Method Constructions Australia Pty Ltd v Abi Investment Holdings (Melbourne) Pty Ltd
[2020] VCC 1797
•13 November 2020
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-20-03122
| Method Constructions Australia Pty Ltd | Plaintiff |
| v | |
| ABI Investment Holdings (Melbourne) Pty Ltd | Defendant |
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JUDGE: | Judicial Registrar Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the Papers | |
DATE OF JUDGMENT: | 13 November 2020 | |
CASE MAY BE CITED AS: | Method Constructions Australia Pty Ltd v ABI Investment Holdings (Melbourne) Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2020] VCC 1797 | |
REASONS FOR JUDGMENT
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Subject: CONTRACTS –EVIDENCE
Catchwords: Building contract – payment claim – service by courier delivery – whether service validly effected – whether evidence excluded on basis of hearsay – whether reference date available for payment claim – whether reference dates available following practical completion and during defect liability period – whether payment claim included “excluded amounts” in the form of damages – whether defect rectification works constitute “excluded amounts”.
Legislation Cited: Building and Construction Industry Security of Payment Act2002 (Vic) ss3, 4, 5, 7, 9(1),10B, 12, 14, 15, 16(2), 16(4), 17(2), 47, 48, 50; Civil Procedure Act 2010 (Vic) s61, 63; Corporations Act 2000 (Cth) s109X; Evidence Act 2008 (Vic) s59, 69, 181; Acts Interpretation Act1901 (Cth) s29.
Cases Cited: Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340; Rudyard Pty Ltd v ASEA 1 Pty Ltd [2019] VCC 1995; Jones v Dunkel (1959) 101 CLR 298; Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd & Ors [2010] VSC 199; In the matter ofKornucopiaPty Ltd (No 1) [2019] VSC 756; Punton’s Shoes Pty Ltd v Citi-Con Pty Ltd [2020] VSC 514; Pinnacle Construction Group Pty Ltd v Dimension Joinery Interiors Pty Ltd [2018] NSWSC 894; Brodyn Pty Ltd t/as Time Cost and Quality v Davenport & Anor [2004] NSWCA 394; Zulin Formwork Pty Ltd v Valeo Construction Pty Ltd [2019] VCC 936; Seabay Properties Pty Ltd v Galvin Construction Pty Ltd [2011] VSC 183; Shape Australia v The Nuance Group [2018] VSC 808; Maxstra Constructions Pty Ltd v Joseph Gilbert (t/as J Gilbert Concrete) [2013] VSC 243.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Ms C Jones | Logie-Smith Lanyon Lawyers |
| For the defendant | Ms A Georgalis | Moray & Agnew Lawyers |
JUDICIAL REGISTRAR:
1 The plaintiff, Method Constructions Australia Pty Ltd (“Method”) applies for judgment against the defendant, ABI Investment Holdings (Melbourne) Pty Ltd (“ABI”) pursuant to s16(2)(a)(i) of the Building and Construction Industry Security of Payment Act 2002 (Vic) (“the Act”). Method makes the application by summons on originating motion dated 14 July 2020. The application arises out of Method’s provision of construction and design services for 10 townhouses (“Works”) at 1289 Burke Road, Kew (“the site”) under a contract dated 3 September 2018 (“the Contract”).
2 Method submits that it served one relevant payment claim under the contract and in accordance with the Act. It contends that ABI failed to serve a payment schedule or pay the amount claimed.
3 ABI resists judgment on the basis that:
· the payment claim was not served pursuant to the Act;
· the payment claim was invalid for want of a reference date; and
· alternatively, the alleged payment claim included ‘excluded amounts’.
4 I am satisfied the payment claim was validly served, since it had a valid reference date.
5 Therefore, I will order that there be judgment for the plaintiff against the defendant in the sum of $202,646.38 (inclusive of GST) and that the defendant pay the plaintiff’s costs of and incidental to the proceeding on the standard basis, in default of agreement, unless either party can show a basis for seeking a different order to costs. I invite the parties to prepare draft orders to give effect to these reasons, and any further issue as to costs will be determined on the papers.
The factual background
6 There has been extensive affidavit material filed in this proceeding. The plaintiff relies upon the following affidavits:
· two affidavits of Mr Roland Bockting, director of Method, affirmed 13 July and 7 October 2020;
· one affidavit from Mr Simon Francis, solicitor for Method, affirmed 18 September 2020;
· one affidavit from Ms Tracy Bockting, accounts officer of Method, affirmed 18 September 2020; and
· one affidavit from Mr Steve Iaconesso, courier driver and employee of Jet Couriers Pty Ltd (“Jet”) affirmed 5 October 2020.
7 The defendant filed a further eight affidavits, as follows:
· one affidavit of Ms Juliette Dreverman, solicitor for the defendant, affirmed 20 August 2020;
· one affidavit of Mr Chunxiao (‘Alpha’) Wang, employee of Smart 360 Electronic Security Technologies Pty Ltd (“Smart 360”), sworn 4 September 2020;
· one affidavit of Mr Haofu (‘Chris’) Cui, employee of ABI and project manager of the Site, sworn 4 September 2020; and
· two affidavits of Mr Xin (‘Victor’) Wang, director of ABI, sworn 4 and 29 September 2020, in Mandarin, together with two affidavits of the same dates of Mr Kuan Liu, NAATI certified translator, providing the English translations of Mr Wang’s affidavits.
8 In this decision, I shall refer to Mr Chunxiao Wang as ‘Mr Chunxiao Wang’ and Mr Xin Wang as Mr ‘Xing Wang’, in order to avoid any confusion.
9 On 3 September 2018, the plaintiff and the defendant entered a contract for the design and construction of townhouses, carparking and landscaping works on the Site.
10 Relevantly, the subcontract provided that [emphasis added]:
· By clause 6, that the Contract sum was for a lump sum amount of $5,469,650 (ex GST).
· By clause 17 (Notices) that:
(a) a notice or other communication connected with this Contract (‘Notice’) shall have no legal effect unless it is in writing and:
(i)sent by post, postage prepaid, to the address of the addressee set out in this Contract, or subsequently notified in accordance with this Contract, if changed;
(ii)sent by email to at least two recipients, to the email address of the addressee set out in this Contract, or subsequently notified in accordance with this Contract, if changed; and
(iii)otherwise delivered to the address of the addressee set out in this Contract or subsequently notified in accordance with this Contract, if changed,
(b)The Principal, the Contractor and the Superintendent shall each notify the others of a change of post, facsimile, email or other address.
