On Forbes Developments Pty Ltd v Chase Building Group (Canberra) Pty Ltd
[2020] ACTSC 163
•23 June 2020
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | On Forbes Developments Pty Ltd v Chase Building Group (Canberra) Pty Ltd |
Citation: | [2020] ACTSC 163 |
Hearing Date: | 12 May 2020 |
DecisionDate: | 23 June 2020 |
Before: | Crowe AJ |
Decision: | See [88] |
Catchwords: | CIVIL LAW – Failure by the Principal to pay adjudication amount under the Building and Construction Industry (Security of Payment) Act 2009 (ACT) – suspension of work by the Builder under the Act – subsequent determination by expert under the contract resulting in the Builder owing the Principal more than the adjudication amount – date at which the Builder’s right to suspend work comes to an end – it comes to an end at the time of the unqualified acknowledgement by the Principal of the set off of the adjudication amount against the debt owed to the Principal |
Legislation Cited: | Building and Construction Industry (Security of Payment) Act 2009 (ACT) ss 17, 18, 19, 21, 22, 24, 25, 26, 27, 29, 38, 42, div 4.2 |
Cases Cited: | Beckhaus Civil Pty Ltd v Brewarrina Shire Council (No 2) [2004] NSWSC 1160 Falgat Constructions Pty Limited v Equity Australia Corporation Pty Ltd [2006] NSWCA 259 Shellbridge Pty Ltd v Rider Hunt Sydney Pty Ltd [2005] NSWSC 1152 |
Parties: | On Forbes Developments Pty Ltd (Plaintiff) Chase Building Group (Canberra) Pty Ltd (First Defendant) |
Representation: | Counsel B Buckland (Plaintiff) J Moffett (First Defendant) |
| Solicitors HFW Australia (Plaintiff) Bradley Allen Love Lawyers (First Defendant) | |
File Number: | SC 658 of 2019 |
Crowe AJ:
Background
The plaintiff is a developer. On 22 August 2017, the plaintiff entered into a contract with the first defendant for the latter to design and build an apartment building between Forbes Street and Northbourne Avenue, Turner in the Australian Capital Territory (ACT). Work proceeded pursuant to the contract between the parties and on 28 August 2019 the Superintendent under the contract determined that Practical Completion had been reached.
In that context, several disputes arose between the parties as to delay (involving liquidated damages) and variations (involving increases in the contract price). On 12 October 2019, the first defendant issued a payment claim pursuant to the Building and Construction Industry (Security of Payment) Act 2009 (ACT) (the Act). In that document, the first defendant claimed $949,430.49 plus GST consisting of an amount owing in respect of previous claims and amounts said to be owing for variations. The plaintiff replied to that payment claim by giving the first defendant a payment schedule. In the payment schedule, the plaintiff stated that it proposed to pay nothing having regard to the plaintiff’s claim for liquidated damages for delay, works which were alleged to be incomplete, and on the rejection of the whole of the variation claim.
Having regard to the dispute crystallised by the exchange of the payment claim and the payment schedule, the first defendant applied to an authorised nominating authority for adjudication of the claim pursuant to div 4.2 of the Act. An adjudicator was duly appointed (formerly the second defendant in this matter) and, after following the procedures required by ss 21 and 22 of the Act, the adjudicator delivered an adjudication decision under s 24 of the Act on 27 November 2019.
The adjudicator decided that, having regard to the terms of the contract, he was not able to conclusively determine the date of Practical Completion. Accordingly, the adjudicator decided that he was not able to make any decision on the claim for liquidated damages. On the other hand, the adjudicator decided all of the claimed variations against the first defendant. He allowed the amount of $469,434 in respect of the prior unpaid claims of the first defendant. He determined that the plaintiff should pay the expenses of the adjudication.
Section 25 of the Act required the plaintiff to pay the adjudicated amount on or before five days from the date the decision was given to it. That payment was not made. It is necessary to refer to the options given to the first defendant by s 26 of the Act. That section relevantly provides:
26 Failure to pay adjudicated amount
(1)This section applies if—
(a)an adjudicator decides that a respondent must pay an adjudicated amount to a claimant; and
(b)a respondent fails to pay the whole, or any part of, an adjudicated amount to the claimant under section 25.
(2)The claimant may—
(a) ask the authorised nominating authority to whom the adjudication application was made to provide an adjudication certificate; and
(b)give the respondent notice of the claimant's intention to suspend carrying out construction work, or to suspend supplying related goods and services, under the construction contract.
(3)An adjudication certificate must state the following:
(a) the name of the claimant;
(b) the name of the respondent;
(c) the adjudicated amount;
(d) the day when payment of the adjudicated amount was required to be paid to the claimant;
(e) if part of an adjudicated amount has been paid—the amount of the part payment.
(4)If an amount of interest payable on the adjudicated amount is not paid by the respondent, the claimant may ask the authorised nominating authority to state the amount of interest payable in the adjudication certificate.
(5)An amount of interest stated in the adjudication certificate is added to, and becomes part of, the adjudicated amount.
(6)If the claimant has paid the respondent's share of the adjudication fees for the adjudication but has not been reimbursed by the respondent for that amount (the unpaid share), the claimant may request the authorised nominating authority to state the unpaid share in the adjudication certificate.
(7)If an unpaid share is stated in the adjudication certificate, the unpaid share is added to, and becomes part of, the adjudicated amount.
The first defendant obtained an adjudication certificate for $485,905.68 (which included interest and the adjudication expenses). That certificate was then filed with this Court on 16 December 2019. It was entered as a judgment against the plaintiff for a debt due to the first defendant on 24 December 2019; see s 27 of the Act. It is important to note the terms of that section. It provides:
27Filing of adjudication certificate as judgment debt
(1)An adjudication certificate may be filed as a judgment for a debt, and may be enforced, in any court of competent jurisdiction.
