SG Investment Group Pty Ltd v K&K Industries Pty Ltd
[2020] VCC 1341
•1 September 2020
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-20-01991
| SG Investment Group Pty Ltd as trustee for SG Unit Trust t/as BSL Group (ACN 622 338 069) | Plaintiff |
| v | |
| K&K Industries Pty Ltd (ACN 084 738 803) | Defendant |
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JUDGE: | Judicial Registrar Tran | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the Papers | |
DATE OF JUDGMENT: | 1 September 2020 | |
CASE MAY BE CITED AS: | SG Investment Group Pty Ltd v K&K Industries Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2019] VCC 1341 | |
REASONS FOR JUDGMENT
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Subject: CONTRACTS
Catchwords: Building contract – payment claim – whether plaintiff accurately identified the construction contract – whether payment claims identified the construction work to which they related – whether payment claims invalid because not calculated in accordance with the construction contract
Legislation Cited: Building and Construction Industry Security of Payment Act 2002 (Vic) ss 4, 9, 10A, 10B, 12, 14(2), 15, 16(2), 17(2) and 48; Civil Procedure Act 2010 (Vic) s61
Cases Cited:Fulconstruction Pty Ltd v ABP Consultants Pty Ltd [2016] VCC 1732; Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor (2009) 26 VR 112; Pearl Hill Pty Ltd v Concorp Construction Group (Vic)Pty Ltd [2011] VSCA 99; Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd (2005) 62 NSWLR 385; 3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674; SJ Higgins v The Bays Healthcare Group Inc [2018] VCC 805
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms C Jones | Level Playing Field Lawyers Pty Ltd |
| For the Defendant | Mr J Silver | McMahon Fearnley Lawyers Pty Ltd |
JUDICIAL REGISTRAR:
1 The plaintiff (“BSL”) applies by summons on originating motion for judgment against the defendant (“K&K”) in the sum of $39,449.30[1] pursuant to s16(2)(a)(i) of the Building and Construction Industry Security of Payment Act 2002 (Vic) (“SOP Act”). BSL’s application arises out of concreting works that BSL performed at 24 Cubbitt Street, Cremorne between 27 June 2019 and 30 August 2019. It relies upon two documents which it claims are valid payment claims under the SOP Act:
[1] Comprising $24,317.70 on the first payment claim and $15,131.60 on the second payment claim. The plaintiff did not seek judgment for the full amount of the payment claims because it accepted that there had been some minor errors in its calculations.
a) an invoice sent by email on 6 August 2019 for $25,658.60; and
b) an invoice sent by email on 31 August 2019 for $15,439.60.
2 As has been observed in numerous decisions on the SOP Act and similar legislation in other jurisdictions,[2] parts 2 and 3 of the SOP Act create a regime designed to ensure prompt progress payments to sub-contractors. In essence, the regime gives effect to the principle of “pay now and argue later”.[3] The capacity to obtain judgment on a progress claim expeditiously and without excessive legal formality or disputation about technical legal points is integral to the effectiveness of this regime. These considerations apply even more acutely where, as here, the quantum in dispute is significantly less than $100,000. The fundamental purpose of these provisions would be thwarted if judgment could not be obtained without an expenditure on legal fees which was wholly disproportionate to the amount claimed.
[2] See, e.g: Hickory Developments Pty Ltd v Schavello (Vic) Pty Ltd [2009] VSC 156 at [2] and [43]-[47] and authorities referred to therein.
[3]Hickory Developments Pty Ltd v Schavello (Vic) Pty Ltd [2009] VSC 156 at [44]
3 A judgment given under s16(2)(a)(i) is both final (in the sense that it gives rise to a presently enforceable right to payment) and provisional (in the sense that it leaves open the possibility for subsequent inconsistent judgments).[4] As said by Vickery J in Hickory Developments:[5]
Outstanding claims of the principal under the contract, arising for example from poor workmanship or delay, are preserved as future enforceable claims, but cannot stand in the way of prompt payment of a progress claim found to be due under the expeditious process provided for in the Act.
[4]SJ Higgins v The Bays Healthcare Group Inc [2018] VCC 805 at [16]
[5]Hickory Developments Pty Ltd v Schavello (Vic) Pty Ltd [2009] VSC 156 at [2]
4 In essence, the combined effect of ss15(4) and 16(2)(a)(i) of the SOP Act is to entitle a plaintiff to judgment for the amount claimed in a valid payment claim unless the respondent has provided a payment schedule to the claimant within the time required. This is a right which “[goes] beyond [the claimant’s] contractual rights”.[6] In other words, BSL is not suing on the construction contract, or even for a progress payment under the SOP, rather, it is suing for the amount claimed in its payment claims.
