McMahon Services Australia P/L v John Holland P/L
[2018] SADC 134
•12 December 2018
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
MCMAHON SERVICES AUSTRALIA P/L v JOHN HOLLAND P/L
[2018] SADC 134
Judgment of His Honour Judge Dart
12 December 2018
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - REMUNERATION - STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS - ADJUDICATION OF PAYMENT CLAIMS
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - ENDING PROCEEDINGS EARLY - SUMMARY DISPOSAL - SUMMARY JUDGMENT FOR PLAINTIFF OR APPLICANT
APPEAL AND NEW TRIAL - PROCEDURE - SOUTH AUSTRALIA - HEARING OF APPEAL - OTHER MATTERS
Payment claim served pursuant to Building and Construction Industry Security of Payment Act 2009 - whether payment claim valid - whether defendant served a payment schedule within the permitted time - plaintiff applied for summary judgment - whether defendant has reasonable basis for a defence - Master dismissed the application for summary judgment - plaintiff appealed against the decision of the Master.
Held: Appeal dismissed.
Building and Construction Industry Security of Payment Act 2009 ss 13, 14, 15; Supreme Court Civil Rules 2006 (SA) r 232; District Court Civil Rules 2006 (SA) r 286, referred to.
Ceneavenue Pty Ltd & Ors v Martin & Ors (2008) 106 SASR 1; Clarke & Anor v The Union Bank of Australia Ltd (1917) 23 CLR 5; Grimwade & Ors v Beresford (1974) 9 SASR 157; McMahon Services Australia Pty Ltd v John Holland Pty Ltd Decision No 18 of 2018; Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248, considered.
MCMAHON SERVICES AUSTRALIA P/L v JOHN HOLLAND P/L
[2018] SADC 134JUDGE DART:
This judgment relates to an appeal in respect of the decision of a Master. The Master declined to enter judgment summarily in favour of the plaintiff (appellant). In my opinion, the Master was right to do so. The appeal should be dismissed.
Background
The plaintiff is a sub-contractor of the defendant. The contractual relationship relates to the provision of services in respect of the construction of the Calvary Hospital in Pulteney Street.
There is no dispute that the Building and Construction Industry Security of Payment Act 2009 (“the Act”) applies to the contractual relationship between the parties. The plaintiff was entitled to submit claims for progress payments each month.
This particular dispute between the parties relates to Payment Claim 7, which was served on the defendant on 20 February 2017. In these proceedings the plaintiff claims a sum of $1,377,875.46. The plaintiff says that is the amount claimed in Payment Claim 7. That particular payment claim includes work claimed for the first time in the amount of $277,713.42. At the bottom of the document there is a reference to Payment Claim 6 and an amount of $974,000 said not yet to be certified from that previous Progress Claim.
The legislative scheme
The Act provides a process for the making of claims for progress payments, provision for the head contractor to respond to the claim and the consequences of not responding. The relevant provisions of the Act are as follows:
13—Payment claims
(1)A person referred to in section 8 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 contract concerned, is or may be liable to make the payment.
(2)A payment claim—
(a)must identify the construction work (or related goods and services) to which the progress payment relates; and
(b)must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount); and
(c)must state that it is made under this Act.
(3)The claimed amount may include an amount—
(a)that the respondent is liable to pay the claimant under section 28(3); or
(b)that is held under the construction contract by the respondent and that the claimant claims is due for release.
(4)A payment claim may be served only within—
(a)the period determined by or in accordance with the terms of the construction contract; or
(b)the period of 6 months after the construction work to which the claim relates was last carried out (or the related goods and services to which the claim relates were last supplied),
whichever is the later.
(5)A claimant cannot serve more than 1 payment claim in respect of each reference date under the construction contract.
(6)However, subsection (5) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim.
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 15 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.
15—Consequences of not paying claimant where no payment schedule
(1)This section applies if the respondent—
(a)becomes liable to pay the claimed amount to the claimant under section 14(4) as a consequence of having failed to provide a payment schedule to the claimant within the time allowed by that section; and
(b)fails to pay the whole or a part of the claimed amount on or before the due date for the progress payment to which the payment claim relates.
(2)In those circumstances, the claimant—
(a)may—
(i)recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in a court of competent jurisdiction; or
(ii)make an adjudication application under section 17(1)(b) in relation to the payment claim; and
(b)may serve notice on the respondent of the claimant's intention to suspend carrying out construction work (or to suspend supplying related goods and services) under the construction contract.