(2)The adjudication certificate must be accompanied by an affidavit by the claimant stating the amount of the adjudicated amount that has not been paid at the time the certificate is filed.
(3)If the affidavit states that part of the adjudicated amount has been paid, the amount to be recovered is the unpaid part of the adjudicated amount.
(4)If the respondent starts a proceeding to have the judgment set aside, the respondent—
(a) is not, in the proceeding, entitled—
(i) to bring any cross-claim against the claimant; or
(ii) to raise any defence in relation to matters arising under the construction contract; or
(iii) to challenge the adjudicator’s decision; and
(b)is required to pay into the court as security the unpaid part of the adjudicated amount pending the final decision of the proceeding.
The first defendant also took action under s 26(2)(b) of the Act. On 9 December 2019, the first defendant gave the plaintiff notice of its intention to suspend the carrying out of construction work on and from 12 December 2019. Section 29 of the Act governs the suspension of work under the Act. It provides:
29Claimant may suspend work
(1)This section applies if a claimant gives notice to a respondent under section 17, section 18 or section 26.
(2)The claimant may suspend carrying out construction work or supplying related goods and services under a construction contract during the period—
(a) starting 2 business days after the day the claimant gives the notice to the respondent; and
(b)ending 3 business days after the day the claimant receives the amount payable by the respondent under section 17(1), section18(1) or section25(1).
(3)If the claimant, in exercising the right to suspend carrying out construction work or supplying related goods and services, incurs a loss or expense because the respondent removes any part of the work or supply from the contract, the respondent is liable to pay the claimant the amount of the loss or expense.
(4)A claimant who suspends construction work or the supply of related goods and services under this section is not liable for loss or damage suffered by the respondent, or by any person claiming through the respondent, because the claimant did not carry out that work or supply the goods and services, during the period of suspension.
While these steps were being taken the plaintiff, on 5 December 2019, referred the disputes between the parties for expert determination pursuant to cl 51 of the contract. That clause relevantly provided in relation to the decision of the expert:
51.7 Determination
The determination of the Independent Expert:
(a)must be in writing;
(b)will be final and binding on the parties; and
(c)must be given effect to by the parties in accordance with its terms.
Pursuant to the procedures under cl 51 of the contract, Mr A Monichino QC was appointed as the Independent Expert.
On 23 December 2019, the plaintiff commenced these proceedings. The relief sought in the Originating Application (OA) was as follows:
1.That the plaintiff be given leave to appeal against the decision of the second defendant given on 27 November 2019 (Decision) pursuant to section 43(3)(b) of the Building and Construction Industry (Security of Payments) Act 2009 (BSOP), on the condition that the plaintiff pay the adjudicated amount on $469,434.00 into Court.
2.An order pursuant to section 43(6)(a) BSOP setting aside the Decision.
3.In the alternative, an order pursuant to section 43(6)(a) amending the Decision such that the amount awarded in the first defendant’s favour is $Nil (or such other amount as the Court determines).
4.Further, and in the alternative, an order pursuant to section 43(3)(b) BSOP remitting the Decision to the second defendant for reconsideration.
5.In the event that leave is not granted pursuant to section 43(3)(b) BSOP:
(a) A declaration that the Decision is void.
(b) An order in the nature of certiorari quashing the Decision.
Contrary to s 27(4)(b) of the Act, the plaintiff did not pay into Court the unpaid adjudicated amount at the time of commencing the proceedings. However, pursuant to orders made by this Court on 3 February 2020, the plaintiff was required to pay that amount into Court by 7 February 2020. The plaintiff complied with that order.
On 25 February 2020, Mr Monichino QC issued his expert determination. He concluded that the date of Practical Completion was 28 August 2019 which was 75 days after the date for Practical Completion under the contract. Accordingly, Mr Monichino QC found that the plaintiff was entitled to liquidated damages of $900,000 ($12,000 per day). He dismissed the other claims which had been made by the parties and decided that each party should bear its own costs of the expert determination.
By letter dated 27 February 2020, the plaintiff’s solicitor wrote to the first defendant’s solicitor referring to the expert determination and cl 51.7 of the contract. The letter relevantly stated from [5]:
5.As a consequence of the expert determination, the adjudication award has been superseded and On Forbes no longer owes any money to Chase pursuant to the adjudication process.
6.In the circumstances, the appropriate way forward is as follows:
(a) The parties agree to discontinue the Proceedings;
(b) The parties agree that the adjudication determination dated 27 November 2019 is set aside;
(c)The parties agree that the monies paid into court by On Forbes plus any interest which may have accrued is released to On Forbes in its entirety; and
(d) Chase agrees to pay to On Forbes the balance of the money owing which is $414,094.32 within 7 days of this letter.
7.We have enclosed proposed court orders in order to give effect to the same. We should be grateful for your comments on the proposed court orders by 4:00 pm on Friday 28 February 2020.
8.Should Chase fail to provide a response by 4:00 pm on Friday 28 February 2020, On Forbes shall take further action against Chase without further reference.
The first defendant’s solicitors responded the next day. They requested a further seven days in which to obtain instructions and respond. That proposal was rejected by letter emailed on that same day. In that letter, the plaintiff’s solicitors stated that the purpose of the 27 February 2020 letter was to seek release of the money paid into Court as a “means of partially settling the debt owed” by the first defendant. It was stated that the first defendant was liable to pay the plaintiff the $900,000 “in its entirety”. The letter proceeded to indicate that the plaintiff would be serving a statutory demand (under the Corporations Act 2001 (Cth)) for the full amount of $900,000. I infer from subsequent developments (see [20] below) that the first defendant did issue a statutory demand for $900,000 (plus GST of $90,000) on that day.