(c)A notice must be given and received:
(i)if sent by registered post, the day that it is identified as being received in the relevant tracking notification;
(ii)if sent by post, on the 2nd Business Day (at the address to which it is posted) after posting;
(iii)if sent as an email, one hour after the email is recorded as being sent by the device from which the sender sent that email, unless the sender knows or could have reasonably be expected to know that an email system has failed and as a result, the email was not received, unless a notice is received after 5:00pm on a Business Day in the place of receipt or at any time on a non-Business Day, in which case, that Notice is deemed to have been received at 9.00am on the next Business Day.
(iv)if otherwise delivered, upon delivery,
…
(e) Email will not be a valid form of notice for any claim for an extension of time or payment claim under this Contract, nor will it be a valid form for any notice or claim under the SOP Act.
(f) A Notice delivered or sent in a manner set out in this clause 17 shall be deemed to have been validly given to, and received by, the party to which it is addressed even if:
(i)the addressee has been liquidated or deregistered or is absent from the place at which the Notice is delivered or to which it is sent; or
(ii)the Notice is returned unclaimed.
· The address and details for delivery of notices were provided for the principal and the contract (clause 17 of the agreement).
· Item 4 of Annexure A to the Contract stipulated 1289 Burke Road Kew Vic 3101 as the address of the principal.
· The superintendent was to be Nash Management Group Pty Ltd (“Nash”) and the address for service on the superintendent was provided (items 7 and 8 of Annexure Part A).
· The contractor was to provide security by way of cash retention, up to a total of 5% of the overall contract sum, 10% of the value of the work deducted progressively from the progress claim (clauses 5.5 and 42.1 of the general conditions and item 15 of Annexure Part A).
· The times under the Contract for payment claims was to be the last day of each month for work done to the end of the month (save for the month of December in which the time for making a claim was 14 December 2018) (item 46 of Annexure Part A).
· Within 10 business days of a receipt of a payment claim, the superintendent shall assess the payment claim and shall issue a payment certificate stating the amount of the payment that is to be made (clause 42.1 of the general conditions).
· Within 20 business days of receipt of a payment claim or within 10 business days of issue of a payment certificate, the defendant shall pay to the plaintiff an amount not less than that on the payment certificate (or if no payment certificate was provided, the amount of the claim (clause 42.1, general conditions).
· The rate of liquidated damages was to be $1,250 per calendar day (clause 35.6 of general conditions and item 39 of Annexure A).
· The defects liability period was 12 months following the issuing of the certificate of practical completion (clause 37 of the general conditions and item 44 of Annexure A).
· The date for the practical completion was to be 12 September 2019 (item 9 of Annexure A).
11 The works proceeded until 27 November 2019, when Hub Property Group (“Hub”) the superintendent, issued the certificate of practical completion. The certificate confirmed that Method achieved practical completion on 21 November 2019.
12 The certificate of practical competition identified minor defects and omissions, which were to be rectified as soon as possible, within one month.[1] It further identified that certain documentation was outstanding and that pursuant to clause 35.6 of the Contract, Method owed $87,500 of liquidated damages, calculated from 12 September 2019 until 21 November 2019.
[1] Exhibit RTB-3 to the affidavit of Roland Boctking sworn 15 July 2020.
13 On 7 February 2020, Mr Bockting and Mr Daniel Shields (director of Method) received an email from Mr Michael Hermans, Managing Director of Hub, informing them that the project management agreement between ABI and Hub had been terminated effective immediately and that future correspondence was to be directed to ABI.
14 On 21 April 2020, Mr Wang, director of ABI sent a letter to Method advising of the appointment of the new superintendent Mr Chris Cui. Pursuant to the Contract, the letter outlined Mr Cui’s details, including email, mobile and postal address.
15 Between 7 February and 21 April 2020, Method alleges that the courier service “Jet” served the payment claim dated 31 March 2020.
23 On 20 April 2020, Method issued a further tax invoice to ABI which the plaintiff submits was similarly served.
24 On 29 April 2020, Method received an alleged payment schedule dated 28 April 2020 in response to the 20 April 2020 payment claim. The payment schedule provided a scheduled amount of $0.00 and identified the lack of a valid reference date, failure to meet the requirements of a payment claim and defects in the works, as reasons for the scheduled amount.
25 Ms Bockting further deposes that she arranged for Jet to deliver further payment claims on 4 and 12 May 2020. These payment claims are uncontentious.
26 Between 4 and 19 May 2020, Mr Cui as the new superintendent and Mr Shields and Mr Bockting on behalf of Method, exchanged correspondence regarding the 1 April payment claim and the superintendent’s directions of 5 May 2020 that Method address and rectify the defects ABI identified.
27 On 12 May 2020, Mr Cui received an email from Method attaching a notice of intention to suspend works under the Contract within 3 business days due to ABI’s alleged failure to respond to the 1 April 2020 payment claim.[2]
[2] Exhibit HC-5 of the affidavit of Mr Cui sworn 4 September 2020.
28 Mr Cui responded to Method the following day, acknowledging service of the notice but stating that it had not received the 1 April 2020 payment claim and that Method had not complied with the superintendent’s directions dated 5 May 2020.
29 In his letter of 19 May 2020, Mr Cui noted, amongst other things, that:
· the Kew address was not a valid address for service as at 1 April 2020;
· the payment claim on 1 April 2020 was not received at either the Balwyn or Kew address;
· the contractor had included payment claims totalling $47,482.75 which the superintendent had previously certified and which ABI paid, being payment certificate 17 (dated 18 November 2019) and payment certificate 18 (dated 27 November 2019);
· referring to ss14(4) and 14(5) of the Act, in respect of the remaining balance (2.5% of the retention money), the superintendent considered any payment claims served after 27 February 2020 invalid. This is because they would exceed the 3 month period of the reference date (the date of practical completion); and
· that Method had not complied with a number of the superintendent’s directions, and that ABI had requested it rectify all outstanding breaches as soon as possible.
The legal context
30 The Act seeks to ensure that persons who undertake to carry out construction work can recover progress payments for the performance of that work.[3] Section 4 defines construction contract as a “contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services for another party”. The Act applies to any construction contract whether written or oral, or partly written and partly oral.[4] “Construction work” is defined by s5. There is no dispute that the works the subject of the Contract are “construction work” within the meaning of s5, however a question arises as to whether liquidated damages can be considered construction work for the purposes of s5.
[3]s3 Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act).
[4] s7 SOP Act.
31 Section 16(2)(a) of the Act provides that a claimant may recover from a respondent any unpaid portion of an amount claimed in a payment claim where the respondent fails to submit a payment schedule within time (or at all) in response to the payment claim.
32 Section 14 of the Act concerns the form and content of payment claims. Sections 14(2) and (3) relevantly provide that a payment claim:
· must be in the prescribed form (if any) and contain the prescribed information (if any) – neither is prescribed;
· must identify the construction work or related goods and services to which it relates;
· must indicate the amount of progress payment that the claimant claims to be due;
· must state that the payment claim is made under the Act; and
· must not include any “excluded amounts” (being amounts referable to particular categories of variations described below).
