Promax Building Developments Pty Ltd v PCarol & Co Pty Ltd

[2017] VCC 495

IN THE COUNTY COURT OF VICTORIA Revised
(Not) Restricted
Suitable for Publication

AT MELBOURNE

COMMERCIAL DIVISON
GENERAL LIST

Case No. CI-17-01726

PROMAX BUILDING DEVELOPMENTS PTY LTD	Plaintiff
v.
PCAROL & CO PTY LTD	Defendant

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	3 May 2017
DATE OF JUDGMENT:	3 May 2017
CASE MAY BE CITED AS:	Promax Building Developments Pty Ltd v. PCarol & Co Pty Ltd
MEDIUM NEUTRAL CITATION:	[2017] VCC 495

REASONS FOR DECISION

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Catchwords:              Building contract – Payment claim under the Building and Construction Industry Security of Payment Act 2002 (Vic) (“the Act”) – Trust established with the purpose of making investments in the property market – Trust had completed 3 unit residential development some years earlier – Disputed building contract involved a 12 unit residential development – Whether Trust in “the business of building residences” – section 7(2)(b) of the Act – Director of Housing (Victoria) v. Structx Pty Ltd [2011] VSC 410 (Vickery J) applied.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A. Morrison of Counsel	Brixton Legal
For the Defendant	Mr J. Wilkinson of Counsel	Madgwicks

HIS HONOUR:

1Promax Building Developments Pty Ltd (“Promax”) seeks judgment in the sum of $115,875.42 on a payment claim dated 31 March 2017 from PCarol & Co Pty Ltd (“PCarol”), pursuant to the Building and Construction Industry Security of Payment Act 2002 (Vic) (“the Act”).

2On 14 January 2016, Promax as the contractor and PCarol as the owner entered into a contract for the construction of 12 apartments at a property in Bellfield (“Bellfield”) for the price of $3,010,260 including GST (“the building contract”).

3The building contract was “subject to owner’s financier’s approval”. Special Condition SCI provided that, “if the unconditional funding is not received within 120 calendar days after signing the building contract, the contractor may terminate the building contract and the owner is to pay the contractor’s associated costs/fees up-to-date”.

4By notice dated 20 March 2017, Promax purported to terminate the building contract as funding had not been received. Promax served what was effectively its first and final claim on 31 March 2017 (“the payment claim”). PCarol did not serve a payment schedule in response although the parties did meet to exchange information and to negotiate.

5PCarol submitted that the payment claim did not comply with section 14(2)(c), 14(3)(b) or 16(4)(a)(ii) of the Act because it did not “identify the construction work… to which the progress payment relates”, and/or included an “excluded amount”, being an amount which was not a “claimable variation”.

6Further, PCarol submitted that “the Act does not apply to the building contract [as PCarol] is exempt from the application of the Act pursuant to section 7(2)(b) because it is not ‘in the business of building residences’”.

Identification of the construction work in the payment claim

7The payment claim was served by email. It included a letter, a tax invoice and a schedule setting out how the claim for $115,875.42 was made up. The schedule contained 28 individual items each with a monetary claim from $215 for “asset protection fee” to $14,750 for “deposit for cancelled piling contract”. The items totalled $105,341.29 to which 10% GST was added.

8Counsel agreed that the applicable principles to determine the issue were those stated by Finkelstein J in Protectavale Pty Ltd v. K2K Pty Ltd [2008] FCA 1248 at [12] and by Vickery J in Gantley Pty Ltd v. Phoenix International Group Pty Ltd [2010] VSC 106 at [51].

9PCarol’s counsel, Mr Wilkinson submitted that the list of items in the schedule contained “vague and overly general entries, the key feature of which is their opacity [and that] any attempt to penetrate the opacity is thwarted because the entire list is unsupported by a single primary document, such as an invoice or time sheet”. Whilst some of these documents were later provided in the discussions between the parties, Mr Wilkinson submitted that this fact underlined the inadequacy of the schedule as a payment claim.

10Mr Wilkinson submitted that, in these circumstances, PCarol had been unable “to decide whether to accept or reject the claim”, and if opting for the latter, “to respond appropriately in a payment schedule”.

11In discussing individual items, both in his written outline of argument and during oral argument, it was clear that PCarol not only were capable of identifying, in respect of each of the 28 items, which were accepted and which were rejected, but also of offering what were generally cogent reasons for those decisions.

12In my view, the identification of the work in the payment claim was adequate for the purposes of the Act, including to elicit an appropriate response from PCarol. The payment claim did not, for example, have the obvious shortcomings of the Gantley payment claim discussed by Vickery J at [54].

Excluded amounts – not claimable variations

13Mr Wilkinson submitted that the schedule included items which were variations but were “claimable variations” and were therefore “excluded amounts” which could not be claimed or allowed.

14The only variation specifically identified by either counsel was the item, “structural re-engineering fee - $10,000”. Mr Wilkinson said that PCarol accepted that this was a variation.

15Because of the magnitude of the contract sum and the size of the entire payment claim, it seems that no relevant issue arises as to whether this item, or any other item in the schedule, was a variation of the first class or the second class. Accordingly, no valid reason has been advanced as to whether the payment claim includes an excluded amount.

Whether PCarol is “in the business of building residences”

16Generally, section 7(2)(b) of the Act excludes “a construction contract which is a domestic building contract” from the operation of the Act. However, this general rule does not apply to “a contract where the building owner is in the business of building residences and the contract is entered into in the course of, or in connection with that business”.

17This provision has been considered by Vickery J in Director of Housing of State of Victoria v. Structx Pty Ltd [2011] VSC 410 (“Structx”) and Vinson v. Neerim Properties Developments Pty Ltd [2016] VSC 321 (“Vinson”).

