Spirito Development Pty Ltd v Sinjen Group Pty Ltd
[2020] VCC 1368
•3 September 2020
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Building Cases List
Case No. CI-20-02004
| Spirito Development Pty Ltd | Plaintiff |
| v | |
| Sinjen Group Pty Ltd | Defendant |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the Papers | |
DATE OF JUDGMENT: | 3 September 2020 | |
CASE MAY BE CITED AS: | Spirito Development Pty Ltd v Sinjen Group Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2020] VCC 1368 | |
REASONS FOR JUDGMENT
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Subject: CONTRACTS
Catchwords: Building contract – payment claim – whether reference date available for payment claim – whether payment claim served prior to reference date valid – whether payment claims validly withdrawn – whether multiple invoices sent by separate emails can constitute one payment claim – whether payment claim served by email after business hours can be taken to be served on the next business day – whether failure to provide a statement confirming payment to employees invalidates payment claim – whether retention moneys can be withheld in absence of payment schedule
Legislation Cited: Building and Construction Industry Security of Payment Act 2002 (Vic) ss3, 4, 7, 9(1),10B, 12, 14(2), 15, 16(2), 16(4), 17(2), 47, 48, 50; Civil Procedure Act 2010 (Vic) s61, 63.
Cases Cited: Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340; MKA Bowen v Carelli Constructions [2019] VSC 436; All Seasons Air Pty Ltd v Regal Consulting Service Pty Ltd [2017] NSWCA 289; Valeo Construction Pty Ltd v Pentas Property Investment Pty Limited [2018] VSC 243; Kitchen Xchange v Formacon Building Services [2014] NSWSC 1602; Brookhollow Pty Ltd v R & R Consultants Pty Ltd & Anor [2006] NSWSC 1; Metacorp v Andeco Construction Group Pty Ltd [2010] VSC 199; Hickory v Schiavello (2009) 26 VR 112; Modog Pty Ltd v ZS Constructions (Queenscliff) Pty Ltd [2019] QSC 1743; Alan Conolly v Commercial Indemnity [2005] NSWSC 339; JR & LM Trackson Pty Ltd (ACN 088 333 831) v NCP Contracting Pty Ltd (ACN 121 915 017) [2019] QSC 201; Amasya Enterprises Pty Ltd & Anor v Asta Developments (Aust) Pty Ltd (No 2) [2015] VSC 500; Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248; Plaza West v Simons Earthworks [2008] NSWCA 279; Cool Logic Pty Ltd v Citi-Con (Vic) Pty Ltd [2020] VCC 1261; J Hutchinson Pty Ltd v Glavcom Pty Ltd [2016] NSWSC 126; Zulform Pty Ltd v Donmar Construction Pty Ltd [2020] VCC 562; Argyle Services Pty Ltd v One Three Wilson Pty Ltd [2019] VCC 1567; Shells Venture Management v Agresta [2019] VSC 863; Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd [2014] QSC 293
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Dr Kylie Weston-Scheuber | Fumens Lawyers |
| For the defendant | Dr Michael Wolff | Hapgood Legal |
HIS HONOUR:
1 The plaintiff, Spirito Development Pty Ltd (“Spirito”) applies for judgment against the defendant, Sinjen Group Pty Ltd (“Sinjen”) pursuant to s16(2) of the Building and Construction Industry Security of Payment Act 2002 (Vic) (“the Act”). Spirito makes the application by summons on originating motion dated 5 May 2020. The application arises out of Spirito’s provision of plastering services (“Works”) under a Master Sub-Contract Agreement dated 23 April 2019 (“the Sub-Contract”) at 3-11 Howard Street, West Melbourne (“the Site”). Spirito relies on six payment claims that it asserts were served pursuant to the Sub-Contract and in accordance with the Act, all of which remain unpaid, either in part or in full.
2 Sinjen resists judgment in respect of one or more of the payment claims, on the basis that they:
· were served before the applicable reference date;
· breached the rule against serving more than one payment claim in respect of each reference date;
· included sums that failed to qualify as claimable variations;
· included sums that had been validly deducted as retention amounts; and
· are subject to set-off in respect of sums paid on invalid payment claims.
3 I am satisfied the plaintiff has a valid claim in relation to invoices 1126 and 1127 (Payment Claims 2 and 3). However, I reject Spirito’s claim in relation to invoice 1129 (Payment Claim 4), as it was served prematurely. Further, I reject Spirito’s claim that two invoices sent in separate emails should be regarded as one payment claim. Therefore, in relation to invoices 1130 and 1131 (Payment Claim 5) and invoices 1132 and 1133 (Payment Claim 6), invoices 1131 and 1133 are invalid.
4 Sinjen submitted that, due to various overpayments in response to payment claims, it is entitled to repayment of $26,727.49. In my view, Sinjen is not entitled to repayment, as the Act provides no mechanism under which it may recover any alleged overpayment. Further, I reject Sinjen’s submission that it was entitled to withhold 10% of a payment claim as retention monies in circumstances where it has not served a payment schedule in respect of that part of the payment claims.
5 Therefore, I will order that there be judgment for the plaintiff against the defendant in the sum of $58,272.27 and that the defendant pay the plaintiff’s costs of and incidental to the proceeding on the standard basis, in default of agreement, unless either party can show a basis for seeking a different order to costs. I invite the parties to prepare draft orders to give effect to these reasons (including checking my calculations), and any further issue as to costs will be determined on the papers.
The factual background
6 There have been three affidavits filed in this proceeding: two affidavits of Mr Jinming Yang, the director of Spirito, affirmed on 5 May and 11 June 2020 and one affidavit of Mr Holmes, a director of Sinjen, sworn on 5 June 2020. The summary of facts below is based on those affidavits. Unless noted otherwise, those facts are not materially in dispute.
7 In or around July 2018, Sinjen entered a head contract (“Head Contract”) with Howard Court Pty Ltd for the construction of the project known as Howard West Development (“the Project”) at the Site.
8 In or around 23 April 2019, Sinjen subcontracted Spirito for plastering services under the Sub-Contract. The Sub-Contract was for the sum of $560,000 plus GST. The date for completion of the sub-contract works was 11 November 2019. Relevantly, the Sub-Contract provided as follows:
· by clause 29.1 that:
“At the intervals and/or dates stated in item 11 of [the Schedule] which shall be the reference dates for payment claims under the [Act], [Spirito] may submit to [Sinjen] progress claims showing:
(a) his valuation of the work executed (including variations);
(b)the amount which [Sinjen] is entitled to deduct pursuant to Clause 31 of the sub-contract;
(c) the amount previously paid under the sub-contract;
(d) the amount claimed by [Spirito];
(e)a statement signed by [Spirito] that all wages due to its employees engaged on the sub-contract works have been paid.”
