued prior to May Constructions making payment claim number 17) deducted the sum of $110,000 as “liquidated damages” leaving the sum of $67,422.62 as “due and owing to the owner” by May Constructions. It was asserted that this sum was due for payment within 7 calendar days under the construction contract. The construction contract was not in evidence;
c.a few days earlier, in a progress payment certificate dated 16 February 2016, the architect had certified “as due and owing to the contractor” the sum of $86,673 (rounded off by the architect from $86,672.99;
d.deducting May Constructions indebtedness to the owner of $67,422.62 from $86,672.99, left a balance for the owner to pay to May Constructions of $19,250.37;
e.a cheque for $19,250.37 was apparently sent to May Constructions by the owner on 8 March 2016 with a letter stating that the amount of the cheque was the balance of the two certificates;
f.the cheque was banked by May Constructions on about 9 March 2016 without any response by May Constructions to the owner’s letter;
g.May Constructions only disputed its liability to pay liquidated damages of $110,000, in an undated letter from May Constructions to the architect. That letter refers to the certification of the liquidated damages having been made by certificate “issued on 23 May 2016”. That certificate was not in evidence before the Court;
h.the construction contract, according to a letter from the architect to May Constructions dated 17 June 2016, required a contractor to dispute an architect’s certificate “within 20 working days after receiving the written assessment”, as otherwise under the contract, the contractor “will not be entitled to dispute the matter at all”.
46Before the adjudicator made his determination on 21 June 2016, he apparently had the “adjudication response” by the owner dated 14 June 2016 (although the document was not in evidence before me). In his determination, the adjudicator discussed the issue of liquidated damages at paragraphs 13 to 27 of his reasons for determination.
47The adjudicator’s reasons include a history of the owner’s claim for liquidated damages and the architect’s certification. The adjudicator noted that:
a.although liquidated damages of $110,000 were apparently certified on 24 February 2016, by contrast, the progress payment certificate dated 23 May 2016 (constituting the payment schedule in respect of payment claim number 19), “simply said ‘$0.00’” (paragraph 17);
b.the owner had asserted in its adjudication response that May Constructions “accepted [the owner’s] claim for payment of liquidated damages and it paid them” (paragraph 19);
c.whilst the architect’s certificate dated 24 February 2016 “reduced the amount otherwise payable by the [owner] to [May Constructions] by $110,000…there is nothing in the material that shows that [May Constructions] agreed with that reduction in a manner that operated as some form of waiver or forfeiture of [May Constructions’] statutory rights” (paragraph 22);
d.“there is no evidence that [May Constructions] ‘paid’ the liquidated damages…Rather, the [owner] simply paid itself by declining to make a payment to [May Constructions] of $110,000 to which [May Constructions] was otherwise entitled” (paragraph 23);
e.“The [owner] says liquidated damages were not the subject of ‘any claim nor deduction to’ the payment claim. That is correct insofar as the relevant deduction had been made in progress certificate MW/30-018 [dated 24 February 2016]. But that seems to me to leave the [owner] without any answer to the payment claim [number 19]. If the payment claim is not to be reduced on account of the [owner’s] claim for liquidated damages [May Constructions’] claim must succeed as no other answer to the payment claim is proffered by the [owner]” (paragraph 24);
f.“Even if it could be said by the [owner] that the deduction on account of liquidated damages was made in the payment schedule that would not avail the [owner]. [May Constructions] is correct to say that the claim for liquidated damages is an excluded amount by reason of subsections (b)(ii) and (c) of s. 10B(2) of the Act” (paragraph 25).
48In the owner’s Review Application, it asserts that the adjudicator in paragraph 23 of his reasons “makes an argument for [May Constructions] which [May Constructions] itself does not make”, and that the Adjudicator had not properly considered the owner’s submissions.
49Over a number of pages, the owner’s lawyers submit that the owner “was paid the amount of its claim for liquidated damages by [May Constructions] and accordingly, the total amount payable by the [owner] to [May Constructions] under the building contract was commensurately decreased” (paragraph 23).