33 Section 14(4) of the Act addresses when a payment claim can be served, where it is not a payment claim in respect of a final, single or one-off progress payment. It provides that such a payment claim may only be served within:
· the period determined in accordance with the construction contract “in respect of the carrying out of the item of construction work or the supply of the item of related goods and services to which the claim relates”; or
· the period of 3 months after the “reference date referred to in s9(2) that relates to the progress payment”.
34 Section 14(8) provides that a claimant “cannot serve more than one payment claim in respect of each reference date under the construction contract”. Section 14(9) provides that this limitation does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous payment claim if the amount has not yet been paid.
35 Section 9(1) provides that “on and from each reference date under a construction contract” a claimant is “entitled to a progress payment under this Act calculated by reference to that date”. Section 9(2)(a) provides that a reference date is a date determined by or in accordance with the construction contract as:
· a date on which a claim for a progress payment may be made; or
· a date by reference to which the amount of a progress payment is to be calculated.
in relation to a specific item of construction work “carried out or to be carried out” or a specific item of related goods and services “supplied or to be supplied” under the contract.
36 It is now well established in Victoria that unless a payment claim answering the description in section 14(1) of the Act is served, there can be no application to a court under s16(2)(a)(i).[5]
[5] Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340 at [44] (“Southern Han”).
37 The available defences to a payment claim are very limited and concern either the nature of the underlying contract or the form and service of the purported payment claim, and thus whether the payment claim is effective to trigger the procedures established by Part 3 of the Act.[6] More particularly, the defences to a payment claim enlivened by the formal requirements of the Act are, in substance, that the payment claim:
[6] Southern Han at [62].
· does not relate to a “construction contract” (including because it does not involve carrying out “construction work”), or it relates to a construction contract excluded from the operation of the Act under s7 (for example, a construction contract that forms part of a loan agreement, or one that is a domestic building contract under the Domestic Building Contracts Act1995);
· fails to satisfy the formal requirements of s14(2) (for example, by failing to identify the construction work or failing to state that it is made under the Act);
· was made when no valid reference date existed,[7] including where it is served before an applicable reference date or relies on a reference date that has already been used up by an earlier payment claim;[8]
[7] Southern Han at [61]-[62]; Vanguard Developments v Promax [2018] VSC 386, Kennedy J at [121].
[8] s14(8) SOP Act.
· includes variations that are “excluded amounts” under s10B of the Act; and
· was not validly served on the respondent under either the terms of the contract or under s50 of the Act.
38 Under section 47, nothing in Part 3 of the Act precludes bringing or continuing proceedings under the construction contract, including where those proceedings deal with the same issues in dispute in the proceeding relying on Part 3. Thus, a judgment under ss16 and 17 is a provisional judgment in what it grants and what it refuses.[9] The statutory context both contemplates and permits inconsistent judgments.[10] This section is, in effect, the statutory manifestation of the “pay now, argue later” epithet often used to describe the policy behind the Act and its counterparts in other states.[11]
[9] Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor (2009) 26 VR 112 [2] and [43]-[46] (Vickery J), cited with approval in Pearl Hill Pty Ltd v Concorp Construction Group (Vic)Pty Ltd [2011] VSCA 99 [11].
[10] Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd (2005) 62 NSWLR 385 [22] (Handley JA, with whom Santow JA and Pearlman AJA agreed).
[11]Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor (2009) 26 VR 112 at [2] and [43]-[46].
39 Further, in considering any purported defences to a payment claim, it is important to be mindful of s48 of the Act. This section provides that the provisions of the Act have effect despite any contractual provision to the contrary. It further provides that any provision in any contract purporting to exclude, restrict or modify the operation of the Act or that may reasonably be construed as an attempt to deter a person from taking action under the Act, is void.
Analysis
Was the 31 March payment claim served?
40 The defendant resists the application primarily on the basis that the plaintiff cannot prove that the alleged payment claim was served. It submits that the evidence of the plaintiff on this point is circumstantial - and unsatisfactory given the events set into motion under the Act by the service of a payment claim. It also submits that the Owners Corporation letterbox at 1289 Burke Road, Kew (“Kew address”) was not a valid address for service under the contract, the Act or s109X(1)(a-b) of the Corporations Act 2001 (Cth) (“Corporations Act”).
41 Method maintains that it validly served the payment claim. It notes that the evidence of service remains largely unchallenged. Further, it contends that by virtue of Annexure A to the Contract, the Kew address was a valid address for service.
16 In support of its submissions that the payment claim was validly served, the plaintiff relies upon the affidavit of Ms Bockting, who organised the courier to deliver the payment claim on 1 April 2020. Further, the plaintiff relies upon the affidavit of Mr Iaconesso, employee of Jet and relevant courier driver on 1 April 2020.
17 Ms Bockting deposes that on 1 April 2020, Mr Shields gave her two copies of the payment claim dated 31 March 2020 (addressed to ABI) and informed her that they were ready to send. She deposes she checked the addresses firstly with Mr Shields and then against old adhesive labels with the relevant addresses, used for previous deliveries. She engaged the services of Jet by telephone and made a booking for same day delivery to the Owners Corporation letter box at 1289 Burke Road, Kew and 1 Hertford Crescent, Balwyn (“Balwyn address”), API’s registered office and principal place of business.
18 Ms Bockting further deposes that approximately one hour after this phone call, a driver from Jet attended the office. Ms Bockting handed him the envelopes and requested proof of delivery in the form of a photo. On the top envelope was a post-it note requesting a photo as requirement of proof of delivery. Ms Bockting deposes that the following day, she logged onto Jet’s online portal system, which confirmed that the payment claim had been delivered to both addresses.
19 Ms Bockting deposes that she had arranged for Jet to deliver documents at both the Kew and Balwyn addresses on other dates this year, namely:
· 28 February 2020;
· 21 April 2020;
· 4 May 2020; and
· 12 May 2020.
20 Mr Iaconesso deposes that he does not recall the 1 April 2020 deliveries specifically, given the significant time-lapse. However, having reviewed the records for this job, he believes that:
· At approximately 3:23pm, he delivered one envelope to the Owners Corporation letterbox at the Kew address, took a photograph on delivery and signed a delivery confirmation, as was the practice at the time to ensure contactless delivery in accordance with Jet’s COVID safe plans.
· At approximately 3:36pm, he delivered the other envelope to 1 Hertford Crescent, Balwyn, and signed the delivery confirmation on the HubMobile application. He deposes he did not take a photo as the instructions on that envelope did not require it.
· Having reviewed the records from Jet, he confirms that the signatures for each of the two deliveries were his own and that the photograph of the Kew address was the photo he took on 1 April 2020.[12]
[12] Affidavit of Mr Iaconesso affirmed 5 October 2020 at [8].