· by clause 31 that Sinjen may make deductions from each or any of Spirito’s progress payments of the percentage in item 13 of the Schedule until the total amount retained is equal to the limit in item 13 of the Schedule;
· by clause 37 that notices required to be given “shall be deemed to have been sufficiently given if…sent by email transmission”, but (unlike in relation to a notice sent by post) is silent about when a notice sent by email is deemed to have been served;
· liquidated damages at a rate of $3000 per day (Schedule item 9);
· date for submission of claims: 25th day of each month or the next work day (referencing clause 29 of the Sub-Contract (Schedule item 11);
· period/time frame for payment of claims: 30 days after the latest of the completion of the works in respect of which a progress claim is made, the date the progress claim is lodged in accordance with clause 29 of the Sub-Contract, or the date upon which the contractor becomes entitled to payment under the Head Contract (Schedule item 12); and
· retention: 10% of each progress claim up to a maximum of 5% of the Sub-Contract sum (Schedule item 13).
9 In or about late April or early May 2019, Spirito commenced the Works. The Works progressed with Spirito issuing payment claims regularly from May to November 2019, and Sinjen paying a portion of each payment claim. Mr Yang deposes that in September 2019, Sinjen provided written instructions to Spirito to complete a series of additional plastering and other jobs at the Site. Mr Yang further deposes that again in October 2019, further written instructions were issued by Sinjen to Spirito to complete a series of additional plastering and other jobs .
10 The Sub-Contract was terminated on 16 January 2020 and no further reference dates arose under the Sub-Contract after that date.
11 Spirito’s purported payment claims were all served by email and endorsed with the words “this is a payment claim under the Building and Construction Industry Security of Payment Act 2002”. The relevant content and circumstances of the service of each payment claim, as well as the relevant details of Sinjen’s response to each of the payment claims, are summarised below.
Payment Claim 1
12 This payment claim is constituted by revised invoice 1125 dated 25 May 2019 for $126,500 (inc GST) with a due date of 25 June 2019, sent by email on 7 June 2019, (“Payment Claim 1”). On about 1 July 2019, Sinjen paid $131,258.16 (inc GST) on Payment Claim 1, an overpayment of $4,758.16.
Payment Claim 2
13 This payment claim is constituted by revised invoice 1126 dated 25 June 2019 for $34,777.60 (inc GST) with a due date of 27 July 2019, sent by email on 11 July 2019, (“Payment Claim 2”). On about 31 July 2019, Sinjen paid $31,299.84 (inc GST) on Payment Claim 2. Mr Holmes deposes that a conversation held on-site on 8 July 2019 constituted a payment schedule in response to Payment Claim 2. On 22 July 2019, Sinjen provided a written payment schedule in response. Mr Holmes deposes that the unpaid balance of $3,477.76 was held by Sinjen as retention.
Payment Claim 3
14 Spirito first served a purported payment claim constituted by invoice 1127 on 24 July 2019 (a Wednesday) at 9.47pm, in the amount of $88,106.71. On 28 July at 12.07pm, Spirito emailed a revised invoice 1127 dated 25 July 2019 for $101,306.71 (inc GST) with a due date of 25 July 2019 (“Payment Claim 3”). On about 30 August 2019, Sinjen paid $79,296.04 (inc GST) on Payment Claim 3. Mr Yang deposes that a short time after this payment, Mr Nash of Sinjen requested that Spirito maintain the amount of Payment Claim 3 at the $88,106.71 claimed in the original version of the invoice, to which Mr Yang agreed.[1]
[1]Ibid [34].
15 Mr Holmes deposes that a payment summary schedule was provided on 5 August 2019 in relation to the original version of Payment Claim 3, and that Sinjen later sent a subcontract payment advice in response to the revised Payment Claim 3, which referred to the payment schedule dated 5 August 2019. Mr Holmes deposes that the unpaid balance of $8,810.67 (inc GST) on Payment Claim 3 was held by Sinjen as retention.
Payment Claim 4
16 This payment claim is constituted by invoice 1129 dated 25 August 2019 for $174,812 (inc GST) with a due date of 25 September 2019, and was sent by email on 23 August 2019 (a Friday) at 10.17pm (“Payment Claim 4”). On about 26 September 2019, Sinjen paid $141,186.13 (inc GST) on Payment Claim 4, leaving an unpaid balance of $33,625.87. It seems that Sinjen prepared a payment schedule in response to Payment Claim 4 stating a payment amount of $141,186.13,[2] but Mr Yang deposes that this was not provided until 7 October 2019.[3]
[2]Holmes affidavit at [65].
[3]Yang 5 June affidavit [14]-[16].
Payment Claim 5
17 Spirito asserts that this payment is constituted by two invoices (“Payment Claim 5”). The first is invoice 1130 dated 25 September 2019 for $91,047.00 (inc GST) with a due date of 25 October 2019, sent by email at 5.22pm on 25 September 2019 (“Invoice 1130”). The second is invoice 1131 dated 25 September 2019 for $8291.25 (inc GST) with a due date of 25 October 2019, sent by email at 5.35pm on 25 September 2019 (“Invoice 1131”).
18 In response to Payment Claim 5, Sinjen paid $91,047 (inc GST). Mr Holmes deposes that a payment schedule for Payment Claim 5 was provided on 11 October 2019 stating a payment amount of $91,047 (inc GST), which was the claimed amount Invoice 1130. Mr Holmes deposes that Invoice 1131 was rejected as the site instructions exhibited by Mr Yang were not considered variation instructions pursuant to the Sub-Contract. Mr Holmes further deposes that should Invoice 1130 and Invoice 1131 be considered a single payment claim, Sinjen relies upon the payment schedule served on 11 October 2019 as the relevant payment schedule for both invoices.
Payment Claim 6
19 As with payment claim 5, Spirito asserts that this payment claim (“Payment Claim 6”) is also constituted by two invoices. The first invoice is invoice 1132 dated 25 October 2019 for $62,334.58 (inc GST) with a due date of 25 November 2019, sent by email at 5:40pm on 25 October 2019 (“Invoice 1132”). The second is invoice 1133 dated 25 October 2019 for $16,541 (inc GST) with a due date 25 November 2019, served by email at 6:15pm on 25 October 2019 (“Invoice 1133”).
20 On 15 November 2019, Sinjen provided a payment schedule showing a payment amount of $16,350.74 (inc GST) owing on Payment Claim 6, which it paid at about this time. Mr Holmes deposes that by early November, disputes had arisen between the parties. Sinjen was trying to arrange a meeting to address the subjects of dispute, which included Payment Claim 6, which was the reason for the delay in serving a payment schedule. The payment schedule identified the value of works done by Spirito at $23,656.06 (ex GST), with a further $9,312 deducted for negative variations.
21 Mr Holmes further deposes that Invoice 1133 was rejected on the same basis as Invoice 1131 of Payment Claim 5;namely, that site instructions are not variation instructions. As with Payment Claim 5, Mr Holmes deposes that if Payment Claim 6, Invoices 1132 and 1133, are considered a single payment claim, Sinjen relies upon the payment schedule served 15 November 2019 as the relevant payment schedule for both invoices.