On 3 March 2020, the plaintiff’s solicitors again wrote to the first defendant’s solicitors. This letter referred to an instruction given by the Superintendent under the contract for the first defendant to recommence works on the site. It may be noted here that although the building had been completed, there were a number of defects which required remediation. Reference was made to an email from the first defendant advising that it would not be recommencing work because the adjudication amount remained unpaid.
The plaintiff’s solicitors argued that the payment into Court constituted the “effective payment” of the adjudication amount, and that in any event the adjudication decision was now of no effect having regard to the expert determination.
The first defendant’s solicitors responded by letter on 4 March 2020. It is necessary to set out the substance of that letter. It stated:
We do not see how you have reached the conclusion that the expert determination supersedes the adjudication award. There is nothing in the Contract between the parties to this effect and, further, the expert determination does not address the matters decided by the adjudicator.
Our client expressly disagrees that the position is as stated – namely that it owes your client $900,000 (excl. GST) and that your client does not owe our client anything. Your client is still required to comply with the adjudication certificate, subject of course to the outcome of these proceedings. Should your client wish to discontinue these proceedings, which desire may be inferred from your previous correspondence, we confirm our client will consent to a discontinuance on the usual basis – that is, that your client is liable to pay our client’s costs.
In the circumstances, the notice issued by the Superintendent requiring our client to recommence works is misconceived. Section 29 of the Act provides that our client may suspend carrying out construction work for the period ending 3 business days after the day the claimant receives the amount payable by the respondent. A payment into Court is not a payment to our client. Indeed, by paying this into Court, your client is reserving the right to never pay this amount to our client. The Superintendent’s notice therefore amounts to an attempt by your client to circumvent the Act.
By this point, the parties had reached a stand-off, as was confirmed by the response from the plaintiff’s solicitors on 6 March 2020. That letter contained the following:
We fail to understand what Chase disagrees with.
1.It was the Expert that determined that Chase owes On Forbes $900,000 (excl GST).
2.Clause 51 of the Contract provides for Expert Determination as the final and binding dispute resolution method. Further, the Expert Determination Agreement dated 17 January 2020 agreed and signed by Chase and On Forbes was very clear that the Expert’s determination is final and binding.
3.Section 38 of the Act provides that the adjudication process does not affect a party’s rights under the construction contract.
The Expert did decide a matter referred to adjudication and the Expert’s determination of that matter is final. There is clearly no obligation on On Forbes to pay any adjudication amount even if the payment into court is not considered payment.
The litigation between the parties thereafter escalated. On 17 March 2020, the plaintiff filed an Application in Proceeding in this action seeking to amend the relief sought in the OA. The orders sought in the proposed further amended OA were:
1A.A declaration that, pursuant to clause 51.7 of the construction contract dated 22 August 2017, the expert determination dated 25 February 2020 is final, and binding on the Plaintiff and First Defendant.
1B. A declaration that, pursuant to the construction contract dated 22 August 2017, adjudication decision dated 27 November 2019, and the expert determination dated 25 February 2020:
(a) the Plaintiff is not indebted to the First Defendant, and does not owe the First Defendant any money in relation to the construction contract;
(b) the Plaintiff is not indebted to the First Defendant, and does not owe the First Defendant any money in relation to the adjudication decision; and
(c) the First Defendant is indebted to the Plaintiff in the sum of $504,094.32.
1C. A declaration that the First Defendant was not entitled to suspend works pursuant to section 29(4) of the Building and Construction Industry(Security of Payment) Act 2009 (ACT) from:
(a) the date of the expert determination;
(b) in the alternative, the date of service of a draft of this Further Amended Originating Application;
(c) further and in the alternative, the date of filing of this Further Amended Originating Application; or
(d) further and in the alternative, such further or other date as the Court sees fit to determine.
On 18 March 2020, the first defendant commenced proceedings in the Federal Court of Australia seeking to set aside the statutory demand which had been issued by the plaintiff on 28 February 2020. I note that the demand was said to have been made for $990,000. The grounds relied on by the first defendant included a dispute that GST was payable, the claimed offset under the adjudication decision, and the assertion that the expert determination should be set aside.
The application by the plaintiff to further amend the OA was heard by Elkaim J on 1 April 2020. His Honour granted leave for the amendment and reserved the issue of the costs of the application.
The Further Amended OA (FAOA) came before me for hearing on 12 May 2020. By that time, written submissions had been filed and served by the parties. Those submissions made it clear that there was no substantive dispute that, after allowing for the adjudication amount and the expert determination amount (excluding GST), the true position between the parties was that the first defendant owed the plaintiff the sum of $414,094.32. The issues on which the parties remained at loggerheads were the date at which the first defendant’s entitlement to suspend the works under s 29 of the Act came to an end and the question of the costs of the proceedings (including the reserved costs).
Having regard to the extent of the agreement between the parties I made the following declarations and orders on 12 May 2020:
1.Declare that pursuant to clause 51.7 of the construction contract dated 22 August 2017, the expert determination dated 25 February 2020 is final, and binding on the Plaintiff and First Defendant.
2.The Order made on 24 December 2019 having the effect of a judgment for the sum of $485,905.68 in favour of the First Defendant against the Plaintiff be set aside.
3.In recognition of the setting off of the amount referred to in Order 2 (above) against the amount determined by the expert pursuant to the contract between the parties, order that there be judgment in the Plaintiff’s favour against the First Defendant in the sum of $414,094.32.
4.Order that the sum of $485,905.68 paid into Court by the Plaintiff to be paid out to the Plaintiff along with any interest which has accrued on that sum.
I reserved my decision in relation to the suspension issue. I indicated to the parties that I would grant leave for further written submissions on the issue of costs when I delivered the decision on the suspension issue.