[6]Hickory Developments Pty Ltd v Schavello (Vic) Pty Ltd [2009] VSC 156 at [45]
5 In accordance with these principles, BSL is entitled to judgment for the amount claimed in its payment claims so long as the Court is satisfied, on the balance of probabilities,[7] that:
[7] 3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 at [39]-[54]; SJ Higgins v The Bays Healthcare Group Inc [2018] VCC 805 at [26]; Top Cat Installations Pty Ltd v Southstar Homes Pty Ltd [2019] VCC 1878 at [6].
a) there is a construction contract between it and K&K to which the SOP Act applies;[8]
[8] Section 7(1) of the SOP Act
b) it has served a payment claim on K&K;[9]
[9] Section 14(1); 15(4)(a); s16(1)(a) and s16(4)(a)(i) of the SOP Act
c) it was served within the time period required by sub-ss14(4)-(7) of the SOP;
d) the payment claim:[10]
[10] Section 14(2); 15(4)(a); s16(1)(a) and s16(4)(a)(i) of the SOP Act. Sections 14(2)(a) and (b) also require the payment claim to be in the prescribed form (if any) and contain the prescribed information (if any). However, there is currently no prescribed form or prescribed information.
i) identifies the construction work or related goods or services to which the progress payment relates;
ii) indicates the amount of the progress payment that the claimant claims to be due; and
iii) states that it is under the SOP Act;
d) K&K has not provided a payment schedule within the earlier of the time required by the relevant construction contract or 10 business days after the payment claim is served;[11]
[11] Section 15(4); s16(1)(a) and s16(4)(a)(i) of the SOP Act.
e) K&K has failed to pay the whole or any part of the claimed amount on or before the due date for the progress payment to which the payment claim relates;[12] and
f) the claimed amount does not include any “excluded amount”.[13]
[12] Section 16(1)(b) and 16(4)(a)(i) of the SOP Act.
[13] Section 16(4)(a)(ii) of the SOP Act.
6 In accordance with the Court’s usual procedure, [14] I have assessed these matters on a summary basis, i.e.: on the papers.
[14] 3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 at [39]-[54]; SJ Higgins v The Bays Healthcare Group Inc [2018] VCC 805 at [26]; Top Cat Installations Pty Ltd v Southstar Homes Pty Ltd [2019] VCC 1878 at [6].
7 In the present case, K&K opposes the application on the following grounds:
a) the Court cannot be satisfied of the construction contract alleged by BSL (“ground 1”);
b) the payment claims failed to identify the construction work to which they related (“ground 2”); and
c) the payment claims were not calculated in accordance with the terms of the actual or alleged construction contract (“ground 3”).
8 For the reasons given below, I have rejected each of the grounds relied upon by K&K and am satisfied that BSL is entitled to the judgment sought.
The facts
9 The plaintiff relies upon two affidavits of Giuseppe Tomarchio, a director of BSL. In opposition, the defendant relies upon an affidavit of Ektoras Ktori, a director of K&K. The following relevant facts can be drawn from these affidavits.
10 K&K was undertaking a development project at 24 Cubbitt Street, Cremorne. It initially engaged Conc-Create as a subcontractor to undertake concreting works. On 3 June 2019, at a meeting between representatives of K&K, Conc-Create and BSL, BSL was engaged by Conc-Create to rectify works of Conc-Create. The parties agreed that those works would take approximately 2-3 days.
11 Mr Tomarchio says that in a telephone call on 24 June 2019, Kieran Gonzalez of K&K requested that BSL complete additional concreting works for K&K which comprised rectification of the works of subcontractors other than Conc-Create. Mr Tomarchio agreed on behalf of BSL to keep its workers on site and undertake the works and said that he would send him a copy of BSL Group’s rates and terms and conditions. Mr Ktori admits that K&K requested BSL to undertake specific works but denies that Mr Tomarchio’s description of the telephone call is “what [Mr Gonzalez] agreed to, or what was discussed”. Mr Ktori does not say what was discussed in the telephone call. If it were necessary, I would prefer Mr Tomarchio’s account of the telephone conversation, given the lack of any evidence beyond a denial. It would have been a simple matter for Mr Ktori to explain what was said in that telephone call, to the extent that it differed from Mr Tomarchio’s version of events.