18In Structx, Vickery J considered whether the Director of Housing was involved “in the business of building residences”. At [28], Vickery J said that this phase in section 7(2)(b) “connotes the construction of dwelling houses as a commercial enterprise engaged in for the purpose of profit on a continuous and repetitive basis”, and at [37] that the section spoke “in terms of the actual business which the building owner undertakes, not whether a party in the position of the building owner [in that case, the Director of Housing] has the power to undertake the activity”.

19The factual background of PCarol is as follows:

a.the sole director of PCarol is Paiman Pakzamir;

b.Mr Pakzamir said in an affidavit that PCarol “is the trustee of the PCarol & Co Trust” which was established with the purpose of Mr Pakzamir and his partner Caroline Pakzamir making “investments in the property market”;

c.in August 2009, PCarol purchased a property at Reservoir (“Reservoir”);

d.from 10 January 2010, PCarol had an ABN, it operated as a “discretionary investment trust” and was registered for the payment of GST;

e.between that date and “towards the end of 2011 [PCarol] completed the construction of 3 units” at Reservoir;

f.the three units were sold in 2011 and 2012, as follows:

i.unit 1 on 15 December 2011 for $414,000;

ii.unit 2 on 22 December 2011 for $375,000;

iii.unit 3 on 30 July 2012 for $357,000;

g.PCarol purchased Bellfield in May 2013;

h.between May 2013 and December 2015, PCarol rented Bellfield, receiving total rental income of $36,900.28;

i.on 14 January 2016, PCarol entered into the building contract with Promax for the construction of 12 apartment for the contract sum of $3,010,260 including GST;

j.the building contract was terminated by Promax by notice dated 20 March 2017 after PCarol failed to obtain finance for the project;

k.there is no evidence that PCarol has conducted any other activities, in the nature of a business or otherwise. Mr Wilkinson confirmed this fact after seeking specific instructions.

20Mr Wilkinson submitted that, “Although [PCarol] has completed one small residential development previously on another site in Reservoir in about 2009-2011 (which resulted in an overall commercial loss), given the 5 year lapse since the last sale in 2012, it cannot be said that it builds houses for the purpose of profit on a continuous and repetitive basis”.

21Mr Wilkinson relied upon Vinson. However, in that case Vickery J was dealing with an application made “in chambers” on the basis of conflicting material contained apparently in affidavits and statutory declarations.

22Part of the material included statutory declarations by Ms Vinson and by the director of Launch Corporation Pty Ltd (“Launch”) which described itself as “a dedicated property development company”.

23In the material filed in support of Ms Vinson, the following statements were made:

a.prior to the 3 contracts in dispute relating to the execution of three town-houses on a property at Ashburton (“Ashburton”), Ms Vinson said she had “never entered into any building contracts for the construction of any residences”;

b.her primary occupation was as the managing director of a company which was “a wholesaler and formulator of cosmetic products”;

c.that company had “no involvement in any business to [do] with the construction of residences”;

d.Ms Vinson had inherited Ashburton after her mother died;

e.she entered into the development with a view to living in one unit and either renting or selling the others;

f.Ms Vinson was on the “advisory board” of Launch because of “her experience in marketing”. She is not a director or shareholder of Launch;

g.Ashburton was a “private development” with no connection to Launch;

h.Ms Vinson had a “passive investment” in Launch through her self-managed superfund with no role in the management of Launch’s projects.

24In the circumstances and in the absence of these statements being tested “by way of oral testimony and cross-examination”, Vickery J at [41] said that “it cannot be authoritatively determined whether or not Ms Vinson was, as a matter of fact in the business of building residences”.

25In the present case, the purpose of the PCarol & Co Trust is to make investments in the property market. The sole activity of the Trust has been the purchase and subsequent development of two properties. In my view, it does not matter that both projects may have been unsuccessful. Many businesses are.

26The properties at Reservoir and Bellfield were purchased to be developed with residences – three at Reservoir and 12 at Bellfield. The Bellfield development followed on from the earlier Reservoir development.

27In my view, the determination of the question of whether a “building owner is in the business of building residences” does not depend on the scale of the business, the success of the business, the number of projects undertaken either in the past or at any one time, or as contemplated for the future.

28PCarol entered into the building contract with Promax in pursuit of the purpose of the Trust, which was essentially the purchase and redevelopment of land for residences. I am satisfied that PCarol was in December 2016, and thereafter until the termination of the building contract, “in the business of building residences”.

Judgment sought by Promax

29At the conclusion of submissions, Promax’s counsel Mr Morrison sought to reduce the claim by $8,692.31 for an item in the schedule to the payment claim described as “4 week site manager redundancy”. Mr Morrison said that, on reflection, this item would more properly be claimed as damages upon the termination of the building contract. I make no comment on that statement, but I will reduce the amount of the judgment.

30Promax had earlier foreshadowed the need to amend the Originating Motion because of an error in the ACN of PCarol.

Orders

1.Leave to the plaintiff to amend the name of the defendant in the proceeding by substituting “PCarol & Co Pty Ltd ACN 139 951 198” for “PCarol & Co Pty Ltd ACN 006 758 836”. The originating motion shall be amended by hand. Otherwise all further requirements of the Rules in this regard are dispensed with.

2.Judgment for the plaintiff against the defendant that the defendant pay to the plaintiff $106,313.88 together with interest pursuant to statute from 18 April 2017 to today of $466.03, total judgment $106,779.91.

3.The defendant must pay the plaintiff’s costs of the proceeding to be assessed by the Costs Court on a standard basis in default of agreement.

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Certificate

I certify that these 6 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 3 May 2017.

Dated:       3 May 2017

Carla Cianfaglione    

Associate to His Honour Judge Anderson