Submissions on the Suspension Issue
Submissions of the plaintiff
The plaintiff’s initial submission (as set out in its written outline dated 6 April 2020) was that the right to suspend the works under s 29 of the Act only subsisted while a debt was owed to the claimant builder (in this case, the first defendant). As at the date of the expert determination, the debt owed pursuant to the judgment of 24 December 2019 was effectively extinguished. From that time, the first defendant owed the plaintiff $504,094.32 (i.e. $990,000 minus $485,905.68). It followed, it was argued, that on and from 25 February 2020 the first defendant was no longer entitled to suspend the works required under the contract.
Submissions of the first defendant
The first defendant submitted in its written outline dated 5 May 2020, that the plaintiff’s argument depended on the right of set off pursuant to cl 48.2 of the construction contract. That clause provided:
48.2Right of Set Off
Liquidated damages assessed as due to the Developer pursuant to this clause 48 may be deducted by the Developer from any amounts owing to the Builder by the Developer under this Agreement or from any Security held by the Developer.
Reference was then made to s 42 of the Act, which provides:
42No contracting out
(1)This Act has effect despite any provision in any contract, agreement or arrangement.
(2)A provision of any contract, agreement or arrangement, whether in writing or not, is void to the extent that it—
(a) is inconsistent with this Act; and
(b) purports to, or has the effect of excluding, modifying or restricting the operation of this Act; and
(c) may reasonably be construed as an attempt to deter a person from taking action under this Act.
It was submitted that cl 48.2 is rendered void by the operation of s 42 of the Act.
The first defendant noted s 42 of the Act did not appear to be the subject of any authority in the ACT. However, it was said to be indistinguishable in substance from s 34 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the NSW Act). While there were decisions in NSW which dealt with the operation of s 34 of the NSW Act, none of them were of particular assistance in dealing with the circumstances of this case.
Having regard to the words of s 42 of the Act, the first defendant argued that if the plaintiff was able to set off the adjudicated amount against the amount found against the first defendant by the expert, such an outcome would exclude the operation of the Act. The purpose of the Act in ensuring that builders were paid promptly for works completed under a construction contract would be frustrated if cl 48.2 operated according to its terms. It followed that there was no right of set off and the judgment debt in relation to the adjudication amount continued to have force and effect.
Plaintiff’s submissions in reply
The plaintiff pointed to authorities such as Shellbridge Pty Ltd v Rider Hunt Sydney Pty Ltd [2005] NSWSC 1152 for the proposition that under the scheme of the Act a judgment for an adjudicated amount is, in substance, a provisional judgment only. It may be overtaken by a final determination of the entitlements of the parties by way of litigation or otherwise; see s 38 of the Act. That analysis was confirmed by the High Court in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4; 264 CLR 1 (Probuild Constructions) at [37] ff.
It followed that there was no inconsistency between a right of set off under the contract operating against an interim adjudication amount. Section 42 of the Act had no work to do in the circumstances of this case.
In the alternative to the argument summarised at [25] above, the plaintiff submitted that the word “receives” in s 29(2)(b) of the Act should be given a broad meaning, sufficient to extend to the effect of the set off.
The plaintiff’s further alternative fall-back position was that by the time of the service of the proposed FAOA, the first defendant must have become aware, having regard to the terms of orders 1A and 1B as sought, that the plaintiff acknowledged the debt for the adjudicated amount and intended to give the plaintiff credit for that amount against the countervailing debt owed by the first defendant pursuant to the expert determination.
Oral submissions
On 12 May 2020, Mr Buckland, of counsel, appeared for the plaintiff and Mr Moffett, of counsel, appeared for the first defendant. Both expanded on the submissions summarised above. As noted at [24] above I reserved my decision on the suspension issue. I did however grant the parties leave to file further written submissions directed to the interpretation of s 29(2) of the Act and the operation of s 38 of the Act.
Further written submissions of the plaintiff
The plaintiff submitted that the words “receives the amount payable” in s 29(2)(b) should be interpreted by reference to the scope, objects and purpose of the Act. Giving the words an unduly narrow interpretation could lead to the illogical consequence of permitting a suspension to continue notwithstanding the extinguishment of the payment claim or adjudication amount on which it was based by a subsequent final judgment.
The plaintiff referred to consideration of the word “receives” in the NSW equivalent of
s 19(3)(b) of the Act in Firedam Civil Engineering v KJP Construction [2007] NSWSC 1162. That section, along with the NSW equivalent, required that an adjudication application had to be made “… within 10 business days after the claimant receives the payment schedule”.
In that case, Austin J found that the respondent to a payment claim had posted its payment schedule to the claimant, and that Australia Post had delivered them to those addresses on 3 July 2007. The claimant asserted that it had not actually received the payment schedule. It had written to the respondent on 17 July 2007 purporting to give notice, under the NSW equivalent of s 19(2) of the Act, of an intention to make an adjudication application. Such a notice is required in circumstances where a respondent has failed to provide a payment schedule. On 25 July 2007, the respondent responded by letter claiming that a payment schedule had been served but did not enclose a copy of it. The claimant lodged an adjudication application on 8 August 2007. Ultimately, the adjudicator found in favour of the claimant. The respondent applied to the NSW Supreme Court to set aside the adjudication.
Austin J concluded that the claimant schedule had been provided to the respondent. It was thus necessary to determine when the schedule was received by the respondent to decide whether or not a valid adjudication application had been made.
His Honour saw a tension between the approach taken by McDougall J in Pacific General Securities Ltd v Soliman & Sons Pty Ltd [2005] NSWSC 378, particularly at [27], and that taken by Hodgson JA (Handley and Hunt JJA agreeing) in Falgat Constructions Pty Limited v Equity Australia Corporation Pty Ltd [2006] NSWCA 259 at [62]-[63]. McDougall J’s view was that the relevant document had to actually come into the hands of someone for it to be “received”. However, the conclusion of Hodgson JA (which Austin J applied) was that it was sufficient for the document to have arrived at the registered office or place of address, and be there during normal office hours.