(3)A notice referred to in subsection (2)(b) must state that it is made under this Act.
(4)If the claimant commences proceedings under subsection (2)(a)(i) to recover the unpaid portion of the claimed amount from the respondent as a debt—
(a)judgment in favour of the claimant is not to be given unless the court is satisfied of the existence of the circumstances referred to in subsection (1); and
(b)the respondent is not, in those proceedings, entitled—
(i)to bring a cross‑claim against the claimant; or
(ii)to raise a defence in relation to matters arising under the construction contract.
It is also necessary to have regard to the definition of “business day” in the Act, to properly understand the argument put forward by the plaintiff in this matter:
business day means any day other than—
(a)a Saturday, Sunday or public holiday; or
(b)27, 28, 29, 30 or 31 December; or
(c)any other day on which there is a Statewide shut‑down of the operations of the building and construction industry;
The plaintiff says that it served a valid payment claim, as permitted by s 13 of the Act. It then says that the defendant did not reply to the claim by providing a payment schedule to the plaintiff within the permitted time. The Act, in s 14(4), provides that a payment schedule should be provided to a claimant within 15 business days after the payment claim was served. The plaintiff says no payment schedule was served within the permitted time, that the provisions of s 15(2) of the Act apply and, accordingly, it is entitled to recover the unpaid portion of the payment claim in this Court.
The two issues on the appeal were whether, first, a valid payment claim was served on the defendant. The second issue was whether a relevant payment schedule was served on the plaintiff within the permitted time. There is no dispute that the defendant did in fact serve a payment schedule. Its timing is the issue. The plaintiff says it was one day outside of the permitted time. The payment schedule disallowed a significant portion of the claim.
Authorities in respect of summary judgment
The consequence of the plaintiff’s claim that no payment schedule was served within the time provided in the legislation is that it asserts an entitlement to summary judgment in the full amount of the payment claim. The present Rule with respect to applications for summary judgment is Rule 232, which provides as follows:
232—Summary judgment
(1)The Court may, on application by a party, give summary judgment for that party.
(2)Summary judgment may only be given if the Court is satisfied that—
(a)if the applicant is a plaintiff—there is no reasonable basis for defending the applicant's claim; or
(b)if the applicant is a defendant—there is no reasonable basis for the claim against the applicant.
This appeal proceeds by way of re-hearing.[1] The only issue to be decided on the appeal is whether or not the Master was correct, as a matter of law, in finding that the defendant had a reasonable basis for defending the claim. There was no exercise of a discretion involved in the task undertaken by the Master.
[1] District Court Civil Rules 2006, r 286.
Although the Rules in respect to summary judgment have varied from time to time, the approach of the courts has remained reasonably constant.
In Clarke & Anor v The Union Bank of Australia Ltd Barton ACJ said: [2]
It is enough, so far as this appeal is concerned, to say that this is a case that ought to be heard. I think that the principle to be applied cannot be better stated than it was by Lord Halsbury in Jones v Stone.[3] Speaking of Order XIV., he said:−“The proceeding established by that order is a peculiar proceeding, intended only to apply to cases where there can be no reasonable doubt that a plaintiff is entitled to judgment, and where, therefore, it is inexpedient to allow a defendant to defend for mere purposes of delay. The present case is not one of that kind”. That is what I think of the case now before us. I think that there is an arguably good defence open to the defendants, and, therefore, that they ought to be heard.
[2] (1917) 23 CLR 5.
[3] (1894) AC, p 124.
The approach taken a hundred years ago indicated that it was only in a clear case where a defendant ought not be permitted to pursue a defence of the proceedings. That is still the position.
In the case of Grimwade & Ors v Beresford[4] Walters J was considering the operation of Order 14 of the Supreme Court Rules 1947. His Honour said as follows:
It is well accepted that the purpose of Order 14 is to enable the plaintiff to obtain summary judgment without trial, if he can clearly prove his claim and the defendant is unable to set up a bona fide defence or to raise, by way of answer to the claim, an issue which ought to be tried (Roberts v. Plant[5]). A defendant is bound to show that he has some reasonable grounds of defence to the action (Crump v. Cavendish[6]). The Order "is intended to prevent a man clearly entitled to money from being delayed where there is no arguable defence to be brought forward" (Anglo-Italian Bank v. Wells,[7] per Jessel M.R. at p. 199). To enable a defendant successfully to resist an application under the Order, sufficient facts and particulars must be given to show that there is really a bona fide defence (Wallingford v. Mutual Society[8]). It is not enough merely to deny the debt, to allege fraud or misrepresentation, or to state a legal objection.