12 On 25 June 2019, a representative of BSL sent a representative of K&K the following email [emphasis added]:
Further to your discussion with my director Giuseppe yesterday, please see the
following documents attached:
- SWMS
- Public Liability Insurance
- Workcover
- MSDS for products used
- BSL Group standard rates sheet [“Rates Sheet”]
As Giuseppe mentioned, we have a previous agreement with Henry [of Conc-Create] to provide him with 2 days work.
Therefore you will not be charged for the first 2 days as we will invoice Henry directly.
From that point forward we will charge for our time at an hourly rate. Please send me your invoicing details for our records.
13 Among other things, the Rates Sheet stated:
“Authorised customer purchase order to be provided. In the case where no purchase order has been provided, commencement of works will constitute as the client’s agreement to these terms, as well as the standard BSL rates schedule.”
14 On 25 June 2019, a representative of K&K replied “Thanks... I’ve forwarded these documents to my head office.”
15 On 2 July 2019, a representative of K&K sent an email to BSL providing an email address for provision of invoices.
16 On 6 August 2019, BSL emailed K&K, at the email address provided on 2 July 2019, an invoice in the sum of $25,658.60 (GST inclusive) which included the words:
“Due Date: 30 Aug 2019 Payment terms are 7 Days unless negotiated beforehand… THIS DOCUMENT TOGETHER WITH ANY OTHERS RELATING TO SUPPLY OF PRODUCT TO THIS SITE DURING THIS PERIOD CONSTITUTES A PAYMENT CLAIM UNDER THE BUILDING AND CONSTRUCTION INDUSTRY PAYMENTS ACT 2004 E.&O.E.”
17 On 31 August 2019, BSL emailed K&K, at the email address provided on 2 July 2019, a payment claim for the sum of $15,439.60 (GST inclusive) which included the words:
“Due Date: 30 Sep 2019 Payment terms are 7 Days unless negotiated beforehand. Due date is on Tax Invoice along with postal address and bank transfer details. Name: BSL Group BSB; 033-059 Acc Num: 692-487…THIS DOCUMENT TOGETHER WITH ANY OTHERS RELATING TO SUPPLY OF PRODUCT TO THIS SITE DURING THIS PERIOD CONSTITUTES A PAYMENT CLAIM UNDER THE BUILDING AND CONSTRUCTION INDUSTRY PAYMENTS ACT 2004 E.&O.E.”
18 K&K did not issue a payment schedule or make any payment on these invoices.
Ground 1: The Court cannot be satisfied of the contract alleged.
19 K&K submits that BSL should be denied relief because the contract between the parties differs from that contended for by BSL and, in particular, excluded work performed rectifying the work of Conc-Create.
20 Section 4 of the SOP defines construction contract as a “contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services for another party”. The Act applies to any construction contract whether written or oral, or partly written and partly oral.[15] It applies even if the contract is governed by the law of a jurisdiction other than Victoria.[16]
[15] Section 7 of the SOP Act.
[16] Ibid.
21 There was no dispute that the work the subject of this proceeding is “construction work” within the meaning of s5 of the SOP Act.
22 K&K’s submissions admit that there was a contract between K&K and BSL (which it describes as the “True Contract”) and that K&K requested BSL to undertake specific works. In my view, this is sufficient to establish the threshold requirement that there was a construction contract to which the SOP Act applies.
23 In any event, for the reasons stated above, I prefer Mr Tomarchio’s account of the telephone conversation of 24 June 2019 to the hearsay denial of Mr Ktori. As flagged in that conversation, BSL subsequently sent the Rates Sheet to K&K which included a provision to the effect that commencement of work constituted agreement to terms. No objection was taken to this Rates Sheet; BSL commenced work; and K&K provided an email address to provision of invoices. In the circumstances, I am satisfied on the balance of probabilities that the Rates Sheet formed part of the terms of the construction contract between BSL and K&K and that the contract was as alleged by BSL.
24 K&K takes issue with what it says is a conflict between the telephone conversation on 24 June 2019 (in which the agreement was said to be to rectify works completed by subcontractors other than Conc-Create) and the subsequent email of 25 June 2019, which on one view requires K&K to pay for all works performed beyond the first two days (even if rectifying Conc-Create’s work). This forms the basis for a submission that the payment claim is invalid because it claims payment for work done to rectify the work completed by Conc-Create.