Although the case is not directly on point, the plaintiff contends that the approach taken to the interpretation of “receives” extends the term beyond the narrow dictionary meaning of the word and thus supports the argument that a similar, broad, approach should be taken here.
The plaintiff also relied on the decision of the NSW Court of Appeal in Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2005] NSWCA 248 at [216]-[219]. It was argued that the upholding of Macready M’s decision on this point supported the plaintiff’s interpretation of s 29(2)(b) of the NSW Act. (The relevant Master’s decision is Beckhaus Civil Pty Ltd v Brewarrina Shire Council (No 2) [2004] NSWSC 1160 (Beckhaus Civil)).
In relation to s 38 of the Act, the plaintiff acknowledged that the section provides the Court with the power to frame orders which will achieve substantial justice between the parties. The plaintiff submitted that substantial justice here requires that the declaration sought in order 1C of the FAOA should be made as at the date of receipt as determined under s 29(2)(b) of the Act. This is because the first defendant was a sophisticated builder which, with the benefit of legal advice at all material times, was seeking to obtain an interim payment in the knowledge that that amount was wholly offset by a final debt owed to the plaintiff.
Further written submissions of the first defendant
The first defendant referred to the dictionary meaning of “receive” to advance the proposition that the term connotes something coming into the actual possession of the receiving person. In relation to money, that requires the actual payment and receipt by that person of the amount in question. It was submitted that the term does not comprehend a notional benefit, such as a set off.
Reliance was placed on two cases which discuss “receive” in the context of statutes creating certain criminal offences.
The first defendant also pointed to the amendment of the NSW analogue of s 29 of the Act made by the Building and Construction Industry Security of Payment Amendment Act 2002 (NSW). Section 27 of the NSW Act before and after the amendments were as follows:
Pre-2002 Amendment Act
(1)A claimant may suspend the carrying out of construction work…under a construction contract if at least 2 business days have passed since the claimant has caused notice of an intention to do so to be given to the respondent under section 15, 16 or 25.
(2)The right conferred by subsection (1) exists only for so long as the respondent fails to comply with the requirements referred to in section 15(1), 16(1) or 25(1), as the case may be.
Post-2002 Amendment Act (amendments underlined)
(1)A claimant may suspend the carrying out of construction work…under a construction contract if at least 2 business days have passed since the claimant has caused notice of an intention to do so to be given to the respondent under section 12, 16 or 24.
(2)The right conferred by subsection (1) exists until the end of the period 3 business days immediately following the date on which the claimant receives payment for the amount that is payable by the respondent under section 15(1), 16(1) or 23(2).
It was submitted that the change from the reference to a requirement for payment (i.e. under ss 15(1), 16(1) or 25(1) of the NSW Act) to the requirement for the claimant to have received the relevant money reflected an intention to ensure that the claimant actually received the payment, in the narrow sense as the first defendant contended.
The first defendant also relied on the decision of Macready M in Beckhaus Civil. It was submitted that the discussion at [68]-[84] provided support for the narrower interpretation of “receives”. By analogy, it was said that if the conditional payment in question in Beckhaus Civil did not constitute a payment for the purposes of s 27(2) of the NSW Act, then in the present case the conditional offers to offset the adjudication amount put by the plaintiff between 27 February 2020 and the hearing on 12 May 2020 likewise could not satisfy the requirements of s 29(2)(b) of the Act.
The “unreasonable conditions” which the first defendant argued had been imposed by the plaintiff as at 27 February 2020 included:
(a)That the proceedings be discontinued with no order as to costs. That is, the first defendant having been put to the costs of defending the matter should recover no costs notwithstanding the abandonment of the claim.
(b)That the first defendant agree to consent orders which disposed of the proceedings, return the money in Court to the plaintiff, and set aside the adjudication determination without acknowledgment of the first defendant’s entitlement to the amount of $485,905.68.
It was said that the unreasonableness of the plaintiff’s position was magnified by its denial of the request by the first defendant’s solicitors for a little more time in which to obtain instructions. Indeed, the plaintiff immediately issued a statutory demand for $990,000. That amount included GST.
The plaintiff followed up this conduct by maintaining a position which was contrary to acknowledgment of a set off in the amount of the adjudication amount. The letter from the plaintiff’s solicitors on 3 March 2020 included the following:
Once the expert determination has been issued, the adjudication award is of no effect. The result of the expert determination is that the issues in dispute between the parties are now finally resolved in the interim adjudication award has been superseded. To clarify, the effect of the expert determination is that (the plaintiff) does not owe any amounts to (the first defendant). On the contrary, (the first defendant) owes (the plaintiff) $900,000 (exc GST).
The first defendant referred to the letter from the plaintiff’s solicitors dated 6 March 2020 (see extract at [18] above) to support the proposition that the plaintiff was maintaining its position that the expert determination had “wholly abolished” the adjudication award.
The first defendant then moved on to the exchange of correspondence from 29 April 2020 when its solicitor wrote an open letter effectively conceding orders 1A and 1B as sought in the FAOA. The point was made that the plaintiff, by the letter from its solicitors of 6 May 2020, maintained unreasonable conditions on the resolution of the mutual claims between the parties. Those conditions arise from the apparent maintenance by the plaintiff of its statutory demand for $990,000 (the subject of separate proceedings in the Federal Court), the insistence by the plaintiff on the payment by the first defendant of the costs of the proceedings, and the costs incurred in relation to the suspension of work. It was also noted that it was not until the 6 May 2020 letter that the plaintiff conceded that the $90,000 GST was not payable on the $900,000 determined to be payable by the expert by way of liquidated damages.
It was submitted that in the context of the approach adopted by the plaintiff, there was no unqualified acknowledgement of a right of set off in relation to the adjudication amount prior to the hearing before this Court on 12 May 2020. On that basis, it was submitted that there was no “receipt” for the purposes of s 29(2)(b) of the Act until that date.
