Re Crows Nest Shire Council

[1996] QSC 173

IN THE SUPREME COURT

OF QUEENSLAND

Brisbane  No 5659 of 1996

Before the Hon. Justice White in Chambers

[Re Crows Nest Shire Council]

IN THE MATTER OF Section 83 of the District Court Act 1967 and Order 96 of the Rules of the Supreme Court

- and -

IN THE MATTER OF an Application by the Applicant the Council of the Shire of Crows Nest to transfer certain actions pending in the Magistrates Court at Toowoomba and the District Court of Toowoomba to the Supreme Court at Brisbane

- and -

IN THE MATTER OF a payment into the Supreme Court at Brisbane by the Council of the Shire of Crows Nest pursuant to the Subcontractors' Charges Act 1974-1979

REASONS FOR JUDGMENT - WHITE J

Judgment delivered 16/09/1996

CATCHWORDS:     SUBCONTRACTORS CHARGES ACT 1974 - payment made by employer to subcontractor after money payable to contractor charged by other subcontractors - whether required to make good the fund for proportionate distribution - s.11.

Appearances:   Mr Holyoak of counsel for the Council of the Shire of Crows Nest

Mr C Wilson of counsel for K & W Electrical Pty Ltd

Mr M Williams of counsel for Sunlite Glass Bricks Pty Ltd

Mr I Tindale solicitor for D & L Davey Pty Ltd

Mr K Joyce solicitor for Queensland Windows Pty Ltd

Mr G Collinson solicitor for Johnstone Cabinets

Ms LM Henricksen solicitor for Falodin Pty Ltd

Mr M O'Brien solicitor for Austral Monsoon Industries Qld Pty Ltd

Solicitors:Connollys for the Council of the Shire of Crows Nest

Patrick Mallett & Associates for K & W Electrical Pty Ltd

MJ Murray & Associates for Sunlite Glass Bricks Pty Ltd

Grasso Searles Romano T/A for Cleary & Lee for D & L Davey Pty Ltd

Hunt & Hunt for Queensland Windows Pty Ltd

Keller Nall & Brown T/A for Greenhow & Yeates for Johnstone Cabinets

Noel E Jensen & Associates for Falodin Pty Ltd

O'Brien & Mann for Austral Monsoon Industries Qld Pty Ltd

Hearing Date:   28 August 1996

IN THE SUPREME COURT

OF QUEENSLAND

Brisbane  No 5659 of 1996

IN THE MATTER OF Section 83 of the District Court Act 1967 and Order 96 of the Rules of the Supreme Court

- and -

IN THE MATTER OF an Application by the Applicant the Council of the Shire of Crows Nest to transfer certain actions pending in the Magistrates Court at Toowoomba and the District Court of Toowoomba to the Supreme Court at Brisbane

- and -

IN THE MATTER OF a payment into the Supreme Court at Brisbane by the Council of the Shire of Crows Nest pursuant to the Subcontractors' Charges Act 1974-1979