25 I am not satisfied that there is any such inconsistency. The email may simply evidence an opinion that the previously agreed works rectifying the defects of Conc-Create will be completed within 2 days so that the additional works requested by K&K could be commenced after the first two days.
26 Regardless, for the reasons which I will expand on further below (in relation to ground 3) this is precisely the type of defence which is impermissible to raise on a claim under s16(2)(a)(i). To come within the SOP Act, BSL must establish the existence of a construction contract to which the SOP Act applies. It has done so.
Ground 2: The payment claims failed to identify the construction work to which they related
27 K&K submits that the payment claims fail to sufficiently identify the construction work. Particular reliance is placed upon the failure to specify the location of the works and the failure to attach labour dockets which provided more detailed information about the work performed.
28 Whether a payment claim sufficiently identifies the construction work is an objective test.[17] The test is whether a reasonable person in the position of K&K could comprehend the basis of the claim.[18] The test is not overly stringent; the court must not adopt an unduly technical approach.[19]
[17]John Beever (Aust) Pty Limited v Paper Australia Pty Ltd [2019] VSC 126 [83].
[18] Ibid.
[19] Ibid; Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106 [51] (Vickery J).
29 The context of the payment claim is relevant, including industry conventions and earlier contractual dealings.[20] The background knowledge of the parties from their past dealings and prior exchanges of information (including correspondence) is also relevant.[21] The amounts concerned are also relevant: more detail and formality might be expected of a claim of many hundreds of thousands of dollars than a claim of tens of thousands of dollars.
[20]Clarence Street Pty Ltd v Isis Projects Pty Ltd [2005] NSWCA 391 [40].
[21] John Beever (Aust) Pty Limited v Paper Australia Pty Ltd [2019] VSC 126 [83]; Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106 [51] (Vickery J).
30 In my view, on the context of this claim, the payment claims adequately identify the construction work to which they relate.
31 The first payment claim describes the work as ‘Prep, grind, patch, fairing coat and sanding soffits/defects with color match’; ‘Prep, grind, patch, fairing coat and sanding ramp’s walls and soffits’; ‘Prep, grind, patch, fairing coat and sanding balconies soffits’; ‘Prep, grind, patch, fairing coat and sanding columns’; ‘Prep, grind, patch, fairing coat and sanding staircase defects’; ‘Prep, grind, patch, fairing coat and sanding roof top walls; ‘Material – Fairing Coat’; ‘Material – Panel patch’; and ‘Material Primer’. It provides quantities, unit prices, added GST and amounts due.
32 The second payment claim describes the work as ‘Prep, grind, patch, fairing coat and sanding soffits/defects with color match’; ‘Prep, grind, patch, fairing coat and sanding ramp walls and soffits’; ‘Prep, grind, patch, fairing coat and sanding balconies wall and soffits’; ‘Prep, grind, patch, fairing coat and sanding columns’; ‘Prep, grind, patch, fairing coat and sanding courtyard balconies and walls’; ‘Prep, grind, patch, fairing coat and sanding roof top walls and balconies’; ‘Prep, grind, patch, fairing coat and sanding crane rebate’; ‘Prep, grind, patch, fairing coat and sanding all panel defects’; ‘Material – Fairing Coat’; and ‘Material – Panel Patch’. It too provides quantities, unit prices, added GST and amounts due.
33 The invoices should be read in the context of the Rates Sheet and the presumed knowledge of K&K of its development site. The invoices provide an explanation of the work performed and the location on site where the work was performed (ramp, balconies, staircase, etc). The fact that more detailed labour dockets existed, and were subsequently provided in October 2019, does not render the payment claims invalid.
34 I do not accept K&K’s submission that it was necessary to identify the site of the works. There is no evidence that BSL was performing works for K&K at locations other than Cremorne or that K&K did not understand the site to which these invoices related.
35 A reasonable person in K&K’s position, upon receiving the payment claims, would readily comprehend the work to which they related.
Ground 3: The payment claims were not calculated in accordance with the contract
36 K&K submits that the payment claims were not calculated in accordance with the contract. This argument fails at the threshold. BSL is not suing on the contract, it is suing on the payment claims. It is not a defence to a claim under s16(2)(a)(i) of the SOP that the payment claims were not calculated in accordance with the contract.