Finally, the first defendant submitted that even if I were not to accept its argument as to the date of receipt under s 29(2)(b) of the Act, the Court should exercise the broad discretion available under s 38(3)(b) to avoid an unjust outcome. As I understand the submission, the first defendant argued that taking into account the unreasonable conduct of the plaintiff, I should declare that the first defendant was entitled to suspend the works under s 29 until 12 May 2020, or perhaps three business days thereafter having regard to the terms of s 29(2)(b).
Consideration
The first issue for determination, the precise meaning of “receives” in s 29(2)(b), requires the Court to consider the provision in the context of the purposes of the Act. In R v Lee [2016] ACTCA 69 the Court (Murrell CJ, Refshauge and Rangiah JJ) said at [18]-[22]:
18.As this Court recently noted in Parkinson v Alexander [2016] ACTSCFC 1; 11 ACTLR 190, statutory interpretation requires the Court to take a textual and purposive approach: Project Blue Sky Inc v ABA [1998] HCA 28; 194 CLR 355.
19. Section 138 of the Legislation Act provides that:
working out the meaning of an Act means—
(a) resolving an ambiguous or obscure provision of the Act; or
(b) confirming or displacing the apparent meaning of the Act; or
(c) finding the meaning of the Act when its apparent meaning leads to a result that is manifestly absurd or is unreasonable; or
(d) finding the meaning of the Act in any other case.
20.Section 139(1) of the Legislation Act 2001 (ACT) (Legislation Act) provides that “[i]n working out the meaning of an Act, the interpretation that would best achieve the purpose of the Act is to be preferred to any other interpretation.”
21. Section 140 of the Legislation Act provides that, “[i]n working out the meaning of an Act, the provisions of the Act must be read in the context of the Act as a whole”.
22.Section 141 of the Legislation Act provides that, in working out the meaning of an Act, material not forming part of the Act may be considered. …
The circumstances in which it was passed into law, and general operation of the Act, were summarised in Pines Living Pty Ltd v John O’Brien & Walton Construction Pty Ltd [2013] ACTSC 156 per Mossop M (as his Honour then was) at [17]-[25] and Canberra Drilling Rigs Pty Ltd v Haides Pty Ltd [2018] ACTSC 282 per McWilliam AsJ at [29]-[42]. The decision in the latter case was the subject of an unsuccessful appeal; see Haides Pty Ltd v Canberra Drilling Rigs Pty Ltd [2018] ACTCA 68. McWilliam AsJ completed her summary with the following:
42.In short, the statutory scheme has an overall objective and process of ‘pay now, argue later’: see Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151; 95 NSWLR 82 (Probuild) at [102] and the cases there-cited. It is designed to let the money flow to the sub-contractors while building and construction projects continue, in some cases over years. If it is later found that the claimant was not entitled to the payment, either because someone else was liable to pay for the work, or the work was defective, or the amounts charged were not the terms of the contract, the amount paid under the SOP Act can be paid back or otherwise taken into account.
That comment remains apposite having regard to the upholding of the NSW Court of Appeal decision in Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151; 95 NSWLR 82 by the High Court in Probuild Constructions. Indeed, in the decision of the plurality (Kiefel CJ, Bell, Keane, Nettle and Gordon JJ) their Honours said:
37. Second, it is important to appreciate the subject matter of the Security of Payment Act. The Security of Payment Act is not concerned with finally and conclusively determining the entitlements of parties to a construction contract. Section 8 confers an entitlement to a progress payment, which may be the final payment, a single or one‑off payment or what is described as a "milestone payment". Part 3 of the Security of Payment Act creates a distinct procedure for enforcing that statutory entitlement, which includes the making of a payment claim, the provision of a payment schedule in response and the determination of a payment claim by an adjudicator (at the option of the claimant).
38. The statutory entitlement to a progress payment and the procedure for recovery of a progress payment are separate from, and in addition to, a contractor's entitlement under a construction contract to receive payment for completed work. The statutory entitlement is predicated upon the existence of a construction contract, but the entitlement and the means available for its enforcement stand apart from the parties' rights under that contract. Indeed, the Security of Payment Act has effect despite any contractual provision to the contrary: any purported derogation is void. Moreover, the Security of Payment Act acknowledges and preserves parties' contractual entitlements. Importantly, the Security of Payment Act provides that in any proceedings before a court or tribunal in relation to any matter arising under a contract, the court or tribunal must allow for, and may make such orders as it considers appropriate for the restitution of, any amount paid under or for the purposes of Pt 3.
39. As was described in Southern Han Breakfast Point Pty Ltd (In liq) v Lewence Construction Pty Ltd, the Security of Payment Act was the subject of substantial amendments in 2002. Introducing the Bill for the Building and Construction Industry Security of Payment Amendment Act 2002 (NSW), the responsible Minister stated:
"[The Security of Payment Act] was designed to ensure prompt payment and, for that purpose, [the Security of Payment Act] set up a unique form of adjudication of disputes over the amount due for payment. Parliament intended that a progress payment, on account, should be made promptly and that any disputes over the amount finally due should be decided separately. The final determination could be by a court or by an agreed alternative dispute resolution procedure. But meanwhile the claimant's entitlement, if in dispute, would be decided on an interim basis by an adjudicator, and that interim entitlement would be paid."
The Security of Payment Act does not speak of "interim" entitlements and payments, but the label aptly reflects how the statutory entitlement interacts with any underlying contractual liability. In that respect, the statutory entitlement established by the Security of Payment Act stands in marked contrast to the sort of final determination provided for in the legislative scheme considered in Hockey v Yelland, the effect of which was permanent.
40. Third, underpinning the "interim" statutory entitlement is an understanding that "[c]ash flow is the lifeblood of the construction industry". Put another way, any interruption to the cash flow of a person carrying out construction work is apt to create the risk of financial failure. Consistent with that understanding, the procedure in Pt 3 is designed to operate quickly. So much is apparent from the detailed time limits that apply at each stage and have been described earlier in these reasons. These time limits are "carefully calibrated". The time limits have been rightly described as imposing "brutally fast" deadlines on the claimant, the respondent and the adjudicator to ensure the prompt resolution of payment disputes.