REASONS FOR JUDGMENT - WHITE J

Judgment delivered 16/09/1996

On 24 July 1996 Helman J ordered that a number of actions pending in the Magistrates Court and the District Court in Toowoomba and any moneys paid into court in respect of those actions and accretions be transferred into the Supreme Court and be consolidated with Supreme Court proceedings O.S. 5659 of 1996.  The actions all arise out of claims against the builder Felsmans Building Industries Pty Ltd ("Felsmans") in respect of sub-contracting work performed on Felsmans building contract with the Council of the Shire of Crows Nest ("the Council") to construct a new Administration Centre for the Council.  Felsmans was placed in liquidation on 11 September 1995.  Numbers of notices of claims of charges were received by the Council in respect of moneys yet to be paid by it to Felsmans under the contract.  The Council has paid $157,493.11 into Court pursuant to s.11(5) of the Sub-Contractors' Charges Act 1974 ("the Act").  It is to pay in by agreement a further $4,750.
           The Council seeks a discharge of all further liability pursuant to s.11(6) of the Act.  Seven sub-contractors have appeared to make a claim upon the moneys in court.  There is no dispute about the amounts owed to the sub-contractors and, except in the case of K & L Davey Pty Ltd, the charges are accepted as valid.  The liquidator of Felsmans has been served with notice of these proceedings as ordered by Helman J and has not appeared.
           The central issue for decision relates to a payment of $35,000 made to K & W Electrical Pty Ltd ("K & W") by the Council on 17 August 1995 after it had received a notice of acceptance of the claim from Felsmans on that date.  K & W's Notice of Charge dated 7 August 1995 claimed $75,188 as owing.  The Council maintains that the sum of $35,000 paid to K & W on 17 August 1995 was paid "on account" against its eventual proportional entitlement from the fund retained by the Council.  The sub-contractors concerned argue that the $35,000 paid to K & W was then subject to charges pursuant to claims lodged prior to 17 August 1995 and the payment was made in contravention of s.11(1) of the Act.  The consequence, if that argument is accepted, is that the Council is personally liable to each of the sub-contractors for the amount of the reduction in its share of the charged moneys as a consequence of the Council failing to retain the whole of the charged moneys pursuant to s.11(2) of the Act.
           There was a further dispute concerning the entitlement of the Council to deduct from the fund a certain sum in respect of legal costs.  That matter has been settled between the parties and a further $4,750 is to be added to the existing sum in court.
           RJ Evenden & SD Evenden trading as "Alquip" are not seeking to enforce their charges.
           As mentioned, K & L Davey Pty Ltd's charge is the subject of challenge.
Chronology

•On 21 April 1995 Queensland Windows Pty Ltd trading as Pronger Industries served notices of claim of charge on the Council and Felsmans.  The debt claimed was $101,252.90.

•On or about 19 July 1995 Sunlite Glass Bricks Pty Ltd trading as The Glass Block Shop served notices of claim of charge on the Council and Felsmans.  The debt claimed was $13,450.

•On or about 19 July 1995 Austral Monsoon Industries (Qld) Pty Ltd served notices of claim of charge on the Council and Felsmans.  The debt claimed was $1,938.

•On or about 7 August 1995 K & W served notices of claim of charge on the Council and Felsmans.  The debt claimed was $75,188.

•On 10 August 1995 Falodin Pty Ltd trading as Downs Steel Fabricators served notices of claim of charge on the Council and Felsmans.  The debt claimed was $17,970.12.

•On or about 17 August 1995 the Council paid to K & W the sum of $35,000.

•On or about 18 August 1995 Johnston Cabinets, a firm, served notices of claim of charge on the Council and Felsmans.  The debt claimed was $6,070.

•On or about 12 September 1995 K & L Davey Pty Ltd served two notices on the Council and two notices on Felsmans of intention to claim a charge.  The debt claimed was $17,939.30.

K & W
           On 17 August 1995 Felsmans delivered to K & W and to the Council a notice of acceptance of liability pursuant to the Act in respect of K & W's claim.  On that day the Council forwarded a cheque in the sum of $39,059 to K & W.  In its covering letter the Council's officer wrote:

"Please find attached a cheque for the sum of $39,059.00 consisting of the following components:-

•$35,000 as directed Felsmans Building Industries; and

•$4,059 relating to Invoice No 29386 ..."

Towards the end of July 1996 the Council requested K & W to confirm in writing that the payment made to it on 17 August 1995 was on account of its proportional share of the funds then available to all of the sub-contractors of the builder.  By letter dated 29 July 1996 K & W wrote to the Council confirming that the $35,000 paid directly by the Council "was on account of moneys owed to me by Felsmans Building Industries for the above project".  That was not satisfactory for the Council's purposes and although neither the substance of a telephone conversation nor a copy of a letter from the Council (if either was the mode of communication) is before the court, K & W was persuaded to reply again on 14 August 1996 that the $35,000 paid directly by the Council "was on account of our proportional share of funds available to the sub-contractor of Felsmans Building Industries for the above project".  Nonetheless it is plain that the $35,000 was forwarded and received on the basis that it was a part payment.  Whether it was a proportionate part payment depends on the construction of the Act.
           For the purpose of construing the Act the Council is the "employer", Felsmans is the "contractor" and K & W is a "sub-contractor".  Section 5(1) of the Act creates the entitlement to a charge in favour of a sub-contractor over money which the employer is yet to pay to the contractor pursuant to their contract.  It provides relevantly,