Total claim
22 Spirito claims that it is entitled to a total payment of 131,314.88 (inc GST) in respect of the six payment claims above, which it says remains unpaid by Sinjen. Sinjen claims that it has overpaid Spirito a total of $26,747.49 on the six payment claims, taking into account the total retention of $30,800 (inc GST) to which it is entitled.
The legal context
23 The Act seeks to ensure that persons who undertake to carry out construction work can recover progress payments for the performance of that work.[4] Section 4 defines construction contract as a “contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services for another party”. The Act applies to any construction contract whether written or oral, or partly written and partly oral.[5] “Construction work” is defined by s5. There is no dispute that the works the subject of this proceeding is “construction work” within the meaning of s5.
[4]s3.
[5]s7.
24 Section 16(2)(a) of the Act provides that a claimant may recover from a respondent any unpaid portion of an amount claimed in a payment claim where the respondent fails to submit a payment schedule within time (or at all) in response to the payment claim. Section 17(2)(a) provides that where a respondent provides a payment schedule within time, a claimant may recover from the respondent any unpaid portion of the amount which the payment schedule states the respondent proposes to pay to the claimant.
25 Section 14 of the Act concerns the form and content of payment claims. Sections 14(2) and (3) relevantly provide that a payment claim:
· must be in the prescribed form (if any) and contain the prescribed information (if any) – neither is prescribed;
· must identify the construction work or related goods and services to which it relates;
· must indicate the amount of progress payment that the claimant claims to be due;
· must state that it is made under the SOP Act; and
· must not include any “excluded amounts” (being amounts referable to particular categories of variations described below).
26 Section 14(4) of the Act addresses when a payment claim can be served, where it is not a payment claim in respect of a final, single or one-off progress payment. It provides that such a payment claim may only be served within:
· the period determined in accordance with the construction contract “in respect of the carrying out of the item of construction work or the supply of the item of related goods and services to which the claim relates”; or
· the period of 3 months after the “reference date referred to in s9(2) that relates to the progress payment”.
27 Section 14(5), (6) and (7) of the Act concern payment claims claim in respect of a final, single or one-off progress payment and are not relevant for present purposes. Section 14(8) provides that a claimant “cannot serve more than one payment claim in respect of each reference date under the construction contract”. Section 14(9) provides that this limitation does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous payment claim if the amount has not yet been paid.
28 Another important provision informing the formal requirements for payment claims under the Act is s9. Section 9(1) provides that “on and from each reference date under a construction contract” a claimant is “entitled to a progress payment under this Act calculated by reference to that date”. Section 9(2)(a) provides that a reference date is a date determined by or in accordance with the construction contract as:
· a date on which a claim for a progress payment may be made; or
· a date by reference to which the amount of a progress payment is to be calculated.
in relation to a specific item of construction work “carried out or to be carried out” or a specific item of related goods and services “supplied or to be supplied” under the contract. The rest of s9 concerns situations where the contract makes no express provision for reference dates.
29 It is now well established in Victoria that unless a payment claim answering the description in section 14(1) of the Act is served, there can be no application to a court under s16(2)(a)(i). Although dealing with the alternative option of an adjudication application referred to in the New South Wales equivalent of s16(2)(a)(ii), this follows inexorably from the decision of the High Court in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd[6] (“Southern Han”). On the other hand, the available defences to a payment claim are very limited.
[6](2016) 260 CLR 340 at [44].
30 Generally speaking, the available defences concern either the nature of the underlying contract or the form and service of the purported payment claim, and thus whether the payment claim is effective to trigger the procedures established by Part 3 of the Act.[7] More particularly, the defences to a payment claim enlivened by the formal requirements of the Act are, in substance, that the payment claim:
[7]Southern Han at [62].
· does not relate to a “construction contract” (including because it does not involve carrying out “construction work”), or it relates to a construction contract excluded from the operation of the Act under s7 (for example, a construction contract that forms part of a loan agreement, or one that is a domestic building contract under the Domestic Building Contracts Act 1995);
· fails to satisfy the formal requirements of s14(2) (for example, by failing to identify the construction work or failing to state that it is made under the SOP Act);
· was made when no valid reference date existed,[8] including where it is served before an applicable reference date or relies on a reference date that has already been used up by an earlier payment claim;[9]
[8]Southern Han at [61]-[62]; Vanguard Developments v Promax [2018] VSC 386, Kennedy J at [121].
[9]SOP Act s14(8).
· includes variations that are “excluded amounts” under s10B of the Act; and
· was not validly served on the respondent under either the terms of the contract or under s50 of the Act.
31 Under section 47, nothing in Part 3 of the Act precludes bringing or continuing proceedings under the construction contract, including where those proceedings deal with the same issues in dispute in the proceeding relying on Part 3. Thus, a judgment under ss16 and 17 is a provisional judgment in what it grants and what it refuses.[10] The statutory context both contemplates and permits inconsistent judgments.[11] This section is, in effect, the statutory manifestation of the “pay now, argue later” epithet often used to describe the policy behind the SOP Act and its counterparts in other states.[12]
[10]Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor (2009) 26 VR 112 [2] and [43]-[46] (Vickery J), cited with approval in Pearl Hill Pty Ltd v Concorp Construction Group (Vic)Pty Ltd [2011] VSCA 99 [11].
[11]Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd (2005) 62 NSWLR 385 [22] (Handley JA, with whom Santow JA and Pearlman AJA agreed).
[12]Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor (2009) 26 VR 112 [2] and [43]-[46].
32 Further, in considering any purported defences to a payment claim, it is important to be mindful of s48 of the Act. This section provides that the provisions of the SOP Act have effect despite any contractual provision to the contrary. It further provides that any provision in any contract purporting to exclude, restrict or modify the operation of the Act or that may reasonably be construed as an attempt to deter a person from taking action under the Act, is void.
33 This court has endorsed the hearing of applications under the Act on a summary basis by summons on originating motion with affidavit evidence.[13] Such claims are properly assessed on the balance of probabilities,[14] with the quality of the evidence weighed having regard to the fact that the legislation seeks to facilitate a swift but temporary remedy.[15] Occasionally, a plaintiff nevertheless applies for relief under s16 by bringing a proceeding commenced by writ and statement of claim, then issuing a summons seeking summary judgment pursuant to s61 of the Civil Procedure Act 2010 (Vic) (“CPA”).[16] This can add an additional layer of complexity in determining the test to be applied to any defences raised.[17] However, the present proceeding was commenced by summons on originating motion, so questions of the application of the test under CPA ss61 and 63 do not arise.
[13]3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 [39]-[54]. See also SJ Higgins v The Bays Healthcare Group Inc [2018] VCC 805 [26].
[14]Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449, 449-450 (Mason CJ, Brennan, Deane and Gaudron JJ).
[15]3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 [51]-[54].
[16]John Beever v Roads Corporation [2018] VSC 635; see also Best Fab Pty Ltd v Australian High Bay Installations Pty Ltd [2018] VCC 1053.
[17]SJ Higgins v The Bays Healthcare Group Inc [2018] VCC 805 [31].