50At paragraph 28, the owner’s lawyers submit that the adjudicator wrongly found that “there is no evidence that [May Constructions] paid the liquidated damages”. The submissions continued, “There is, in fact ample evidence to be found at paragraphs 12-28 inclusive and the supporting documents of the [owner’s] submissions and that evidence is sufficient to dispel the contention that [May Constructions’] progress claim was reduced by the deduction of the Excluded Amount. Even if the evidence does not go that far, it is sufficient to accept the payment of liquidated damages falls outside the realm of deduction for Excluded Amount under the Act”.
51Mr Whelen submitted that May Constructions’ lawyers’ reply submissions dated 6 July 2016 supported the owner’s contention that the Review Application did not relate to an “excluded amount”. He referred to section 5 of May Constructions’ submissions which is headed, “adjudicated amount did not include an excluded amount”.
52However, as the submissions make clear, section 5 deals with what May Constructions’ lawyers perceived to be the “basis” of the owner’s Review Application, namely that it was May Constructions (not the owner) which was “claiming an excluded amount, being liquidated damages” (clause 5.2).
53May Constructions submitted that the “claim for liquidated damages for late completion” was a claim by the owner, and that “the Payment Claim, Adjudication Application and Adjudication Determination considered the value of works performed on the whole of the Project. Any deduction against the value of the works and services performed due to liquidated damages is the deduction of an excluded amount by the [owner], which is impermissible under the Act”.
54In the further submissions by GPZ Legal to the Review Adjudicator dated 19 July 2016, it was stated as follows:
“In this case, the [owner] contends it has made out that it agreed with [May Constructions] in February 2016 that [May Constructions] would pay it an amount for liquidated damages in accordance with its claim under the contract. The architect treated this payment as having been made in its payment schedule in response to progress claim 17. [May Constructions] did not object or complain at the time. The [owner] claims that by acquiescence, [May Constructions] confirmed it had agreed to the payment of liquidated damages to the [owner] and that the balance owing to the [May Constructions] under the Contract was to be adjusted accordingly”.
55In my view, there is no evidence that May Constructions paid the owner the sum of $110,000 for liquidated damages or that there was an “agreement” (or “accord”) by May Constructions to pay the sum of $110,000 to the owner. The owner submits that payment, or an agreement to pay, arises by an acceptance by May Constructions of the owner’s cheque dated 8 March 2016 for $19,250.37 on the basis set out in the owner’s letter that day, rather than on some other basis including on account of the amount that had been claimed by May Constructions.
56In Fitzroy Shopfitting and Building Pty Ltd v Solene Investments Pty Ltd [2016] VCC 1352 at paragraphs 12 to 17, I set out the relevant principles to be applied in determining whether there had been an “accord and satisfaction”. I shall repeat the analysis of cases I made in that case in the following paragraphs.
57In F. T. Jeffrey Pty Ltd v Evington Holdings Pty Ltd [1977] VicSC 616 (“Jeffrey”), a decision of the Full Court, Young CJ stated at pages 12 and 13, “When a cheque sent in full settlement of existing liabilities is retained, the mere retention is not conclusive that there is an accord between the parties: it is a question of fact to be determined by the tribunal of fact what are the terms upon which the cheque is retained. Put in another way, it is a question whether the recipient of the cheque agreed to take it in satisfaction of his claim”.
58In Wiseman v MQH Developments [1997] VicSC 190, Chernov J at page 7 referred to what Lush J had said in Jeffrey, namely that “it is not just a matter of analysing the question by analogy with offer and acceptance principles. Consensus or concurrence of minds has to exist (determinant on an objective basis) before it can be said that an accord has arisen”.
59In Ebbage v McMahon’s Transport Pty Ltd (1999) 1 QdR 185, Pincus JA delivering the judgment of the Court of Appeal, stated at pages 194-5:
“The cases on conditional tender of payment, although numerous, give no clear guidance. I, like the primary judge, prefer to follow those in which the court has rejected the offeror’s assertion that there has been an accord; I do so on the basis that the question is whether there is a contract and that the answer to that question is that there is none, because in general the law does not allow the imposition of an obligation in contract to be achieved by a stipulation that it shall be deemed to be imposed if the prospective obligor performs a stipulated act…or does nothing”.