"Where an employer contracts with a contractor for the performance of work upon or in respect of land or a building ... every sub-contractor of the contractor shall be entitled to a charge on the money payable to the contractor or a superior contractor under his contract or sub-contract."

The purpose and ambit of the charge is set out in s.5(2)

"The charge of a sub-contractor shall secure payment in accordance with the sub-contract of all money that is payable or is to become payable to him for work done by him under the sub-contract."

Sub-section (3) provides

"The total amount recoverable under the charges of sub-contractors shall not exceed the amount payable to the contractor under his contract or sub-contract, as the case may be."

K & W submits that sub-section (3) does not apply in the circumstances of this case to prevent an order being made requiring the Council to pay a proportion of $35,000 to the sub-contractors, as that sum is made payable pursuant to sub-section 11(2) and not as moneys recoverable under the charges.  The Council argues that the intention of the Act is clear that an employer is not to be liable in any greater sum than that which is payable or to be paid to the contractor under the contract and this approach is reinforced by s.8 which governs the interpretation of s.11.  Section 8 provides that where the money that is or becomes payable under the contract is insufficient to meet the claims of two or more sub-contractors any insufficiency must be borne by them in proportion to the amounts of their claims.
           It is s.11 which largely governs the resolution of this matter.  Mr Holyoak for the Council submitted that there appears to be a tension within the section in respect of what is required of the Council as contractor.  The person who is given a notice of charge is required to retain an amount to meet the charge s.11(1) and yet is required by s.11(4) to pay the amount of the claim (if accepted) to the sub-contractor.  It is convenient to set out the relevant provisions of s.11

"(1)Where a notice of claim of charge is given pursuant to section 10, the person to whom it is given shall retain, until the Court in which the claim is heard directs to whom and in what manner the same is to be paid, a sufficient part of the money that is or is to become payable by him under his contract to satisfy the claim.

(2)A person who fails to retain the amount that he is required to retain shall be personally liable to pay to the subcontractor the amount of his claim not exceeding the amount that he is required by this section to retain.

(3)Where notice of having made the claim is given pursuant to section 10, the contractor to whom the money is payable, within fourteen days after the notice is given -

(a)shall give notice in the prescribed form that he accepts liability to pay the amount claimed; or

(b)shall give notice in the prescribed form that he disputes the claim -

in either case,

(i)to the employer or superior contractor by whom the money is payable; and

(ii)to the subcontractor giving notice of claim of charge.

(4)Where notice is given pursuant to subparagraph (a) of subsection (3), the employer or superior contractor by whom the money is payable shall pay to the subcontractor the amount he is required to retain.

(5)An employer or superior contractor may, at any time after notice of claim of charge has been given to him, pay into Court the amount that he is required to retain under this section.

...

(7)Money paid into Court under this action shall not be paid out save under an order of the Court.