Analysis
Service of a payment claim before the relevant reference date
34 Sinjen submits that the earlier versions of invoice 1126 and 1127 (the revised versions of which constitute Payment Claim 2 and Payment Claim 3 respectively) and Payment Claim 4, were served before the relevant reference dates and are therefore void. Spirito argues in relation to Payment Claims 2 and 3, that it relies upon the revised versions of invoices 1126 and 1127 and not on the original versions. Both revised invoices for Payment Claims 2 and 3 were served after the relevant reference date. In relation to Payment Claim 4, it submits that the email was sent late at night on Friday 23 August 2019 and the payment claim itself was dated 25 August 2019.
35 As noted above, it is now well-established in Victoria a payment claim served before an applicable reference date is invalid. In Southern Han, the High Court held that a reference date is a “precondition” to a valid payment claim.[18] In the recent decision of MKA Bowen v Carelli Constructions[19] (“MKA Bowen”), Digby J began by considering the text of the ss9(1) and 14(1) of the Act,[20] and then turned to the discussion of the meaning and operation of the sections by the High Court in Southern Han and, more recently, by the New South Wales Court of Appeal in All Seasons Air Pty Ltd v Regal Consulting Service Pty Ltd[21] (“All Seasons”). In that case the majority applied Southern Han and held that:
[18]Ibid [61]-[62].
[19][2019] VSC 436.
[20]MKA Bowen at [34].
[21][2017] NSWCA 289.
“[A] statutory payment claim served before the relevant reference date is not served ‘on or from’ that reference date for the purpose of the NSW SOP Act, the effect being that the phrase ‘on or from’ when properly construed, is to be understood as meaning ‘on or after’ the relevant reference date.”[22]
[22]Ibid [14].
Digby J held that:
“In my view … it is sufficiently clear in light of Southern Han and All Seasons that s 9 and s 14 of the SoP Act (Vic) do not operate so as to permit the valid service of a payment claim prior to the relevant reference date which itself establishes a valid foundation for that payment claim to be made under the SoP Act (Vic) ….”
36 I agree with Spirito that the validity of Payment Claims 2 and 3 will therefore depend, in the first instance, on whether these effectively replaced the prematurely served earlier versions of the invoices. In the alternative, Spirito argues that if the earlier invoices were not effectively replaced, then the premature service of those earlier invoices renders them invalid, and the prohibition on more than one payment claim for each reference date under s14(8) of the Act is not triggered. The validity of Payment Claim 4 will depend on when that payment claim is taken to have been served on Sinjen.
Payment Claims 2 and 3
37 Turning first to Payment Claims 2 and 3, Spirito submits that the revised invoices “clearly and unequivocally withdrew” the earlier versions of the invoices, thus satisfying the test in Valeo Construction Pty Ltd v Pentas Property Investment Pty Limited[23] (“Valeo”). In Valeo, Digby J referred to the defendant’s reliance on the decision of McDougall J in Kitchen Xchange v Formacon Building Services,[24] in which his Honour identified the need for “the circumstances [to] make it very clear to the respondent that a payment claim is to be withdrawn”. Digby J then considered the correspondence accompanying the purported revised payment claims, finding in one case that “the communication and the attached payment claim did not clearly and unequivocally convey that the …payment claim was withdrawn or abandoned by the plaintiff and replaced” by the later payment claim.[25]
[23]Valeo Constructions v Pentas [2018] VSC 243 [37]-[38].
[24][2014] NSWSC 1602, referred to in Valeo at [23].
[25]Valeo at [36].
17 Payment Claim 2 was sent under cover of an email from Mr Yang to Mr Nash dated 11 July 2019 that stated:
“As discussed between you and Jimmy on site by the date 08/07/19 at 1:29pm please check attached PDF of revised invoice 1126 at 3-11 Howard street West Melbourne.”[26]
[26]Exhibit J-5 of the first affidavit of Jinming Yang sworn 5 May 2020.
18 Payment Claim 2 bore the same invoice number, date and due date as the earlier invoice. However, the description of works and final amount claimed differed, being $14,772.12 less than the earlier invoice. This is consistent with the submissions of the parties and the affidavit evidence of both Mr Yang and Mr Holmes, who deposed that the revised Payment Claim 2 was issued following a discussion at the Site. Mr Yang deposed that Mr Nash came on-site and “told me that he wanted to discuss with Spirito about reducing the amount payable for invoice 1126”.[27]
[27] Yang affidavit affirmed 11 June 2020 at [10], see also the Holmes affidavit sworn 5 June 2020 [45-46].
19 I am satisfied on balance that the combination of the discussion on Site and the email attaching Payment Claim 2 prompted by that discussion, were sufficient to unequivocally convey that the earlier invoice had been withdrawn and replaced by Payment Claim 2. Thus, having been served well after the relevant reference date, in my view Payment Claim 2 is a valid payment claim under s14 of the Act.
20 The position in relation to Payment Claim 3 is less clear. This was sent by email dated 24 July 2019, which stated:
‘Please check attached PDF of Revised invoice 1127 at 3-11 Howard street West Melbourne.’[28]
[28]Yang affidavit affirmed 5 May 2020, JY-8.
21 Like Payment Claim 2, the invoice number, date and due date were the same as the earlier invoice, but the description and the final claim were different, with the invoice comprising Payment Claim 3 being $13,200 less than the earlier invoice. However, in this case there was no discussion about replacing the earlier invoice until after Payment Claim 3 had been sent. Instead, Sinjen made a payment based on the earlier invoice and a short time later asked Spirito to maintain the amount claimed in the earlier invoice, to which Spirito agreed. In my view, both the timing and content of the discussion failed to assist in elevating what was otherwise an email of uncertain effect, into an unequivocal withdrawal of the earlier invoice. Accordingly, I am satisfied that Payment Claim 3 did not validly supersede the earlier invoice.
22 However, that is not the end of the matter. As noted above, Spirito argues in the alternative that:
· if (as I have found) Payment Claim 3 did not effectively replace the earlier version of the invoice;
· and (as Sinjen argues) that invoice was served before the applicable reference date and is therefore invalid;
· an invalid payment claim cannot trigger s14(8) of the Act; and
· accordingly, Payment Claim 3, having been served after the 25 July 2019 reference date, is the only (valid) payment claim with respect to that reference date.
17 To my mind, this alternative argument depends on which category of non-compliance the service of a payment claim before the reference date falls into, in the sense discussed in Brookhollow Pty Ltd v R & R Consultants Pty Ltd & Anor,[29] and by Vickery J in Metacorp v Andeco Construction Group Pty Ltd[30] (“Metacorp”). In Metacorp, Vickery J held as follows:[31]
[29][2006] NSWSC 1 at [41].
[30][2010] VSC 199.
[31]Metacorp at [111]-[114].