60In SNL Group Pty Ltd v CMA Corporation Ltd [2011] NSWSC 464, Sackar J at paragraphs 43 to 55, dealt with a line of authorities commencing with Penny v Cole (“Pinnel’s Case”) (1602) 5 Co. Rep. 117a and Foakes v Beer [1884] 2 AC 605. At paragraph 53, Sackar J noted the distinction “between the ineffective agreement to reduce or extinguish a debt owing and an alternatively binding agreement that purports to extinguish or reduce an existing debt whilst also providing fresh consideration”.
61In El-Mir v Risk [2005] NSWCA 215, McColl JA (with whom Handley and Ipp JJA agreed) stated at [54] that, “The question of whether there has been an accord and satisfaction is one of fact. It turns upon determining the parties’ intentions, which may be discerned from the terms of the document said to constitute all or part of the agreement or from the surrounding circumstances”.
62In the present case, although the letter dated 8 March 2016 purported to be “making a payment of the balance owing to you”, it was offering payment of a lesser sum to extinguish an existing claim by May Constructions. There was no assent by May Constructions to the matters set out in the owner’s letter and there was no “fresh consideration” provided. The adjudicator had available to him certain documents which are not before the Court, including the owner’s Adjudication response and the architect’s progress payment certificate in response to payment claim number 19.
63I am not satisfied that there is any proper basis to dispute the conclusion by the adjudicator, at paragraph 22 of his reasons for determination, rejecting the owner’s submission that May Constructions had “agreed with that reduction” [ie the ‘amount otherwise payable by the respondent to the claimant by $110,000 on account of the respondent’s claim for liquidated damages’] in a manner that operated as some form of waiver or forfeiture of the claimant’s statutory rights”. There seems little to support the view that a payment was made or that an “accord” was reached simply by reason of the banking of the owner’s cheque by May Constructions.
64Further, I do not consider that any other basis for reducing the amount claimed by May Constructions has been demonstrated, either by “acquiescence” as GPZ Legal suggested in its letter dated 19 July 2016, or by “some form of waiver or forfeiture of [May Constructions’] statutory rights”, as the adjudicator considered in his Reasons for Determination.
Did the adjudicated amount include a relevant “excluded amount”?
65Section 10B(2)(c) of the Act includes, as one of “the classes of amounts (excluded amounts) that must not be taken into account in calculating the amount of a progress payment”, section 10B(1), or which an “adjudicator must not take into account” in determining an adjudication application by section 23(2A), “any amount claimed for damages for breach of the construction contract of for any other claim for damages arising under or in connection with the contract”.
66Mr Whelen’s submitted that no “excluded amount” was included in the “adjudicated amount” so as to found the jurisdiction for a respondent to make an “application” for review under section 28B. In my view, the submission is contrary to the reasoning of Vickery J in Seabay Properties Pty Ltd v Galvin Construction Pty Ltd [2011] VSC 183 (“Seabay”) at paragraph 24, as follows:
“In my opinion, a proper construction of s. 10B of the Act renders the defined ‘excluded amounts’ applicable, not only to the statutory payment claim served by a claimant, but also to amounts claimed by a respondent. Such a construction serves to advance the purposes of the Act. The contrary construction tends to work contrary to those purposes. The construction which I favour, will better promote the operation of the object of the Act to provide a facility for prompt interim payment on account in favour of contractors and subcontractors, pending final determination of any disputes arising under a construction contract” (emphasis added).
67Justice Vickery reaffirmed this statement of principle in Maxtra Constructions Pty Ltd v Gilbert [2013] VSC 243 noting that, “the observations made by the Court in Seabay were made in the context of considering whether a claim for liquidated damages made by a respondent to a progress claim amounted to a claim for compensation in respect of ‘time-related costs’ within the meaning of s 10B(2)(b)(ii) of the Act, and was therefore an ‘excluded amount’ under the Act for this reason, or whether such a claim was confined under the Act to be a claim made by an applicant. It was held in Seabay that the Adjudicator was correct in determining that the claim for liquidated damages made by the Respondent to the progress claim should have been treated as an ‘excluded amount’ and excluded from the Adjudication Determination made in relation to the payment claimed under the Act. The objects and purposes of the Act were important in Seabay in considering the construction of s 10B(2)(b)(ii), and in particular its scope and application to the liquidated damages claimed by the Respondent in that case” (emphasis added).