On the other hand, the defence sought to be set up need only show that there are facts which may constitute a plausible defence and which demonstrate that there is a triable issue to be decided. Generally speaking, leave to defend ought to be given unless there is patently no defence in law and no possibility of a real defence on questions of fact (Jacobs v. Booth's Distillery Co. Ltd. ;[9] Fieldrank Ltd. v. E. Stein[10]). But in any case, as Lord Esher M.R. pointed out in Sheppards & Co. v. Wilkinson[11]), "the summary jurisdiction conferred by this Order must be used with great care. A defendant ought not to be shut out from defending unless it [is] very clear indeed that he [has] no case in the action under discussion". The power to give summary judgment under the Order is intended only to apply to cases "where there can be no reasonable doubt that the plaintiff is entitled to judgment, and where, therefore it is inexpedient to allow a defendant to defend for mere purposes of delay" (Jones v. Stone[12]).
[4] (1974) 9 SASR 157.
[5] [1895] 1 QB 597.
[6] (1880) 5 ExD 211.
[7] (1880) 38 LT 197.
[8] (1880) 5 App Cas 685.
[9] (1901) 85 LT 262.
[10] [1961] 1 WLR 1287.
[11] (1889) 7 TLR 13.
[12] [1894] AC 122, p 124.
Caution needs to be exercised in determining whether it is appropriate to take away from a defendant its entitlement to prosecute its defence at a full hearing of the dispute.
In respect of the current Rule, the leading authority is Ceneavenue Pty Ltd & Ors v Martin & Ors.[13] In that case, which was a matter before the Full Court, the principal judgment was written by his Honour Justice Debelle, with whom Duggan and Anderson JJ agreed. In respect of the current Rule, his Honour said:[14]
While there can be no doubt that paragraph (b) has significantly lightened the burden for a defendant seeking summary judgment, two questions nevertheless remain. The first is what is meant by the expression “no reasonable basis” for the claim against the defendant and the second is whether the test is materially different from the test of a real question to be tried. The fact that the expression “no reasonable basis” is used in both paragraphs (a) and (b) of Rule 232(2) suggests that the same test applies both when considering whether there is no reasonable basis for defending the plaintiff’s claim and when considering whether there is no reasonable basis for the claim against the defendant. The test in Rule 232(2) requires the court first to identify the issues to be tried and then to assess whether the claim or defence has reasonable prospects of success. In the case of an application for summary judgment by a plaintiff against a defendant, it is doubtful, therefore, whether there is a material difference between that test and the former test as it had been expressed in Fancourt. That is because the question whether there is a real question to be tried denoted that the task for the court was to determine whether the issues at the trial are real or fanciful and have reasonable prospects of success.
The question whether there is no reasonable basis for the claim or defence must be determined in a summary way. It is entirely inappropriate for there to be a mini trial on that question. It must, therefore, be evident or obvious that the party defending the application for summary judgment has no reasonable basis for the claim or the defence. While adversarial argument will assist in the determination of that question, the question should be capable of ready resolution without prolonged argument. A prolonged argument might suggest that there is a reasonable basis for the claim or the defence. Comparison with the requirements in rules in other jurisdictions providing for summary judgment confirms these propositions. [CORRECT]
[13] (2008) 106 SASR 1.
[14] Ceneavenue Pty Ltd & Ors v Martin & Ors (2008) 106 SASR 1 at [81]-[82].
Applying that authority means the Court must be satisfied that it is evident or obvious that there is no reasonable basis for the defences put forward.
Reasoning of the Master
The first issue, then, was whether there was a valid payment claim served. Payment claim 7 states “claims this period” $277,713.42. That amount is made up of original contract claims, together with approved variations. The defendant says that is the amount of the claim.