“The approach which I have taken is consistent with that taken in New South Wales under the equivalent legislation which applies in that State. In Brookhollow Pty Ltd v R & R Consultants Pty Ltd & Anor (“Brookhollow”), Palmer J dealt with the requirements of the equivalent of s.14 of the Victorian Act (being s.13 of the New South Wales Act). His Honour said:
‘The law as to compliance with s.13(2) of the Act as it emerges from Brodyn and Nepean, may be summarised thus:
(i)a payment claim which is never served on the respondent under s.13(1) cannot set in motion the machinery of Pt 3 so that any purported adjudication of that payment claim and any other enforcement procedures in Pt 3 founded upon that payment claim must be a nullity;
(ii)there are some non-compliances with the requirements of s.13(2) of the Act which will result in the nullity of a payment claim for all purposes under the Act; there are other non-compliances which will not produce that result;
(iii)a payment claim which does not, on its face, purport in a reasonable way to:
– identify the construction work to which the claim relates; or
– indicate the amount claimed; or
– state that it is made under the Act
fails to comply with an essential and mandatory requirement of s.13(2) so that it is a nullity for the purposes of the Act;
(iv)a payment claim which, on its face, purports reasonably to comply with the requirements of s.13(2) will not be a nullity for the purposes of engaging the adjudication and enforcement procedures of Pt 3 of the Act ...’
This is not a case where the payment claim in question was never served on the respondent so that the machinery under the Act could not be set in motion. The first limb of the passage cited from Brookhollow therefore has no application.
…
In my opinion, it was not a purpose of the Act that service of a premature payment claim should be invalid.”
17 However, as Digby J noted in MKA Bowen, his Honour’s finding in the final paragraph above must now be viewed as overruled by Southern Han and All Seasons.[32] And, in my view, it also follows from Digby J’s reasoning in MKA Bowen (and from the proper construction of s9(1) itself) that the service of a premature payment claim should now be considered as being included in Palmer J’s category of non-compliances which will result in “the nullity of a payment claim for all purposes under the Act”.[33] This is both consistent with and reinforced by Southern Han, in which the High Court held in respect of the New South Wales equivalent of s14(1):
[32]MKA Bowen at [56].
[33]Brookhollow Pty Ltd v R & R Consultants Pty Ltd & Anor [2006] NSWSC 1 at [41].
“Section 13(1) correspondingly produces the result that a document purporting to be a payment claim that is not in respect of a reference date is not a payment claim under the Act. The document is ineffective in either case to trigger the procedure established by Pt 3.”[34]
[34]Southern Han at [62].
17 I am therefore satisfied that the prematurely served original version of invoice 1127 was a nullity for all purposes under the Act and did not trigger the prohibition in s14(8) of the Act. It follows that Payment Claim 3 was validly served after the 25 July 2019 reference date and is the only payment claim served with respect to that reference date.
Payment Claim 4
18 Turning next to Payment Claim 4, Spirito concedes that MKA Bowen is against it on the question of a claimant’s ability to serve a payment claim before a reference date. However, it argues that MKA Bowen can be distinguished on the facts on two grounds. First, in this case Payment Claim 4 bore the correct reference date, namely 25 August 2019, which was acknowledged by the defendant in its remittance advice.[35] Second, in its purported payment schedule (discussed below), Sinjen stated that Payment Claim 4 was received on 26 August 2020.
[35]Plaintiff’s principal submissions [20].
19 In my view, these matters alone are not sufficient to justify any departure from the clear findings in MKA Bowen (with which I respectfully agree), particularly where those findings are founded not only on the plain and ordinary meaning of s9(1) of the Act, but also on the binding authorities of Southern Han and All Seasons. In particular, the effect of those decisions is that if a reference date is not available on the date that a payment claim is taken to have been served, the payment claim is invalid regardless of when it was received. The machinery of Part 3 of the Act is not engaged. On the other hand, there is no suggestion in MKA Bowen that the date of service was open to debate on the facts of that case. In particular, while the day of service (as in this case) was a Friday, it is not clear from Digby J’s reasons what time or how service was effected. Nor is there any discussion of the relevance of any notice provisions, either in the contract or the Act.
20 In this case, Payment Claim 4 was sent by email at 10.17pm (well after close of business) on Friday 23 August 2019. There is no suggestion that any further work was done on Site between that time and the relevant reference date (being Monday 26 August, the “next work day” after 25 August). As mentioned above, the Notice provision in the Sub-Contact is silent on when a notice sent by email is taken to be received and has no boilerplate provision on the calculation of time in relation to acts performed outside business hours. For completeness, I note that s50 of the Act (which the authorities confirm is facultative, not mandatory) says nothing about service by email, but does provide that a facsimile received after 4.00pm on any day “must be taken to have been received on the next business day”.
21 These factors at least raise for consideration the question (not raised in terms by the submissions) whether Payment Claim 4 can be taken to have been served on the next business day after 24 August, namely 26 August 2019, being the relevant reference date under the Sub-Contract. I am also attracted to the finding by Vickery J in Metacorp[36] that:
If, contrary to my finding, service of the claim was undertaken on 24 October 2009 by the email sent at approximately 8:40pm on that day, it was only some 3½ hours short of midnight on 25 October. If this did constitute a breach of the requirements of the Act, in all the circumstances it was a de minimis breach of no practical consequence. Accordingly, even if Ground 1 could have been made out, in the exercise of my discretion, I would have granted no relief in respect of it.
[36]At [115].
17 The facts in Metacorp were similar to those in the present case, and it is at least arguable that his Honour’s conclusion above was not disturbed by Southern Han and All Seasons. However, with considerable hesitation, I have concluded that:
· the better view is that the correct construction of the Notices provision in the Sub-Contract is that service by email is taken to be effected forthwith;
· this is essentially because, unlike service by post, the drafter chose to say nothing about when service by email is taken to be effected, and I take judicial notice of the fact that it is usually instantaneous;
· while the provision in s50 of the Act about service by facsimile is analogous, its failure to deal expressly with email means that it does not advance the issue beyond what is provided in the Sub-Contract;
· I am unable to discern from the facts or the Act any other basis for finding that service late on a Friday night is taken to be effected the following Monday;
· in the circumstances, the reasoning in MKA Bowen applies and Payment Claim 4 is invalid.
Service of payment claims by different emails
18 According to Spirito, Payment Claim 5 and Payment Claim 6 were each constituted by a pair of invoices sent in close proximity to each other. Payment Claim 5, Invoice 1130 was sent by email at 5.22pm on 25 September 2019 and Payment Claim 5, Invoice 1131 was sent by email 13 minutes later at 5.35pm. Similarly, Payment Claim 6, Invoice 1132 was sent by email at 5:40pm on 25 October 2019 and Payment Claim 6, Invoice 1133 was sent by email 35 minutes later at 6:15pm.
19 There was nothing in the covering emails or the invoices to suggest that each pair of invoices was intended to constitute a single payment claim. Spirito relies solely on the proximity in time to support its argument that each pair should be treated as a single payment claim, and that the payment claims therefore do not offend the prohibition on sending more than one payment claim for each reference date in s14(8) of the Act. Spirito’s submissions on this issue can be summarised as follows:
· where a payment claim comprising multiple invoices is served in such a way that it can be reasonably interpreted as a single payment claim, there is no contravention of s 14(8) of the Act;
· for example, in Hickory v Schiavello,[37] two tax invoices were delivered to Hickory by post on the same day in the same envelope, unaccompanied by a letter or separate note. Hickory submitted that the invoices were separate payment claims in violation of s14(8) of the Act;
[37](2009) 26 VR 112.