(Footnotes omitted)
Having regard to the above, it is apparent that the Act must be interpreted with a view to achieving the purpose of ensuring that payment claims, and amounts adjudicated as owing are paid without delay, whether or not there may be a concurrent dispute between the parties under the contract. Moreover, it seems to me that the objects of the Act, as noted by their Honours in the High Court in Probuild Constructions in the extract set out above, includes ensuring so far as possible that the progress claim monies payable under the Act are actually paid to a claimant without delay.
The potential for this object to create a commercial quandary for a respondent to a payment claim under the Act (such as the plaintiff in this case) in circumstances where it may have a good countervailing claim under the contract is obvious. Indeed, as transpired here, it may be that the latter claim resulted in the claimant owing the respondent more than the amount of the payment claim.
At one extreme, the very narrow interpretation urged by the first defendant, “receive” in s 29(2)(b) should be given the meaning of actually coming into the possession or control of the claimant. Such an approach would be consistent with the ‘pay now argue later’ object of the scheme under the Act.
That interpretation would have the advantage of certainty. It would mean that a respondent to a payment claim would know that it actually had to make the payment of the amount of the payment claim or adjudicated amount to the claimant in order to bring the suspension of work to an end.
However, it does seem to me that such a rigid interpretation could lead to an unjust outcome, as a matter of practicality. The potential for such an outcome arose in Brodyn Pty Ltd v Dasein Constructions Pty Ltd [2004] NSWSC 1230. In that matter, Dasein had obtained an adjudication decision in its favour for $183,493.64 and entered judgment for that sum. Brodyn’s attempts to challenge the underlying decision, and thus the judgment, were unsuccessful. It commenced proceedings claiming over $350,000 for incomplete work and for the rectification of defects. The following day Dasein went into voluntary administration. Shortly afterwards it became subject to a deed of company arrangement. Brodyn lodged a proof of debt for over $460,000. That was rejected in full by the deed administrator.
As a condition of its challenge in the Court of Appeal, Brodyn had been required to provide a bank guarantee in favour of Dasein for $265,000, pending the outcome of Brodyn’s appeal.
By virtue of s 553C of the Corporations Act (which applied to the arrangement) where there had been mutual dealings between the company and a claimant pursuant to a proof of debt, an account was to be taken and the sum due from one party had to be set off against that due from the other. Thus, only the balance (if it favoured the claimant) was provable in the arrangement.
Brodyn applied for relief under s 1321 of the Corporations Act in relation to the rejection of its proof of debt. That operated as an appeal de novo from the decision of the deed administrator.
Young CJ in Eq examined evidence supporting Brodyn’s claim and ultimately determined that Brodyn was owed the sum claimed in the proof of debt, before applying any set off.
Dasein argued that the effect of s 25 of the NSW Act (the equivalent of s 27 of the Act) was to prevent the set off from operating. It followed that Brodyn was still required to comply with the judgment in Dasein’s favour for $183,493.64. It is helpful to refer to the terms of s 27(4) of the Act to put this argument into context: see [6] above.
Young CJ in Eq found that there was an inconsistency between s 25(4) of the NSW Act and s 553C of the Corporations Act. The latter was a Commonwealth Act and prevailed over the NSW provision to the extent of the inconsistency having regard to s 109 of the Australian Constitution.
However, his Honour reasoned to the same result having regard to the operation of the NSW Act itself. At [86] of his reasons for decision his Honour noted:
(Brodyn) is now faced with a situation where although it has established its claim on the evidence before me, the administrator is arguing that it is necessary for it to pay the full amount of the provisional District Court judgement to the administrator who will then use it to pay his own fees and to fund further litigation and there will not be a ghost of a chance of the just claim of the head contractor ever being paid.
Young CJ in Eq did not see the NSW Act going that far. He concluded that it only operated while the relevant parties were going concerns.
The outcome was that Brodyn was able to make its proof of debt after offsetting the amount of the judgment in favour of Dasein. The bank guarantee was discharged on the basis that by operation of s 553C at the time the guarantee was given, there was no debt in existence to Dasein.
Plainly, if Brodyn had actually paid Dasein prior to its voluntary administration, Brodyn would have been unable to recover that payment, notwithstanding that the true final position was that Dasein owed Brodyn considerably more than the adjudication amount.
It seems to me that the potential for such an unjust outcome suggests that the extremely narrow interpretation favoured by the first defendant is not correct. I am unpersuaded that the criminal cases referred to by Mr Moffett require a different conclusion. They very much turn on the nature of the statutes in question, which are quite different from that in question here.
I turn then to the extreme position initially contended for on behalf of the plaintiff. That is, that what I will refer to as the provisional judgment in favour of the first defendant was extinguished by the expert determination. That would see the determination having the result that the first defendant was, in effect, deemed to have received the amount of the provisional judgment when the expert made his decision.
It seems to me that such an outcome could undermine the objects sought to be achieved by the Act. That is particularly so in a situation such as this where the respondent to an adjudicated payment claim had chosen not to comply with the requirement of the Act (s 25) to pay the adjudicated amount to the claimant promptly (within five days of the adjudicator’s decision). Indeed, it was not until the end of the first week of February that the plaintiff paid the adjudicated amount into Court.
I have no doubt that the payment into Court was not a payment to the first defendant. It was thus not relevantly received by the first defendant. This argument was made in correspondence from the plaintiff’s solicitor. I note that it was not pressed at the hearing.