37 This is confirmed by a textual analysis of the provisions of the SOP Act.
38 Section 9 of the SOP creates an entitlement to a “progress payment” on and from each “reference date” under a construction contract. Under s10(1)(a), the amount of the progress payment is to be calculated “in accordance with the terms of the contract”. However, as I have already noted, BSL does not sue under the construction contract or for a progress payment in this proceeding. BSL sues on the payment claim.
39 Section 14(1) sets out the circumstances in which a person is entitled to send a payment claim. A person need not be entitled to a progress payment to send a payment claim, it is sufficient that the person “is or…claims to be entitled to a progress payment” from a person who “is or may be liable to make the payment”.[22]
[22] Section 14(1), of the SOP Act.
40 Section 15 of the SOP permits the recipient of a payment claim to send a payment schedule. If a payment schedule is sent which provides for payment of less than the amount claimed in a payment claim, the claimant may apply under s18(1)(a)(i) for an adjudication by an adjudicator. The adjudicator then determines the amount of the progress payment to be paid to the claimant.[23] Section 23(2) provides the adjudicator with an exhaustive list of considerations to which he or she must have regard, one of which is the provisions of the construction contract. The value of any construction work is to be determined in accordance with s11 of the SOP, which requires it to be valued in accordance with the terms of the contract.[24]
[23]Section 23(1)(a) of the SOP Act.
[24] See Section 23(4) of the SOP Act.
41 The detailed procedure for adjudication of the amount of the progress payment may be contrasted with the procedure for an application for judgment under ss15-16 of the SOP. Section 15(4) provides that where a respondent has failed to serve a payment schedule within the time required the respondent “becomes liable to pay the claimed amount [emphasis added]”. Section 16(2) then entitles the claimant to recover the “unpaid portion of the claimed amount [emphasis added]…as a debt due to the claimant”. Section 16(4) sets out the matters of which the Court must be satisfied before giving judgment:
judgment in favour of the claimant is not to be given unless the court is satisfied—
(i) of the existence of the circumstances referred to in subsection (1); and
(ii) that the claimed amount does not include any excluded amount
42 There is no mention of any requirement that the Court be satisfied that the claimed amount is calculated in accordance with the contract.
43 There is a procedure for determining whether a payment claim is calculated in accordance with the contract: an adjudication by an adjudicator under s23 of the SOP. This procedure would have been triggered if K&K served a payment schedule and BSL was dissatisfied with that payment schedule. But K&K did not serve a payment schedule. It is not the role of the Court in determining BSL’s application under s16(2) of the SOP to determine whether the payment claim was calculated in accordance with the contract.
44 To accept such an invitation might require the Court to engage in protracted disputation concerning the terms of the contract. It might require the Court to undertake a line by line analysis of each item in a payment claim against the terms of the contract. This would be contrary to the clear purposes of the payment claim regime.
45 This is illustrated in the present case, where K&K submits that the Court should determine the following matters on the papers:
a) the contract, properly interpreted did not include rectification of Conc-Create’s works (interpretation of terms of contract) and the payment claim included claims for payment for rectification of Conc-Create’s works (factual determination); and
b) as a matter of industry practice, the contract excluded GST, where there is conflicting affidavit evidence before the Court as to the industry practice.
46 There may be some circumstances where a payment claim bears so little relation to the contract that it is not a bona fide payment claim. That is not this case. BSL is to be commended for making concessions of minor miscalculations in its payment claims and adjusting the amount it claims for judgment in this proceeding downwards as a result. However, there is no suggestion that the payment claims were not genuine claims at the time that they were made. Ground 3 is not made out.
Other matters
47 For completeness, I am satisfied of each of the remaining matters set out in paragraph 5 of these reasons, i.e.: the two invoices were served within the time period required; indicated the amount of the progress payment claimed to be due; stated that they were under the SOP Act; and did not include any “excluded amount”.
48 I also note that if I am wrong in relation to amounts charged for GST, I would have severed those amounts from the payment claims and awarded judgment for the balance, an amount of $35,863.00.[25]
[25] [2010] VSC 106.
49 Judgment should be given for BSL in the sum of $39,449.30 plus interest to the date of judgment. I will hear from the parties on costs.
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Certificate
I certify that these 12 pages are a true copy of the judgment of Judicial Registrar Tran delivered on 1 September 2020.
Dated: 1 September 2020
Simon Bobko
Associate to Judicial Registrar Tran
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