· Vickery J found that the subcontract under which Schiavello performed the works comprised two parts, one related to fit-out and the other related to base building works. Schiavello had invoiced separately for these separate components of the works in this way at Hickory’s request and Hickory responded to the two invoices with a single and combined payment schedule;
· his Honour also found that from a practical point of view, the delivery of two tax invoices at the same time and in the same envelope could properly be described as one payment claim;[38]
[38]Hickory v Schiavello [153].
· In Modog Pty Ltd v ZS Constructions (Queenscliff) Pty Ltd (“Modog”),[39] Henry J said that it is open to a claimant to submit one payment claim for the purposes of the (NSW) Act that comprises or refers to several invoices even though some or all of those invoices separately indicate that they are a payment claim.[40]
[39][2019] QSC 1743.
[40]Modog [79]. The court referred to Rail Corporations of NSW v Nebax Constructions [2012] NSWSC 6 [31] and Alan Conolly and Co v Commercial Indemnity [2005] NSWSC 339 [23].
· Further, the fact that the respondent chose to serve multiple payment schedules in response to the various invoices did not change the nature of the invoices and their characterisation as a single payment claim;[41]
[41]Modog [81].
· Alan Conolly v Commercial Indemnity,[42] (“Alan Conolly”) referred to in Modog, concerned three invoices, each marked as payment claims, that were served by facsimile. The respondent argued that this violated s13(5) of the NSW Act (the equivalent of s14(8) of the Act);
[42][2005] NSWSC 339.
· Master Macready noted that it was necessary to consider the mischief that the Act seeks to avoid by prohibiting more than one payment claim for one reference date;
· In Alan Connolly, the documents were received as part of the one facsimile transmission, which the Master contrasted with three separate invoices being delivered on successive days;[43]
[43]Alan Connolly [20]-[23].
· In JR & LM Trackson Pty Ltd (ACN 088 333 831) v NCP Contracting Pty Ltd (ACN 121 915 017),[44] (“Trackson”) the Queensland Supreme Court considered the issue of three invoices marked as payment claims served under cover of a single email and whether they constituted a single payment claim;
[44][2019] QSC 201.
· Justice Ryan said that the authorities emphasise the need to approach the issue in a way that does not give undue emphasis to form over substance, having regard to the purpose of prohibiting service of more than one claim per reference date, and to consider the way in which the documents were likely to be reasonably understood by the respondent;[45]
[45]Trackson [101].
· in considering that the applicant served one payment claim comprising three invoices, the court noted that the invoices were sent as attachments under one cover email, they bore the same date, they concerned work under the same construction contract and referenced the same project and, reasonably understood, Trackson would have appreciated that the total of the invoices was being claimed; [46]
[46]Trackson [103].
· in some of the cases above, the separate invoices which were found to constitute one payment claim have encompassed different aspects of the work carried out pursuant to a single contract;
· similarly in this case, the first invoice in each pair (Invoice 1130 and Invoice 1132) was for work pursuant to the contract-proper while the second (Invoice 1131 and Invoice 1133) was for variation work.
20 Based on these principles, Spirito submitted that the pairs of invoices comprising Payment Claims 5 and 6 should be considered to comprise a single payment claim because:
· they were served on the same day;
· they were both served by email only minutes apart (13 and 35 minutes respectively);
· they were for works carried out pursuant to the same Sub-Contract;
· the first invoice in each pair was for contract works and the second was for variations, so there could be no basis for thinking the first replaced the second; and
· reasonably understood, the two invoices constituted a single payment claim.
21 In its reply submissions, Spirito further submits that it would have been apparent to Sinjen that the two invoices constituted part of the same payment claim in each case and that, following the reasoning of Master Macready in Allan Conolly, “the person receiving the payment claim would be immediately aware, on receipt of all documents, that the contractor was claiming the total of the amount shown in the documents”,[47] and argues that this is distinct from cases where the payment claim documentation was served on different days. Further, the documents were sent after business hours, meaning that both emails would be actioned at the same time the following business day. Spirito concludes its submissions on this issue by noting that the particular factual circumstances that apply to Payment Claims 5 and 6, have apparently not been previously considered by a court.
[47]Alan Conolly at [22].
22 In response, Sinjen argues that in each of the cases relied upon by Spirito, the separate parts of the payment claims were sent in either the same envelope, or in the same facsimile, or in the same email. Sinjen further argues that the rule that only one payment claim can be made for each reference date exists for a reason. Without it, there could never be any certainty for the recipient of payment claims that it was responding to payment claims which included all relevant sums accrued before a reference date. In turn, this, would likely lead to each payment claim being challenged by a payment schedule since the recipient of the payment claim would never know if the payment claim was final. Sinjen submits that this is the very “mischief” considered by Master Macready in Alan Conolly..[48]
[48]
23 In my view, Sinjen’s submissions on this issue should be accepted. Each case of contiguous payment claims must be considered on its own facts. Based on the authorities above, two invoices sent in the same envelope, or in the same facsimile, or in the same email will often (but not necessarily always) be considered a single payment claim. Even where invoices are sent under two separate emails, there may be something in the emails or invoices themselves to show that they form part of a single payment claim. For example, they may be headed “Payment Claim XX, invoice 1 of 2” and then “Payment Claim XX, invoice 2 of 2”, or something to that effect.
24 But where emails attaching discrete invoices are separated in time even by only a few minutes, and there is nothing on their face to confirm that they constitute a single payment claim, I consider that they must be viewed as separate payment claims for the reasons advanced by Sinjen. Further, it is difficult to see how the period between the two emails or the time of day at which they are sent, could ever be a relevant factor, because it is impossible to know when to draw any line. How can it be said that five minutes is close enough to be a single payment claim, but 30 minutes or one hour is not? What if it is only 5 minutes, but one is sent at 11.57pm and the second is sent at 12.02am the next day, and they are thus sent on different days? The possibilities are endless.
25 Accordingly, in my view, Invoices 1131 and 1133 said by Spirito to form part of Payment Claims 5 and 6 (respectively) were both sent in breach of s14(8) of the Act and are therefore invalid. It follows that it is unnecessary for me to consider whether these invoices also fail on the basis that they include excluded amounts in contravention of s14(3). If it were necessary to do so, I would be inclined to accept Spirito’s submissions on this issue and find that the sums claimed in these invoices were claimable variations for the reasons advanced by Spirito.
Other matters
26 For completeness, I should briefly refer to five further arguments raised by Sinjen in response to various payment claims.
Oral payment schedules
27 Sinjen makes the surprising submission, almost in passing, that a payment schedule “does not have to be in writing”. The submission is entirely without foundation in authority or on a proper construction of the Act. As Spirito notes, the passage from Amasya Enterprises[49] cited by Sinjen is not authority for the proposition. Vickery J in that case simply noted the absence of a “prescribed form” for payment schedules and lamented the fact that this poses difficulties in determining whether or not a payment schedule has been served. His Honour did not say that a payment schedule could be constituted by oral discussions.