68The owner purported to make a Review Application pursuant to section 28B. Section 28B(3) provides that, “An application under this section may only be made on the ground that an adjudicated amount included an excluded amount”. The owner, believing that there was an excluded amount and that it was required to pay that amount into a designated trust account as a condition of making an application by reason of section 28B(6), paid the sum of $130,702.32 into its solicitors’ trust account.
69In error, the owner paid into the trust account not only what its solicitors regarded as an “excluded amount”, but also an amount that was owing to May Constructions apart from the excluded amount. This included the sum of $18,501.32 which was paid to May Constructions from the trust account on 16 August 2016, leaving a balance of $112,201.
70I consider that $110,000 of this sum is held on trust for May Constructions, pursuant to the trust created by section 28F(2) of the Act. I reach this conclusion for the following reasons:
a.the owner intended to make a review application pursuant to section 28B of the Act;
b.the owner’s lawyers received monies from the owner which were paid into GPZ Legal’s trust account;
c.the lawyers contended thereafter that the monies required to be paid into a “designated trust account” by section 28B(6) of the Act were the monies paid into its trust account on about 24 June 2016;
d.the lawyers submitted that the review application had been validly made and should be considered on its merits by the review adjudicator;
e.it was only in the affidavit of Mr Galatas sworn 10 February 2017, that it was asserted Mr Galatas was “mistaken” and, “on fresh analysis, the adjudicated amount in this case did not include an ‘excluded amount’” (hence section 28B(3) of the [Act] was never triggered);
f.the courts will rarely permit a party to “approbate and reprobate”, by asserting one position when it suits the party, and a contrary position when circumstances are perceived to have changed;
g.in any event, the construction given by Vickery J to “excluded amounts”, in Seabay, includes a claim by a respondent for liquidated damages which is the reason for a payment claim not being paid or allowed in full. Accordingly, the sum of $110,000 must be regarded as an excluded amount included in the amount determined by the adjudicator;
h.the adjudication could have been reviewed on its merits if the owner had not made procedural errors in its review application.
71In my view, the owner has not established that, at least the bulk of the amount held in GPZ Legal’s trust account is held on trust for May Contractors and should be applied, as contemplated by section 28F(2), to “satisfy the claimant’s entitlements”.
72These “entitlements” are the sum of $110,000 which was apparently deducted by the architect in the progress payment certificate dated 23 May 2016 to reduce the amount claimed by May Constructions in payment claim number 19.
73As a consequence, I intend to order, on the Summons, that the first defendant must pay to the plaintiff the sum of $110,000 held in its trust account, from the payment into that account made by the second defendant on about 24 June 2016.
Issuing a garnishee summons
74This leaves a balance of $2,201 in the solicitors’ trust account. Therefore, it is necessary to consider the further and alternative application in May Constructions’ Summons that a garnishee summons be filed and served on GPZ Legal pursuant to Rule 71.04, on the basis of the judgment entered on 28 July 2016. I consider that this order should be made. I will discuss further with counsel the form of an appropriate order.
75Mr Galatas, in his affidavit, deposed to the fact that Mr Charles Justin, a director of the owner had informed him that the $130,702.32 paid into GPZ Legal’s trust account had been sourced by Mr Justin from “his family trust” (Justin Investment Trust, of which Justin Clep Nominees Pty Ltd is the trustee, and Mr Justin is a director of the trustee).
76Mr Whelen suggested that, as a consequence, the Justin Investment Trust or its trustee, Justin Clep Nominees Pty Ltd, may wish to make submissions upon the return of a garnishee summons. Mr Whelen said that he did not act for either the Trust or its trustee and was unable to suggest any submissions those entities might make in support of the balance of the monies in the solicitors’ trust account being returned to them and not paid in part satisfaction of the judgment.
77As Mr Galatas apparently receives his instructions on behalf of the owner from Mr Justin, I do not consider it is necessary to make an order pursuant to Rule 71.11 that notice of the garnishee summons be given to any persons other than the present defendants.
- - -
Certificate
I certify that these 18 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 17 February 2017.
Dated: 17 February 2017
Carla Cianfaglione
Associate to His Honour Judge Anderson
7
0