It is to be remembered that as at the date of the expert determination, the plaintiff had embarked on proceedings which, if successful, would have resulted in the adjudication decision (and thus, presumably, the provisional judgment) being set aside. Those proceedings, in that form, remained on foot at the time of the expert determination. It is far from clear how, in such circumstances, it could be assumed either as a matter of law or as a matter of commercial practicality that the provisional judgment was extinguished by being set off in some way against the amount determined as owing by the expert.
Moreover, it seems to me that in circumstances where a claimant has exercised its right under the Act to suspend work under the construction contract something more than the crystallisation of a countervailing contractual claim is required. In that context, there must be some clear and unequivocal communication to the claimant which acknowledges the discharge of the payment claim, or the adjudication amount, or, here, the provisional judgment debt.
Unfortunately, that did not occur. I have summarised the exchanges of correspondence between the parties’ solicitors above. It is fair to say that there are glimpses of clarity. However, these seem to have been quickly obscured by insistence on extreme positions, particularly on the part of the plaintiff. I do not see the unequivocal acknowledgement required for there to have been a receipt under s 29(2)(b) of the Act in the interchanges between the solicitors.
Mr Buckland argued that the acknowledgment should be inferred from the contents of the FAOA, either as served in draft form or as filed.
I accept that the relief as sought in the FAOA reflects an appropriate attempt to reconcile the tension between the provisional judgment and the expert determination. However, notwithstanding what appeared to be a reasonably clear acknowledgement of the adjudication amount debt, I note that the plaintiff was apparently maintaining its entitlement to a payment of $990,000 in the statutory demand proceedings in the Federal Court as late as 29 April 2020 (see the letter from the first defendant’s solicitor of that date in Exhibit R1).
The evidence does not explain why the plaintiff was continuing to act in a way which, so far as I can see, resulted in starkly inconsistent positions being taken in two sets of litigation in different courts. Whatever the explanation, it does seem to me that the maintenance of that position by the plaintiff in the Federal Court proceedings undermines its willingness to acknowledge the adjudication amount debt in the proceedings in this Court. It seems to me, that the issue was only put beyond doubt when I made orders 1-4, by consent, on 12 May 2020. In those circumstances, I find that the constructive receipt by the first defendant of the adjudication amount occurred on that day.
In relation to the s 42 issue, I accept the submissions made by the plaintiff. Although it appears that the plaintiff did appear to rely on an arguable right of set off or cross claim in relation to liquidated damages and other matters at the time it commenced these proceedings (contrary to the spirit, if not the words, of s 27(4) of the Act), that position was abandoned upon the further amendment of the OA. In the relief sought in the FAOA, the plaintiff was not seeking to rely on an arguable claim of set off under the contract. On the contrary, it was relying on a “final and binding” determination by an expert pursuant to cl 51 of the construction contract in the course of civil proceedings under the contract. In that context, the right of set off to be applied was not inconsistent with the operation of the Act. Indeed, it was implicitly required under s 38.
Having regard to my conclusion at [83] above, it is not strictly necessary for me to exercise the discretion under s 38(3)(b) of the Act. However, in case I am wrong in my determination of the date of receipt under s 29(2)(b), I have considered whether I would have exercised the discretion and if so, with what outcome. I note at the outset that both parties accepted that the Court has the power to, in effect, adjust the end date of the suspension under s 29(2)(b) of the Act. The plaintiff said that the circumstances for the exercise of that power do not arise here. The first defendant however said that the conduct of the plaintiff was such as to justify the exercise of that power. I am persuaded that, if the date of receipt under s 29(2)(b) was earlier than 12 May 2020, the occasion would arise for the exercise of the discretion in favour of the first defendant. The factors which lead me to this conclusion are:
(a)
The unprecedented combination of circumstances leading to the dispute between the parties. Neither the Act nor decisions made under the analogue legislation in other jurisdictions provided a clear answer to the question of when the amount payable under the adjudication was received for the purposes of
s 29(2)(b). Indeed, that uncertainty is properly acknowledged by the structure of the relief sought by the plaintiff in order 1C of the FAOA.
(b)The risk that the imposition of a retrospective end date to the entitlement to suspend, in the circumstances of uncertainty described in (a) above, could expose a builder (or contractor) in the position of the first defendant to an unfair burden in meeting any damages arguably flowing from the unprotected suspension which continued past that end date. I acknowledge that the uncertainty also placed a burden on the plaintiff. However, it seems to me that it would not be consonant with the purposes of the Act, in the circumstances of this matter, to make a declaration which could discourage claimants under the Act from exercising their suspension rights under ss 17(2)(b), 18(2)(b) or 26(2)(b).
(c)The fact that the plaintiff maintained its entitlement to the payment of $990,000 in the statutory demand proceedings in the Federal Court notwithstanding the amended relief sought in the FAOA. (I should say that I did not see the peripheral disputes in relation to costs and GST as significant here. Those matters did not directly impinge on the issue of the unambiguous acknowledgement of the adjudication amount debt.)
It follows that if I had had to exercise the discretion I would have come to the same conclusion. That is, that the appropriate end date for the first defendant’s entitlement to suspend work under the contract pursuant to s 29 of the Act ended three clear business days after 12 May 2020.
Having regard to the matters discussed above I propose to declare that the first defendant was entitled to suspend the construction work and the supplying of related goods or services until midnight on Friday 15 May 2020.
Orders
The orders of the Court are as follows:
(1) Declare that the first defendant was entitled to suspend the construction work and the supplying of related goods or services pursuant to the contract between it and the plaintiff until midnight on Friday 15 May 2020.
(2) Costs are reserved.
(3) The plaintiff file and serve written submissions in relation to costs of no more than four pages, and any further evidence to be relied on, by close of business on 30 June 2020.
(4) The first defendant file and serve written submissions in relation to costs of no more than four pages, and any further evidence to be relied on, by close of business on 7 July 2020.
| I certify that the preceding eighty-eight [88] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Acting Justice Crowe. Associate: Date: |
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