42 Method also adduced, by way of exhibit to Mr Francis’ affidavit, the subpoena material which Jet produced. This material included copies of Jet’s booking details, confirmation of delivery, photographs of delivery and tax invoice dated 1 April 2020. The progress information and invoice indicated that the timeframe for the delivery on 1 April 2020, according to Jet’s record, was as follows:
· the job was booked at 1:36pm;
· the documents were ready at 2:30pm;
· the driver collected the documents at 2:41pm;
· the documents were signed for at 3:23pm at the Kew address;
· the documents were signed for at 3:36pm at the Balwyn address; and
· the job was completed at 3:36pm.
43 In its subpoena response, Jet also produced a direct extract from FMS transport management system, including the full audit trail of transaction, including a document providing the GPS updates of Mr Iaconesso approximately every minute.
44 At the relevant times, the location of the vehicle which Mr Iaconesso was driving, according to this document, was:
· -37.805333, 145.061507 at 3:23pm, which according to Google maps is 1289 Burke Road, Kew.
· -37.813118, 145.093553 at 3:36pm, which according to Google maps is 4 Hertford Crescent, Balwyn, which is directly opposite 1 Hertford Crescent.
45 Method submits that it has met the burden of proof to establish valid service. Further, it submits that ABI has failed to adduce any evidence that casts doubt on the reliability of the evidence of delivery. Rather, ABI’s evidence focusses on the assertion that it did not receive the payment claim.[13]
[13] Submissions in reply of the plaintiff dated 7 October 2020 at [6].
46 Method submits that both the Contract and the Act contain deeming provisions regarding receipt of notices upon their delivery. Further, it refers to the decision of Judge Woodward in Rudyard Pty Ltd v ASEA 1 Pty Ltd[14] (“Rudyard”) in which his Honour addressed the distinction between delivery and receipt.
[14] [2019] VCC 1995.
47 In opposition, ABI relies upon two affidavits of Mr Xin Wang (as translated by Mr Liu) an affidavit of Mr Chunxiao Wang, and an affidavit of Mr Cui.
48 Mr Xin Wang, who resides at the Balwyn address, deposes that he was at the residence on 1 April 2020. In his first affidavit, Mr Wang deposes that he does not recall receiving any mail or deliveries from ABI. In his subsequent affidavit, Mr Wang clarifies that he did not receive any mail or deliveries for ABI on this date either by hand delivery or by retrieving it from the letterbox at the residence. Further, he deposes to hearsay evidence that he asked his family members who reside at the address with him whether they received any deliveries and they have said they did not (see s59 of the Evidence Act 2008 (Vic) (“Evidence Act”)).
49 Mr Xin Wang deposes that on or around 29 February 2020, someone hand delivered an envelope at the Balwyn address, which required a signature. The envelope contained payment claims from Method.
50 Mr Chunxiao Wang deposes that he is primarily responsible for installing security systems for Smart 360’s clients, of which ABI is one. He deposes that on 30 March 2020, he installed six CCTV cameras and a control box at the Kew address. The system operates by recording footage from the cameras when the motion sensors on the cameras are triggered. The CCTV system covers the driveway and mailbox area at the Kew address.
51 He deposes that on 20 May 2020, he attended the site to review the CCTV footage at the request of Mr Cui. According to Mr Chunxiao Wang, the control box of the system allows the operator to input a date and time to see if any motion is detected during this period. If motion is detected, the CCTV system will allow the operator to see any recorded footage. Mr Chunxiao Wang deposes that he reviewed the footage for 1 April 2020, and that there was no motion detected on this date and therefore no footage was recorded. Exhibited to Mr Chunxiao Wang’s affidavit is a letter from Smart 360, which confirms that there were no movements on 1 April 2020 and that the CCTV system had been ‘working perfectly all the time’.[15]
[15] Exhibit CW-1 of the affidavit of Chunxiao Wang sworn 4 September 2020.
52 Mr Cui deposes that he was working as project manager at 10/1289 Burke Road from 1 March 2020 and was working in this role, and unofficially in the role of superintendent, on 1 April 2020. He deposes that his duties included regularly attending the Site, monitoring the security of the Site and checking the mailboxes, including that of the Owners Corporation. Mr Cui deposes that he attended the Site on 31 March 2020 and again on 7 April 2020, checked the mailboxes on these days and did not receive the payment claim.[16]
[16] Affidavit of Mr Haofu Cui sworn 4 September 2020 [12].
53 In addition to the preliminary issue of the Kew address not being a valid address for service, ABI presents five arguments to conclude that Method did not deliver the payment claim:
· First, that Method has not led any direct evidence of delivery (such as an affidavit of service under s181 of the Evidence Act.
· Secondly, that the evidence of delivery is inadmissible as hearsay (Evidence Act s 59).
· Thirdly, Method’s evidence provides an ‘unsafe’ basis on which to infer delivery, lodging or leaving due to the lack of photo of delivery to the Balwyn address and the signatures on delivery which Mr Iaconesso deposes are his own are substantially different.
· Fourthly, that Method’s evidence of delivery needs to be weighed against ABI’s denial of receipt in the affidavits of Mr Xin Wang, Mr Chunxiao Wang and Mr Cui.
· Fifthly, Method’s decision not to adduce direct evidence from Jet means that the court ought to infer Mr Iaconesso’s evidence would not have assisted Method’s case, in accordance with the rule in Jones v Dunkel.[17]
[17] (1959) 101 CLR 298.
54 I accept the submissions of Method and am satisfied that the payment claim was validly served. I shall address each of ABI’s arguments in turn, commencing with the validity of the Kew address.
55 As Vickery J observed in Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd & Ors[18] (“Metacorp”), the provisions in s50 of the Act are ‘facultative, not mandatory’. His Honour also noted that the operation of s50 of the Act does not limit or exclude the provisions of s109X of the Corporations Act, nor any contractual provisions.[19]
[18] [2010] VSC 199 at [162].
[19] Ibid.
56 As Method identified, s109X(1)(a) allows for service of a document on a company to be effected by leaving it at, or posting it to, the company’s registered office or delivering a copy of the document personally to a director of the company.[20] Balwyn was such an address.
[20] s109X(1)(a-b) Corporations Act 2001 (Cth).
57 ABI submits that the preliminary issue of service which Method faces is that the Owners Corporation letterbox (10/1289 Burke Road Kew) was not a valid address for service, as it is not ABI’s registered office nor its principal place of business.
58 In response, Method submits that the Kew address is stipulated in the contract as being the address of the principal. Further, it says ABI is estopped from contending that the Kew address is not a valid address for service. This is because Method assumed that the Kew address was a valid address for service, as it was recorded in the contract as ABI’s address, ABI had previously accepted and responded to payment claims served at the Kew Address and had failed to raise any issues with service at the Kew address previously.