[49]Amasya Enterprises Pty Ltd & Anor v Asta Developments (Aust) Pty Ltd (No 2) [2015] VSC 500.
28 I also agree with Spirito that s15 of the Act leaves no doubt (at least in my mind) that a payment schedule must be in writing. A payment schedule must:
· be “provided to” the claimant;
· identify the amount of the payment (if any) that the respondent proposed to make;
· identify any amount of the claim that the respondent alleges is an excluded amount;
· be in the prescribed form and contain the prescribed information (if any);[50]
[50]As submitted by Spririto, although there is currently no prescribed form or prescribed information, the fact that these matters may be prescribed is itself an indication that the payment schedule is to be in written form.
· if the scheduled amount is less than the claimed amount, indicate why the scheduled amount is less and the respondent’s reasons for withholding payment; and
· be provided within the time set out in subsection (4).
29 A discussion cannot sensibly constitute the “provision” of a payment schedule to a claimant in the sense required by the Act. Further, there would be no objective means for a court or adjudicator to determine the contents of a payment schedule where it was not in writing. As Spirito submits, in Protectavale,[51] Finkelstein J rejected an argument that various communications relied upon in aggregate constituted a payment schedule. His Honour found that one purpose of a payment schedule is “to articulate the reasons for withholding payment or offering to pay less than the claimed amount with a degree of precision and particularity to apprise the contractor of the case it will have to meet”. Another purpose is to set the limits if there is to be an adjudication of the claim. A payment schedule could not be “artificially constructed” out of a series of documents. By parity of reasoning, and having regard to the clear words of the section, on no view could s15 be said to contemplate anything other than a written payment schedule.
[51]Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248 [29].
Written payment schedules
30 To the extent that Sinjen relies on written payment schedules, I accept Spirito’s submissions for the reasons it gives as follows:
· Payment Claim 2 – the payment schedule provided by Sinjen on 22 July 2019 relates to the earlier (superseded) payment claim;[52] therefore, Sinjen failed to provide a payment schedule in response to Payment Claim 2;
[52]Further Yang affidavit, [12].
· Payment Claim 3 – there is no evidence that any payment claim Sinjen prepared in relation to payment claim 3 was provided to Spirito as required by s15 of the Act (or at all);[53]
[53]Holmes affidavit [57], Yang 5 May affidavit at [32].
· Payment Claim 5 – the payment schedule provided on 11 October 2019 was probably not served within 10 business days of 25 September 2019; however, as the schedule only related to the invalid Invoice 1131, it is unnecessary for me to reach a concluded view on this question;
· Payment Claims 6 – in so far as it comprises Invoice 1132, Sinjen’s payment schedule provided on 15 November 2019 was clearly outside the 10 business day period allowed in s15 of the Act, and purported justifications by Mr Holmes for delaying the provision of the payment schedule[54] are irrelevant.
[54]Holmes affidavit [98] to [106].
Retention
31 Sinjen submits that the defendant is entitled to withhold 10% retention from a payment claim in circumstances where it has not served a payment schedule, because the Sub-Contract entitles it to do so. It argues that by deducting the 10% retention amount, it is paying “the amount calculated in accordance with the [Sub-Contract]” pursuant to s10(1)(a) of the Act.
32 I agree with Spirito that, while it is correct that the amount of a progress payment is to be calculated in accordance with the terms of the Sub-Contract, the time to dispute any such entitlement is at the time the payment schedule is issued.. There will often be provisions in a contract entitling a respondent to a payment claim to dispute the claimant’s entitlement, for example based on defective work, or work not carried out in accordance with the contract. The Act could not be clearer – the mechanism for raising these matters in response to a valid payment claim is by providing a valid payment schedule, and if there is a dispute between the parties, the claimant can pursue an adjudication.
33 Each of the relevant payment claims in this case properly identifies the construction work carried out pursuant to the Sub-Contract, and makes a claim for payment in relation to that construction work. Although retention is referred to in the payment claims, the payment claims do not purport to set aside an amount in relation to retention and the amounts claimed are all referable to construction work carried out by Spirito. I agree with Spirito that where the question of retention is not raised in a payment schedule, it is irrelevant to the court’s determination of whether judgment should be issued unders16(2).
34 Section 15 of the Act provides that if a payment schedule is not served within the requisite time (or fails to deduct the retention amount), the respondent becomes liable for “claimed amount”, being the amount of the progress payment that the claimant claims is due. By raising its entitlement to withhold an amount for retention other than in a payment schedule, Sinjen is seeking to raise a “defence in relation to matters arising under the construction contract”, contrary tos16(4)(b)(ii) of the Act.
Alleged failure to include a statement signed by the Plaintiff
35 Sinjen submits that the payment claims are invalid on the basis that they do not include a statement signed by Spirito that all wages due to its employees have been paid, as required by clause 29.1(e) of the Sub-Contract. Spirito argues that this submission fails based on the principle expressed in Plaza West v Simons Earthworks[55] (“Plaza West”): that a contractor cannot be denied payment on the basis that a condition precedent, such as the obtaining of a statement of the kind referred to, has not been satisfied.
[55][2008] NSWCA 279 [53]-[54].
36 I touched briefly on this issue in my recent decision of Cool Logic Pty Ltd v Citi-Con (Vic) Pty Ltd[56] (“Cool Logic”). In that case, the plaintiff argued that asserting the failure to provide a statutory declaration as to the payment of employees amounted to relying upon a contractual defence, contrary to s17 of the Act.[57] It further argued that non-compliance with contractual provisions will not affect the validity of a payment claim, citing J Hutchinson Pty Ltd v Glavcom Pty Ltd.[58] While I broadly agreed with the plaintiff’s submissions, I note that a similar argument was recently considered by Macnamara J in Zulform Pty Ltd v Donmar Construction Pty Ltd[59] (“Zulform”). In that case, his Honour held:
In Argyle Services Pty Ltd v One Three Wilson Pty Ltd [2019] VCC 1567, I considered a contention that a purported “payment claim” was invalid by reason of it not being accompanied by a required tax invoice. The same sort of arguments were pressed upon me relative to the tax invoice as were raised in the present proceeding relative to the statutory declaration. I referred to a number of the same authorities and, in addition, to a journal article by MacDougall J, the trial judge in the Contrax Plumbing case dealing with this issue. The upshot of these matters seems to be that additional conditions as to payments such as these may be contractually imposed, but such clauses may be regarded as invalidated by the “no contracting out” principle of the Act, where the conditions are onerous and have no legitimate utility. In Argyle I concluded that the requirement for the provision of a tax invoice as part of the payment claim process was not onerous and not lacking in utility. The same may be said for the requirement here for the provision of the statutory declaration as to the meeting of various liabilities. MacDougall J had concluded that the contractual provisions with which he was dealing in Contrax Plumbing would have added 200 days to the payment claim process; see [65] of the judgment in Argyle Building Services. If the requirement for the statutory declaration is imposed by contract, it can be regarded as an obstacle to the validity of the invoice as a payment claim under the Act, and this situation is not affected by the prohibition of contracting out because that requirement is not onerous or devoid of utility.”