As at 17 August 1995 when the Council paid the $35,000 to K & W five charges had been created over the moneys that were or were to become payable by the Council to Felsmans.  By that date the amounts claimed secured by the charges amounted to $209,746.02.  On that date after accepted adjustments, the moneys that were payable to or were to become payable by the Council to Felsmans under the contract between them was $201,973.11.  (That amount has since been reduced by agreement between the parties to $197,223.11 after deductions of $4,750 in respect of legal expenses of the Council to which I have earlier referred.  The Council had initially deducted $9,500.)  Accordingly on 17 August and prior to the payment to K & W the money not yet paid to Felsmans was insufficient to cover the sum of the claims in respect of which charges had been made.  Section 11(1) requires the person to whom is given a notice of claim of charge (the Council) to retain a sufficient part of the money that is payable or is to become payable under his contract to satisfy the claim(s).  He must do so until, in effect, the quantum of the claim has been established by order of the Court.  The money in the hands of the employer upon receipt of notice of charge is then bound, Stapleton v. F.T.S. O'Donnell, Griffin & Co (Q) Pty Ltd (1961) 108 C.L.R. 106 at p. 114; Ex parte Pavex Constructions [1979] Qd. R 318 at p. 325. If the contractor has notified the employer that he accepts liability to pay the amount claimed by the sub-contractor the employer "shall pay" to the sub-contractor "the amount he is required to retain", which in that circumstance will always be the amount of the claim, s.11(4). There is no stipulation in s.11(4) as to when the amount is to be paid and, without more, it should be paid as soon as possible, Acts Interpretation Act 1954, s.38. But reading the section as a whole and with the other provisions of the Act a different intention emerges. If the moneys payable to the contractor are subject to more than one charge the sum of the claims will be the amount required to be retained. That amount will not exceed the amount payable to the contractor, s.5(3). Section 8 provides that there is to be evenhandedness between sub-contractors who have charged the moneys payable under the contract where those moneys are insufficient to meet each of the claims. It cannot be the intention of s.11(4) to prefer a sub-contractor whose claim is accepted immediately by the contractor over others whose claim is ultimately successful although initially disputed or whose claim is successful in part. If that were the intention of the draftsman clearer language is surely required. A person in the position of the Council is relieved from the apparent tension between s.11(1) and (4) by subsection (5) which enables him to pay into Court "the amount that he is required to retain".
           The Council argues that the amount that the employer "is required to retain" in s.11(1) is only the sub-contractor's proportionate share of the moneys payable under the head contract.  This argument is said to gain support from the wording of s.11(4) which provides that where the contractor gives notice to the employer that he accepts liability to pay the amount claimed then the employer shall pay to the sub-contractor "the amount he is required to retain" and not the amount claimed in the notice.  There is good reason for this, but that reason does not support the Council's submission.  It would not be correct to employ the expression "the amount of the claim which is undisputed" in s.11(4) because it may well be that the moneys remaining in the hands of the employer when the notice of charge is given is less than an amount to satisfy the claim and the amount required to be retained will not be greater than the sum payable under the contract.  Accordingly the amount the employer is required to retain may differ from the amount of the claim.  There is no basis for reading into the expression "the amount he is required to retain" a qualification such as, "notionally reduced by the sub-contractor's proportionate share of the money".  The Council argues that any other result would be perverse and unjust because if the employer pays as required under s.11(4) and that is not a payment on account of a sub-contractor's proportionate share the employer will have a liability in excess of the moneys payable under the contract and further K & W will obtain more than its proportionate share of the moneys.  Two things can be said of this.  Section 11(4) does not contemplate a part payment.  The Council has not "obeyed" to use Mr Holyoak's expression, the command.  The legislature has provided for the very problem which confronted the Council by permitting the money the subject of charges to be paid into Court.  The Council argues that K & W has received "a windfall" in as much as it has received approximately $4,000 more than it would have received if the $35,000 were characterised as a proportionate share.  This is a result, but there is no mechanism whereby K & W is required to bring into account the $35,000 already paid to it.  Had that been the total amount of its claim no argument was advanced that K & W could have been compelled to return a part to the common pool for distribution.
           By virtue of the notices of claim of charge already received by the Council on 17 August 1995 it was required to retain the whole of the sum which was payable or was to become payable to Felsmans.  The Council failed to retain the amount that it was required to retain and must make good the sub-contractor's proportionate loss.
           I conclude that pursuant to s.11(2) the Council is personally liable to each of the sub-contractors with a valid charge who seek to enforce that charge for the amount of the reduction in its share of the charged moneys as a consequence of the Council failing to retain the whole of the moneys charged with the exception of K & W.
Claim by K & L Davey Pty Ltd
On 26 August 1996 K & L Davey issued a plaint out of the Magistrates Court, Toowoomba against the Council and Felsmans in respect of the sum of $17,339.30. Leave of the Court has not been obtained to commence those proceedings as required by s.471B of the Corporations Law.  If the charge is good that would not usually create a problem.  The particulars of the claim are that K & L Davey carried out works for Felsmans supplying and installing air conditioning equipment in respect of the contract between Felsmans and the Council between November 1994 and April 1995.  K & L Davey gave two notices of intention to claim charge to the Council dated 12 September 1995.  They appear to be made more than three months after the completion of the work, s.10(2), are not supported by a certificate as required by s.10(6).  The affidavit of the present solicitor for K & L Davey deposes that on or about 12 September 1995 the applicant's then solicitors caused to be forwarded to Felsmans two notices of claim of charge.  Those notices are not exhibited.  K & L Davey did not commence proceedings pursuant to s.15 of the Act.  Helman J ordered on 24 July 1996 that each sub-contractor file and serve material in support of its claim by 7 August 1996.  K & L Davey filed and served its material on 27 August 1996, the day before the hearing.  There is no acceptable evidence that the debt claimed to be owing in the plaint or the notice is owed by Felsmans.  K & L Davey does not have a valid charge nor has it proved its debt such as to entitle it to share in any payment.