59 While the general terms of the contract refer to any notice being delivered to the ‘addressee’ in the Contract, Item 4 of Part A Annexure stipulated ‘1289 Burke Road Kew’ as the address of the principal. The notification from the previous superintendent on 7 February 2020 informed Method that all correspondence was to be ‘directed to the principal directly.’[21] No address was provided for the direction of correspondence in the 7 February 2020 letter.
[21] Affidavit of Roland Bockting sworn 15 July 2020 at EX-RTB-5.
60 ABI raises a technical argument in relation to the Owners Corporation letterbox: that 1289 Burke Road was the stipulated address for service in the Contract (and by extension, the Act), not 10/1289. However, I agree with Method’s submission in relation to the previous conduct of ABI. That is, that ABI accepted service by way of the Owners Corporation letterbox, and Method relied upon that conduct in serving the 31 March 2020 payment claim. Mr Cui’s evidence that he regularly checked the Owners Corporation letterbox as part of his duties as an ABI employee and an unofficial superintendent reinforce that ABI was willing to accept service at this address.
61 In particular, I note the importance of the 7 February 2020 correspondence from Mr Hermans, the former superintendent, which provided little direction for Method to direct its payment claims. Further, there was a substantial lapse in time between Mr Hermans’ letter and the letter from Mr Xin Wang dated 21 April 2020 informing the plaintiff of the replacement of the superintendent. ABI would likely have been aware that Method might serve a payment claim during that time, as the rectification works were incomplete. Given that ABI did not advise Method of a different address for service, as required under cl 7 of the Contract, I am of the view that it was entirely correct for Method to continue serving payment claims at the address where ABI had previously accepted service.
62 Though not raised by either party, in my view, it is worth noting that the Kew address was also the Site of the Contract. Considering that the Site was an active construction site (though practical completion had been reached), on which ten townhouses were being constructed, I consider it prudent that Method served on the Owners Corporation letterbox, in an attempt to serve in a manner most likely to bring the documents to ABI’s attention.
63 Having established that the Kew address was a valid address for service, I shall now turn to ABI’s five arguments that service was not validly effected on 1 April 2020.
64 ABI submits that Method has failed to lead any direct evidence of delivery, such as an affidavit of service pursuant to s181 of the Evidence Act. I find little force in this argument given the other evidence of Method. In particular, the affidavits of Ms Bockting who arranged the courier service and then provided the courier driver with the documents on 1 April 2020, and Mr Iaconesso, the courier driver, are sufficiently direct in relation to the issue of service.
65 Secondly, ABI objects to the following items of evidence on the grounds of hearsay:
· paragraph 13 and exhibit RTB-8 of the affidavit of Mr Bockting [p 468];
· pages 14-19, parts of page 20, and pages 21-26 of the pdf version of the affidavit of Mr Francis;
· paragraph 4, paragraph 8 to the extent it states, “which confirmed that the payment claim had been delivered to ABI at both addresses”, paragraph 9, and exhibit TB-1 of the affidavit of Ms Bockting.
66 Section 59 of the Evidence Act stipulates the hearsay rule, as follows: “Evidence of a previous representation made by a person is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation”.
67 I make the following findings in relation to ABI’s objections:
· paragraph [4] of Ms Bockting’s affidavit is hearsay. It is a previous representation of Daniel Shields, a director of MCA. It contains an express statement asserting that the payment claim was ready to be sent. Method would adduce that evidence to prove the truth of the assertion (that it was in fact sent).
· paragraph [13] of Mr Bockting’s affidavit and paragraphs [8] and [9] of Ms Bockting’s affidavit are not hearsay. They merely refer to the booking and delivery records. This is direct evidence.
· The booking and delivery records themselves are hearsay. They are previous written representation of Jet. They contain express written assertions that delivery was made to those addresses. Method would adduce the documents to prove the truth of the assertions therein, namely that delivery was in fact made to those addresses.
· However, the business records exception would apply. The definition of “business record” is broad (Lancaster v The Queen[22]). It would encompass booking and delivery records. Those documents were made in the course of Jets’ business (s69(1)(a)(i)). The representations therein as to delivery were made in the course of that business. (s69(1)(b)). The person who delivered the documents had personal knowledge they were delivered based on seeing the delivery. The essence of s69(2) is that at least someone had personal knowledge (Lithgow City Council v Jackson[23]). No exceptions apply – not made for/in contemplation of litigation or criminal proceedings/investigation (s69(3)).
[22] [2014] VSCA 333.
[23] [2011] HCA 36.
68 ABI submits that Method’s evidence provides an unsafe basis on which to infer delivery, lodging or leaving of the payment claim. It draws attention to alleged inconsistencies in the plaintiff’s evidence, such as the lack of photograph on delivery at the Balwyn address and the differences in Mr Iaconesso’s two signatures. While there is force in this submission, without further evidence on this issue, such as a handwriting expert, on balance I prefer the evidence of Mr Iaconesso, who has confirmed that both of the signatures are his, and an explanation as to why he did not take a picture of the Balwyn address, on oath, in his affidavit.
69 Fourthly, ABI submits that Method’s evidence of delivery needs to be weighed against ABI’s denial of receipt. In my view, this argument goes to the heart of the issue of service in this matter. The task before me, given the directly contradictory affidavit evidence provided, is to evaluate which evidence is to be preferred against the other.
70 I agree with the plaintiff’s submission that mere denial of receipt is insufficient to justify a finding of non-delivery and with the relevance to the decision in Rudyard and the case of In the matter ofKornucopiaPty Ltd (No 1)[24] (“Kornucopia”), I make the following findings.
[24] [2019] VSC 756.
71 ABI submits that these cases are distinguishable to the matter before me as rebuttable presumptions arose by virtue of the fact the documents were served by post.[25] However, no such presumption arises in relation to service by courier delivery.
[25] As outlined in s49(1)(b) of the Interpretation of Legislation Act 1984 (Vic) and s29 of the Acts Interpretation Act 1901 (Cth).
72 I agree with the defendant’s submissions that the observations of Sifris J at [47] in Kornucopia were made in relation to the presumption arising from s29 of the Acts Interpretation Act 1901 (Cth), which does not operate here. However, in my view, the deeming provision at clause 7(c)(iv) of the general conditions of contract has a similar effect to the statutory presumptions in both Kornucopia and Rudyard. Clause 7(c)(iv) states that ‘A Notice must be given and received… if otherwise delivered, upon delivery.’