What has created the issue in this matter is the text at the bottom of the progress payment claim, which was in the following form:
ORIGINAL CONTRACT VALUE $ 3,050,000.00
APPROVED VARIATIONS $ 1,768,245.39
ADJUSTED CONTRACT VALUE $ 4,814,245.39
FINAL FORECAST COSTS $ 4,814,245.39
VALUE OF WORK TO DATE $ 4,407,545.24
+ PREVIOUS CLAIMS $ 4,129,831.82
=CLAIMS THIS PERIOD $ 277,713.42
+ GST $ 27,771.34
TOTAL INVOICE INCL GST $ 305,484.77
NOW DUE AND PAYABLE (Including amount not yet Certified from Progress Claim 6 of $974,900.63 + GST)
The finding of the Master in respect of the validity or otherwise of Payment Claim 7 was set out in his judgment:[15]
In my view, the plaintiff has complied with section 13(2)(b) in respect of the claimed amount of $277,713.42 plus GST. It is not a nullity.
Whilst there is a demand for $974,000.63 on PC 6, it is not a payment claim for the purposes of PC 7. It does not even purport to be a ‘CLAIM THIS PERIOD’ for the purposes of PC 7. Therefore the relevant part of PC 7 is a valid payment claim.
[15] McMahon Services Australia Pty Ltd v John Holland Pty Ltd, Master Rice, Decision No 18 of 2018, 29 June 2018, at [54] and [55].
I agree with the finding of the Master that Progress Claim 7 was valid and that, properly understood, it claims the amount of $277,713.42 plus GST. Further, the Master said: [16]
The plaintiff’s statement that the amount ‘DUE AND PAYABLE’ was not certified is wrong. The defendant in payment schedule 6 certified the variation claim as ‘nil’. This crystallises the dispute and allows the adjudication process to start.
[16] McMahon Services Australia Pty Ltd v John Holland Pty Ltd, Master Rice, Decision No 18 of 2018, 29 June 2018, at [60].
It needs to be borne in mind that the purpose of the Act is to allow subcontractors to make periodic claims for progress payments. The requirements for what must be in a payment claim are set out in s 13(2) of the Act, which is a fairly straightforward provision to comply with.
In Protectavale Pty Ltd v K2K Pty Ltd Finkelstein J said: [17]
Nonetheless a payment claim must be sufficiently detailed to enable the principal to understand the basis of the claim. If a reasonable principal is unable to ascertain with sufficient certainty the work to which the claim relates, he will not be able to provide a meaningful payment schedule. That is to say, a payment claim must put the principal in a position where he is able to decide whether to accept or reject the claim and, if the principal opts for the latter, to respond appropriately in a payment schedule: Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (in liq),[18]; John Holland Pty Ltd v Cardno MBK (NSW) Pty Ltd.[19] That is not an unreasonable price to pay to obtain the benefits of the statute.
[17] [2008] FCA 1248 at [12].
[18] [2005] NSWCA 409; (2005) 64 NSWLR 462 at 477.
[19] [2004] NSWSC 258 at [18]-[21].
I respectively agree with what his Honour said in Protectavale. It is not onerous for a subcontractor to comply with the legislative scheme. The principal is entitled to a claim which is clear and easily understood.
The plaintiff points to the fact that s 13(6) provides that a claimant may include in a payment claim an amount that has been previously claimed. There are two things that can be said about that. The first is that, in respect of a re‑claimed amount, there is still a requirement to comply with s 13(2). That is, if an amount from a previous payment claim is to be re-claimed, it must be claimed appropriately, with full particulars, so as to allow the principal to understand the basis of the claim. The provisions of s 13(2) require the payment claim to identify the construction work to which the progress payment relates. It is not appropriate to make a claim for payment for work done by incorporation from another document. That does not properly identify the relevant work and does not comply with s 13(2).
Secondly, on my reading of the document, it is not a fair reading to say that the work claimed in Progress Claim 6 is included in Progress Claim 7, when next to the words “claimed this period” is the amount of $277,713.42.
On the application for summary judgment it was only necessary to establish that the respondent has established an arguable case. In my opinion it had done so. If pressed to form a final view, I would find that Progress Claim 7 is a claim for $277,713.42 plus GST. I do not need to go that far.
The second issue on appeal was whether the defendant served a payment schedule within 15 business days, as required by s 14(4) of the Act. The plaintiff says the payment schedule was served one day late and, accordingly, it was entitled to the full amount of the payment claim.
The issue depends on a consideration of the definition of “business day” in the Act. The form of the Act in South Australia is the same as in a number of other states. However, no other state has the definition of “business day” found in (c). A day on which there is a statewide shutdown of the operations of the building and construction industry is not to be counted as a business day according to the definition.