Calculations
           By consent the Council is to pay into Court the sum of $4,750 to be added to the moneys already paid by it into Court.

           The charged fund then available for distribution to the sub-contractors is $162,243.11 plus accretions, if any.
           The sum of the valid charged claims is $180,869.02.
           The formula to ascertain each sub-contractor's share of the charged fund in Court is

The Charged Fund (+ accretions)  x  The sub-contractor's claim
The sum of the charged claims

Each sub-contractor's charged claim for the purposes of distribution is as follows:

•Queensland Windows Pty Ltd

trading as Pronger Industries  $101,252.90

•Sunlite Glass Bricks Pty Ltd

trading as The Glass Block Shop  $ 13,450.00

•Austral Monsoon Industries

(Qld) Pty Ltd  $  1,938.00

•K & W Electrical Pty Ltd  $ 40,188.00

•Falodin Pty Ltd trading as

Downs Steel Fabricators  $ 17,970.12

•Johnston Cabinets  $  6,070.00

Pursuant to s.11(2) of the Sub-contractors Charges Act 1974 the Council of the Shire of Crows Nest is personally liable to pay a proportionate share to each sub-contractor named below of the reduction in its share of the charged moneys as a consequence of the payment of $35,000 to K & W Electrical Pty Ltd out of the charged moneys.
           The sub-contractors entitled to such share are

•Queensland Windows Pty Ltd

trading as Pronger Industries

•Sunlite Glass Bricks Pty Ltd

trading as the Glass Block Shop

•Austral Monsoon Industries (Qld) Pty Ltd

•Falodin Pty Ltd

trading as Downs Steel Fabricators

•Johnston Cabinets

Those sums may be calculated as the difference between the amounts that those sub-contractors will receive from the moneys in Court and what they would have received had the $35,000 remained as part of the charged moneys and not paid to K & W.  That sum should be notionally added to the charged moneys in Court to ascertain the total available for distribution.  The total of the sub-contractor's charges should include the total of K & W's original claim, namely, $75,188.

•The total charged sum is then $197,243.11 (plus accretions).

•The total of the claims is $215,869.02.

The same calculation should be made for each sub-contractor as set out above and the difference between that figure and the figure actually to be paid must be paid in respect of each sub-contractor named above by the Council.
           These calculations may be made by the representatives of the parties in consultation with the Deputy-Registrar to ascertain the sum of the accretions in Court.  The sums to be paid by the Council personally to the named sub-contractors may be endorsed by him on the file.
Costs
           The appropriate order for costs is that the Council of the Shire of Crows Nest pays the costs of and incidental to the summons of each of the sub-contractors and of the action save K & L Davey Pty Ltd to be taxed unless otherwise agreed unless there are other submissions that a different order ought to be made.