73 Even in the absence of the deeming provision under the contract, my finding would still be in favour of the plaintiff. While, as the defendant submits, the defendant has maintained consistently that it did not receive the payment claim, the evidence filed by the plaintiff, particularly the records produced by Jet, in my view, is objectively stronger. Mr Xin Wang’s simple denial that he did not receive the payment claims and the inferential evidence of Mr Chunxiao Wang that the security system, installed two days prior, did not capture movement at the Kew address on 1 April 2020, are outweighed by the evidence filed by Jet that the payment claim was prepared by Method and collected and delivered by Jet on 1 April 2020. On balance, it is more reasonable to assume that the documents were delivered than not.
74 ABI’s final argument inviting me to make a Jones v Dunkel inference was made in its submissions which predated the filing of Mr Iaconesso’s affidavit and this submission is no longer relevant.
75 Therefore, I find that service was validly effected to both the Kew and Balwyn addresses on 1 April 2020.
Lack of a reference date
76 In the alternative to its submissions regarding service, ABI argues that the payment claim was invalid for want of a reference date for three reasons.
Retention claim was out of time
77 First, insofar that the alleged payment claim includes a claim for retention, the applicable reference date was 27 November 2019 and as such, was served out of time pursuant to s14(4)(b) of the Act.
78 The plaintiff submits that this contention is incorrect and inconsistent with authority, referring to the recent decision of Digby J in Punton’s Shoes Pty Ltd v Citi-Con Pty Ltd[26] (“Puntons”). It submits that a claim for retention monies is not in the nature of a progress entitlement and therefore does not trigger an independent reference date.[27]
[26] [2020] VSC 514.
[27] Ibid [111-114].
79 I agree with the plaintiff that the defendant’s submission in this regard is misconceived and no independent reference date is triggered by the retention claim. In Puntons, his Honour considered a payment claim which was issued entirely for an amount seeking the return of 50% of the retention money, but without any claim in respect of the balance of the works.[28] His Honour’s observations regarding the distinction between a payment claim and a claim for return of retention monies are helpfully outlined as follows (citations included, emphasis added), which I respectfully adopt in full:
[28] Ibid [4].
“110 Under the scheme of the Contract the retention moneys progressively deducted formed a separate and distinct security fund to ensure performance by the Contractor. The separate and distinct character of the contractual security fund created by the deduction of retention moneys is apparent from the terms and operation of cls 5.1, 5.2, 5.5, 5.6 and 42.8 of the Contract which establish the purpose of that security fund, the contractual mechanism for its accumulation and reduction and the bases upon which recourse may be had to that security fund by the Principal. The Contract makes no provision for a claim in respect of, or for payment to the Contractor in relation to the security fund. Accordingly, any implied right or entitlement there may be in the Contractor to return of a portion of retention moneys is different in character and distinct from either a claim under the Contract for the value of work carried out or an entitlement under the SoP Act for the value of construction work carried out and related goods and services.[29]
[29]Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340, [59]-[60].
111 In distinction to a payment claim entitlement, the Contract does provide a mechanism to adjust the parties’ entitlements in relation to moneys deducted by way of retention. Any sum held by way of retention is to taken into account in the Final certification process under cl 42.6 of the Contract and thereby accounted for in the amount ultimately payable as between the Contractor and the Principal on the final reconciliation of each parties entitlements under the Contract. The retention deduction, reduction, recourse and security related provisions of the Contract do not contemplate or accommodate payment claims by the Contractor for contract work undertaken or related goods and services supplied.
112 For the above reasons, and in particular because the Contract, including the progress payment provisions in cl 42.1 of the Contract make no provision for the return or payment of retention moneys, any implied entitlement to return of retention moneys upon the issue of the Certificate of Practical Completion under the Contract, or adjustment under cl 42.6, is not in the nature of a progress payment entitlement in relation to work carried out by the Contractor in the performance of the Contract.
113 Neither, for the same above reasons, is the first defendant’s September 2019 Payment Claim under the Contract for return or payment of half retention moneys in the nature of a payment claim under the SoP Act for construction work or related goods and services undertaken and provided under the Contract. This is so irrespective of whether the first defendant was able to establish a valid reference date, and any implied or other foundation for its claim to be paid half the deducted retention moneys.
114 Further, it follows from the conclusions in the last three preceding paragraphs that there can also be no relevant reference date under s 9 the SoP Act because a relevant reference date under the Act is determined on the basis of a progress payment entitlement in respect of construction work undertaken or the supply of related goods and services under the construction contract. The September 2019 Payment Claim does not make a claim for an entitlement of this type.”
80 Therefore, in light of his Honour’s reasoning, the relevant question in relation to retention is not whether the payment claim was issued in respect of a valid reference date, but whether the claim validly included the amount for retention at all, pursuant to the terms of the contract.
81 The plaintiff has included the claim for the return of the retention monies in its payment claim pursuant to cl 5.8 of the general conditions of contract. This clause outlines that upon the Certificate of Practical Completion being issued, the defendant’s entitlement to security and retention shall be reduced by a maximum of 1.5% of the contract sum, and upon the plaintiff providing to the principal an executed deed of release (practical completion), that entitlement shall be reduced by a further amount capped at 1% of the Contract Sum. Clause 5.8(d) provides that that the defendant shall release the retention monies in excess of the entitlement within 28 days of the entitlement being so reduced.
82 The claim to recover the retention monies was determined by the terms of the contract and it was permissible for the plaintiff to include the amount of retention money in the payment claim.
Reference dates did not arise during the defects liability period
83 Secondly, ABI argues that the proper construction of cl 42.1 of the Contract did not give rise to regular end of month reference dates during the defects liability period. It submits that reference dates only arose on the issue of the certificate of practical completion and within 28 days of the expiry of the defects liability period but not in between.
84 In response, Method submits that reference dates continue to arise after work ceases, unless the contract provides otherwise, relying on the cases of Pinnacle Construction Group Pty Ltd v Dimension Joinery Interiors Pty Ltd[30] (“Pinnacle”) and Brodyn Pty Ltd t/as Time Cost and Quality v Davenport & Anor[31] (“Brodyn”). The plaintiff argues that the accrual of reference dates following practical completion is to be determined by analysis of the contract, which in this case does not contain an express term stipulating a date or time when references dates were no longer to accrue.
[30] [2018] NSWSC 894.
[31] [2004] NSWCA 394.
85 The defendant seeks to distinguish both Pinnacle and Brodyn, due to the factual differences, such as the termination of the contract in Brodyn and the structural difference of the relevant clause in Pinnacle. While I find that the cases are not binding precedent, in my view they provide useful guidance for the statutory interpretation of s9(2) of the Victorian Act, noting that both cases considered the NSW equivalent - the now repealed s8(2) of the NSW Act.
86 In Brodyn, their Honours considered the operation of s8(2) of the NSW Act and held that unless the contract provides otherwise, the NSW Act does not provide that reference dates cease on termination of a contract or cessation of work. The former section s8(2)(b) of the NSW Act provided a date by which reference dates are to commence, but not a date on which they cease.[32]
[32] Ibid at [63].