The issue was encapsulated by the Master as follows:[20]
The plaintiff argues that the 15th day for the purposes of the claim response accrued on 13 March but that was a public holiday. The plaintiff argues therefore the defendant had to serve, on its argument, the payment schedule by 14 March and it did not and therefore section 14 and 15 apply with regard to the consequences of a default on a valid payment claim.
There is a dispute as to whether 14 March was a rostered day off and whether it was therefore within the definition of a ‘Statewide shutdown’ for the purposes of calculating days. If it is a business day, then the payment schedule was due on the 14th. If not, it was due on the 15th March 2018, which is the day it was served.
[20] McMahon Services Australia Pty Ltd v John Holland Pty Ltd, Master Rice, Decision No 18 of 2018, 29 June 2018, at [16]-[17].
The finding of the Master on this issue was as follows:[21]
The plaintiff’s argument is for the strict interpretation, namely that there is in fact no such thing as a Statewide shutdown except on already defined public holidays, which did not need the benefit of subsection (c). Therefore, this part of the definition refers to days which are not public holidays or those which are specifically taken from 27 to 31 December. Some work must be given to (c) for it to have some meaning.
The defendant’s argument is that the words ‘Statewide shutdown’ mean ‘rostered days off’. As there are different rostered days off for different organisations and unions, it extends the meaning of ‘business day’ to when a particular organisation such as the plaintiff takes its RDO, even though the balance of the building and construction industry is not related or the same as the particular union or organisation’s rostered day off.
The plaintiff’s construction of this provision in my view is too narrow in any event. A Statewide shutdown of the industry does not necessarily mean a shutdown on the same day. There can be a Statewide shutdown on different days to suit the needs of a particular project or union or organisation policy.
[21] McMahon Services Australia Pty Ltd v John Holland Pty Ltd, Master Rice, Decision No 18 of 2018, 29 June 2018, at [75]-[77].
The plaintiff makes some criticism of the reasoning of the Master set out above. This matter is proceeding by way of a re-hearing. Even if some aspects of the Master’s reasoning are open to debate, in my opinion his conclusion was correct.
The plaintiff’s submission is that a statewide shutdown of the operations of the building and construction industry requires a complete or total cessation of work in the industry. In my opinion, the interpretation pressed by the plaintiff involves inserting the word “complete” into the definition. It is necessary to give the words in the Act their ordinary meaning. Clearly, there needs to be a shutdown of the operations of the building construction industry and the shutdown needs to be statewide. It is not apparent that that necessarily needs to be a complete shutdown. It might be a matter of fact or degree.
It needs to be borne in mind the manner in which the scheme under the Act operates. A principal has only a relatively limited time to respond to a payment claim. One can imagine when a payment claim is received, often with complex detail of contractual works carried out and claims for variations, the principal must act promptly. The principal might need to make enquiries with employees and other contractors as to what works have been carried out and the extent to which they are compliant with the contractual arrangements. That process would be significantly inhibited if substantial parts of the workforce are not available on a given day.
The evidence before the Court discloses that four major unions involved in the building industry had a rostered day off on 14 March 2017. The defendant’s own enterprise agreement provided for a rostered day off on 14 March. In addition, the Master Builders Association (“MBA”) calendar provided for a rostered day off on that date. The MBA calendar applied to employees covered by the Building and Construction General On-site Award 2010. It can be seen that a considerable portion of the workforce on site had a rostered day of on 14 March 2017. The scheduled rostered days off applied statewide.
Whether having a significant portion of the workforce away on a rostered day off on 14 March 2017 created an industry shutdown is, to some extent, a question of fact. No doubt the defendant will call evidence as to the effect on its operations of the rostered day off on 14 March 2017. The plaintiff’s argument is that rostered days off do not and cannot amount to a statewide industry shutdown. In my opinion, it is a matter of degree. It is not possible, without a factual enquiry, to determine the effect of the rostered day off on the operations of the defendant. It may be that ultimately the plaintiff is proven to be correct on this issue. However, at the moment there is sufficient doubt about that. The defendant has a reasonable basis to defend the plaintiff’s claim by saying that the payment schedule was served within time, which is the case if 14 March 2017 was not a business day.
I dismiss the appeal. I will hear the parties as to consequential orders.
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