87 Similarly, in Pinnacle, Stevenson J held that unless the contract provides otherwise, reference dates continue to arise after work ceases.[33]
[33] Pinnacle at [20].
88 Contrary to the former s8(2) of the NSW legislation, the Victorian Act does provide that a reference date in relation to a final payment arises following the expiry of the defect liability period or the issuing of the final certificate or the date that construction work was last carried out or goods and service were last supplied.[34] Therefore, I am satisfied that the legislation, distinctly from the now repealed NSW equivalent, expressly contemplated that the reference dates were to continue until the end of the defects liability period, or the issuing of the final certificate or the final day of work.
[34] s9(2)(d)(i-iii) SOP Act.
89 This is to be contrasted with the scenario where the contract has been terminated. It was common ground that the Contract in this proceeding was still on foot. In Cat Protection Society v Arvio[35] after termination, no reference dates accrued and the contract did not provide for a reference post-termination. The claimant would then need to rely on any accrued right to make a progress claim.
[35][2018] VSC 757 at [57]
90 Further, in reviewing the Contract in the present case, I remain unpersuaded by the defendant’s submission and I do not hold the view that the parties intended for reference dates to cease after practical completion was achieved.
91 As the plaintiff submits, there is a noticeable absence of any clause limiting the accrual of reference dates. Further, reference dates were to continue to arise during the defects liability period in light of the following (emphasis added):
· First, cl 42.1 states that Method was to deliver payment claims “at the times for payment claims or upon completion of the stages of work under the Contract… and upon the issue of the Certificate of Practical Completion”.[36]
· Secondly, cl 42.5 outlines the process by which the final payment claim was to be issued. The contract required that within 28 days of the expiry of the defects of the liability period “in addition to claims for payment required to be included in a payment claim under clause 42.1, the Contractor shall include in the Final Payment claim all claims for monies which the Contractor considers to be due”.[37]
[36] Exhibit RTB-1 to the affidavit of Roland Bockting sworn 15 July 2020.
[37] Ibid.
92 These clauses operate to provide the plaintiff with the available dates for the issuing of payment claims. These available dates are on the last date of each month, upon practical completion and on final completion at the conclusion of the defects liability period.
93 Therefore, I conclude that reference dates did continue to arise throughout the defects liability period and the plaintiff was able to issue payment claims at the end of each month.
More than one payment claim was issued in respect of the relevant reference date
94 ABI submits that if regular end of month reference dates were capable of accruing during the defects liability period, which I have concluded that they were, the payment claim should fail as it was not the only claim issued in light of the relevant reference date, in contravention of s14(8) of the Act.
95 In response, Method submits that there are two reference dates available to it, being those at the end of the months of February and March 2020 and the payment claim therefore did not contravene s14(8).
96 According to the Contract, the reference date was the last day of each month. Therefore, the following reference dates arose from January 2020:
· 31 January 2020;
· 29 February 2020 (as 2020 is a leap year), which as a Saturday, pursuant to cl 42.1 of the Contract became the next business day, 2 March 2020;
· 31 March 2020;
· 30 April 2020; and
· 31 May 2020, which as a Sunday, pursuant to cl 42.1 became 1 June 2020.
97 The delivery records from Jet, as exhibited to Ms Bocktings affidavit confirm the documents were delivered to both the Kew and Balwyn addresses on 28 February 2020.[38] Ms Bockting deposes that the documents delivered were a previous payment claim,[39] which is supported by Mr Xin Wang’s evidence.[40]
[38] Ex TB-2 to the affidavit of Tracy Bockting sworn 18 September 2020.
[39] Ibid at [10].
[40] First affidavit of Mr Xin Wang affirmed 4 September 2020 [15-18].
98 The plaintiff submits that the February payment claim was served prior to the February reference date, and therefore, the payment claim dated 31 March 2020 was not exhausted.
99 As a contractor has three months after the reference date in which to serve a payment claim,[41] I am satisfied that the 29 February 2020 payment claim was in light of the 31 January 2020 reference date, leaving the 2 or 31 March 2020 reference dates available.
[41] s9(4)(b) SOP Act.
100 ABI submits that in respect of the 31 March 2020 reference date, the payment claim is invalid for two reasons. First, that it reclaims the amounts claimed in the February claims and secondly, that Method did not claim the costs of defect rectification work carried out in February 2020, but from previous months.
101 This is a separate issue to the submission regarding excluded amounts pursuant to s10B of the Act, which I shall address below. A claimant may include an amount which has been the subject of a previous payment claim if that amount has not been paid,[42] however, cannot otherwise do so.
[42] s14(9) SOP Act.
102 Reviewing the 29 February 2020 payment claim[43] alongside the 31 March 2020 payment claim, the payment claims are identical in what they claim. The following is a table which includes the breakdown of both payment claims.
[43] Exhibit XW-2 to the first affidavit of Mr Xin Wang sworn 4 September 2020 (as translated by Mr Kuan Liu sworn 4 September 2020).
Item 29 February Payment Claim 31 March Payment Claim Preliminaries inc scaffold $9,614.41 $9,614.41 Render $1,500 $1,500 Doors and doors hardware $5,000 $5,000 External works $18,000 $18,000 Hydraulic Services $2,000 $2,000 Electrical Services $2,000 $2,000 Mechanical Services $1,500 $1,500 VR7624 Contract value $461.23 $461.23 Variation- pool $3998.50 $3998.50 Variation- flyscreens to units 1 and 10 $1,408.73 $1,408.73 Variation- landscaping $2,000 $2,000 Subtotal (inc GST) $52,231.16 $52,231.16 Cash retention: $150,415.38 $150,415.38 Total this claim: $202,645.97 $202,646.38
103 Additionally, Mr Su, adviser to ABI, deposes that the February payment claim was identical to payment claim 17 dated 31 October 2019, which is reproduced in the monthly progress report from Berkowitz & Associates dated 15 November 2019. Reviewing the report, the items claimed are indeed the same, save for the landscaping item which in the October payment claim was for the higher sum of $3,937.59.[44]
[44] Exhibit WS-1 of the affidavit of William Su sworn 9 September 2020.
104 ABI responded to the 31 October 2019 payment claim with a payment schedule dated 18 November 2019, with a scheduled amount of $0.0.
105 Further, ABI responded to the 29 February 2020 payment claim with a payment schedule dated 12 March 2020, with a scheduled amount of $0.0, outlining various reasons for the schedule amount.
106 It does not appear from the material filed in this proceeding to date, that Method sought to proceed to an adjudication for either the October or February payment claims, pursuant to division 2, part 3 of the Act.
107 In its submissions regarding excluded amounts pursuant to s10B, the plaintiff refers to the decision of Judge Ryan in Zulin Formwork Pty Ltd v Valeo Construction Pty Ltd[45] (“Zulin”), which is also relevant to this question. Her Honour was faced with a similar matter regarding a claim under s16(2)(a), in which the relevant payment claim contained amounts previously claimed. A payment schedule had been served in response to the first payment claim, scheduling an amount less than that which was claimed. No payment schedule was served in response to the subsequent claim, on the basis that it claimed for amounts to which the defendant had already responded.
[45] [2019] VCC 936.
108 As in the case before me, the plaintiff in Zulin did not seek adjudication of the first payment claim. Her Honour determined that s18 provides that a claimant may apply for adjudication of a payment claim, but is not compelled to do so.[46] A respondent may not rely on the ‘hollow’ argument that a claimant cannot claim the amounts in a subsequent payment claim because it did not seek an adjudication. No flow on effect is caused to result in the amounts listed in a payment schedule to be automatically adjusted in favour of the respondent, should a claimant not seek adjudication.[47] Importantly, her Honour concluded that s14(9) did not operate so as to preclude the claimant from including amounts that were the subject of a previous claim, providing the relevant amount had not been paid.[48]
[46] Ibid at [58].
[47] Zulin at [59].
[48] Ibid.
109 I respectfully adopt the reasoning of Judge Ryan in Zulin and conclude that the plaintiff was entitled to rely on s14(9) to include the works previously claimed in the October and February payment claims, as they remained unpaid.
Inclusion of excluded amounts
110 In the alternative to its above arguments, ABI submits that the payment claims are invalid due to the inclusion of ‘excluded amounts’ pursuant to ss10(3) and 10B(2) of the Act. These alleged excluded amounts are, namely, liquidated damages amounting to $45,482.87 and defect rectification costs amounting to at least $200,000 deducted or set off by ABI in the February payment schedules.[49]
[49] Defendant’s submissions at [49].
111 Method denies that there are excluded amounts as the inclusion of an excluded amount by ABI in a previous payment schedule does not convert the plaintiff’s payment claim to an excluded amount. In the alternative, Method submits that to the extent the payment claim includes any excluded amount, such an amount should be severed from the amount claimed and judgment entered for the balance.
112 As observed by Judge Ryan in Zulin, according to Seabay Properties Pty Ltd v Galvin Construction Pty Ltd[50] (“Seabay”) the prohibition of claiming excluded amounts extended to both claimants and respondents in relation to payment claims and payment schedules.[51] In Seabay, Vickery J emphasised the importance of excluded amounts also applying to any set off or counterclaim raised by a respondent, in particular noting at [122]:
‘If it was that “excluded amounts” as defined in s.10B of the Act were only to apply to claims made by a claimant and not to any set-off or counterclaim raised by a respondent to a payment claim, the operation of the Act in numbers of cases could be seriously compromised. Contentious matters such as claims for damages arising from the construction contract could be raised by a respondent with the result that a claimant could be denied the cash flow which the Act is designed to protect.’
[50] [2011] VSC 183.
[51] Ibid at [122-124].
113 These comments were noted with approval in Shape Australia v The Nuance Group[52] (“Shape”), with Digby J noting that “determining the application of liquidated damages will require a forensic examination of the constriction work and its progress” which is “undesirable” to the recovery of an interim progress payment. Further, his Honour noted that Parliament contemplated that imperfect SOP awards would be adjusted in subsequent civil proceedings between the parties.[53]
[52] [2018] VSC 808.
[53] Ibid at [90-91].
114 As Vickery J noted in Seabay, these excluded amounts are to promote the objective of the Act and assist in the speedy resolution of disputes. The excluded amounts as outlined in s10B, while commonplace in construction disputes, are often complex. Naturally, they would hinder the speedy resolution which is promoted by the Act if they were to be included.[54] By ensuring they are excluded from progress payments, the ‘pay now argue later’ epithet is given full effect.
[54] Ibid at [120].
115 In my view, it is clear pursuant to s10B(2)(b)(ii) and s10B(2)(c) that liquidated damages are an excluded amount, being both an amount claimed for compensation due to an event in relation to time related costs, and being damages arising under or in connection with the contract. As such, any claim for liquidated damages would be impermissible in a payment schedule, applying the principles of Seabay and Shape. Therefore, ABI did not validly deduct or set off amounts for liquidated damages and Method is not seeking to ‘recoup’ those amounts.
116 In the circumstances, the payment claim did not comprise excluded amounts, being liquidated damages.
117 In relation to rectification costs, ABI similarly claims that in the February payment schedules it sought to deduct or set-off defect rectification costs.
118 Section 10B(2)(c) of the Act provides that “any amount claimed for damages for breach of the construction contract" is an “excluded amount” which cannot be claimed in a Security of Payment claim. This issue was raised because the cost of rectifying a defect could be characterised as a claim for damages for breach of contract.
119 In Maxstra Constructions, Vickery J held that section 10B(2)(c) where it refers to claims for damages being excluded amounts did not include the estimated cost of rectifying defects where section 11(1)(b)(iv) applies:
Claims for “damages” under s.10B(2)(c) are quite rightly treated as separate “excluded amounts”, and are to be disregarded in calculating the amount of a progress payment. The forensic enquiry involved in assessing damages, and the potentially wide scope of any such claim is avoided, thereby reinforcing the limited ambit of the adjudication process contemplated by the Act and its objective of expedition. On the other hand, the enquiry to be conducted under s.11(1)(b)(iv) of the Act, properly confined as it is, as I found it to be, would not be likely to defeat the objectives of the Act.[55]
[55]Maxstra Constructions Pty Ltd v Joseph Gilbert (t/as J Gilbert Concrete) [2013] VSC 243 at [62]
120 As such, an estimated cost of defective work does not fall within the scope of “damages” within the meaning of s10B(2)(c) of the Act. Seeking to expand the definition of excluded amounts beyond current jurisprudence, circumvents the operation of s16(4)(b) of the Act in which ABI is not entitled to bring any cross claim or raise any defence under the contract in the present case. Costs of defective works are matters that ought to have been set out in a schedule. It cannot now be relied upon.
121 Accordingly, for the purposes of this proceeding, I am satisfied that claim is a valid payment claim totalling $202,646.38 (inclusive GST) and judgment should be granted in favour of Method pursuant to s16(2)(a)(i) of the Act.
122 Finally, I agree with Method that the relevant interest rate is the rate specified under the Penalty Interest Rate Act 1983 (Vic) pursuant to the operation of s12(2) of the Act.
- - -
Certificate
I certify that these 34 pages are a true copy of the judgment of Judicial Registrar Burchell delivered on 13 November 2020
Dated: 13 November 2020
Simon Bobko Associate to
Judicial Registrar Burchell
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