[56][2020] VCC 1261 [80]-[83].
[57]Cool Logic’s reply submissions [40].
[58][2016] NSWSC 126 [27].
[59][2020] VCC 562.
37 In Zulform, the relevant provision of the construction contract was to the effect that the statutory declaration need only be provided “on request”. Macnamara J found that no request had in fact been made. I said in Cool Logic that: “I confess (with respect) that I have some reservations about the argument that provisions of this kind in a contract should be regarded as not offending the prohibition against contracting out in SOP Act s48, regardless of questions of whether the provisions are onerous and of no utility”. However, I held that it was not necessary for me to embark on a more detailed analysis of the issue, because on the facts of that case, the requirements were sufficiently onerous and lacking in utility to satisfy the approach posited by Macnamara J.
38 In this case, while it is arguable that the requirement for the statement in the context of this Sub-Contract is onerous and of no utility, it is much less so than the requirement for a statutory declaration in Cool Logic. It is therefore necessary for me to look more closely at the current state of the authorities to determine whether contractual conditions of this kind can operate to defeat an otherwise valid payment claim. For the reasons below, I am satisfied that the weight of authority now favours the view that provisions of this kind do not operate to invalidate a payment claim, regardless of the utility or onerousness of the condition. In my view, unless the failure to satisfy any such condition is (in substance) a failure to meet the pre-requisites for a valid payment claim in s14 of the Act or (arguably) a pre-condition to a reference date arising under s9(2) of the Act, it should be disregarded.
39 It is convenient to begin by setting out in full the thorough and careful analysis of a number of the leading authorities on this issue by Macnamara J in Argyle Services Pty Ltd v One Three Wilson Pty Ltd[60] (“Argyle”):
[60][2019] VCC 1567 at [62]-[75].
“In support of the view that s48 of the statute excludes these provisions for the purposes of recovery of progress payments under the Act, Mr Silver placed primary reliance on the judgment of McDougall J in Minister for Commerce v Contrax Plumbing [2004] NSWSC 823. The provisions in question before his Honour were to be found in clause 42 of the relevant contract. The provisions are set out at paragraph 7 of his Honour’s judgment as follows:
‘Clause 42 dealt with payment. By cl 42.1, Contrax was given an entitlement to progress payments. In aggregate, progress payments were not to exceed the Contract Price. Clause 42.2 provided for the valuation of Progress Payments: either by reference to a method specified in ‘the Annexure’ or by reference to the Contract Price. The relevant provisions of cl 42 are as follows:
42 PAYMENT
Payment Claims and Payment Periods
The Contractor’s only entitlement to payment for carrying out work under the Contract is the Contract Price.
Prior to becoming entitled to the Contract Price, the Contractor can make payment claims. In aggregate, payment claims shall not exceed the Contract Price.
…
Amount of progress payments
If the amount of a progress payment or the method of valuing a progress payment is not specified in the Annexure, the progress payment shall be an instalment of the Contract Price which reflects the value of the work carried out by the Contractor in performance of the Contract to the end of the payment period to which the Progress Claim relates less:
[Amounts to be deducted were then specified]
…
In valuing work, regard shall not be had to the value of variations which value has not been included in the Contract Price.’
His Honour concluded that the no-contracting-out provision in the New South Wales Act rendered certain provisions of clause 42 invalid. See [47] of the judgment, where his Honour stated:
‘It follows, in my judgment, that the following provisions of cl 42 are void under s 34:
(1)In cl 42.1, the sentence ‘In aggregate, payment claims shall not exceed the Contract Price’ in the second unnumbered and unlettered sub paragraph.
(2)In cl 42.2, the third unnumbered and unlettered sub paragraph, reading ‘In valuing work, regard shall not be had to the value of variations which value has not been included in the Contract Price.’
The matter went on appeal to the New South Wales Court of Appeal [2005] NSWCA 142 and the court, consisting of Hodgson and Bryson JJA and Brownie AJA, unanimously dismissed the appeal from his Honour’s judgment. Hodgson JA was inclined to agree with the decision of the trial judge as to the operation of the no-contracting-out provision [51], though he found it unnecessary to reach a concluded view. Bryson JA said that he did “not join in Hodgson JA’s observations … to the effect that s34 invalidates some parts of clause 42 of the construction contract” [58]. Brownie AJA refrained from expressing an opinion on the point one way or another [51]. In his article on the operation of the prohibition on contracting out, McDougall J carried out calculations as to the number of days involved in completing the procedures under the statute and continued:
‘These calculations show that, in general, the Act contemplates that a diligent claimant would only have to wait 15 business days before lodging an adjudication application and another 10 to 15 business days before receiving an adjudication determination. This figure of approximately 30 business days stands in stark contrast to the 200 days required for the working out of clauses 42 and 46 in Minister v Contrax. Even allowing for weekends and public holidays, the difference is huge’. (‘Prohibition or Contracting out of the Building and Construction Industry Security of Payment Act 1999 (NSW)’ [2006] NSW Judicial Scholarship 6, page 4)
Later, in the same article, his Honour said, with respect to clauses in building contracts requiring certification, was:
‘… certainly arguable that such clauses may exclude, restrict or modify the operation of the Act and to the extent that they subordinate the adjudicator’s role to that of the superintendent [the contractual certifying officer in the cases to which he referred]. If the adjudicator is bound by a superintendent’s certification, the adjudication process is fruitless or futile…and a claimant would be reluctant to engage in it.’ (Ibid, page 6)
In John Holland Pty Ltd v Coastal Dredging and Construction Pty Ltd [2012] QCA 150, clause 12.6 of a construction subcontract provided detailed requirements for the submission of a payment claim on John Holland as head contractor. It was contended that the decision given by an adjudicator was void because the subcontractor had failed to comply with some of the procedural requirements laid down for the making of subcontract payment claims. The court, Fraser and White JJA and Peter Lyons J, dismissed an appeal from a determination of the trial judge that the adjudication was not, for that reason, to be regarded as void. The leading judgment was given by Fraser JA, with whom White JA and Peter Lyons J concurred. Clause 12.6 of the relevant subcontract provided:
‘The Subcontractor warrants and represents that if a Payment Claim does not comply with the conditions set out in this clause 12.6:
(h) that Payment Claim is void; and
(i)the Reference Date for the purposes of the Security of Payment Act shall be the same day on the following month.’
At [21], Fraser JA said:
‘The effect of the appellant’s argument is, therefore, that cl 12.6(h) and (i) operated to defer what otherwise would have been the respondent’s statutory entitlement to a progress payment from a reference date ascertained in accordance with the Act. The intended effect of cl 12.6(h) might be debatable, but cl 12.6(i) certainly purports to have that effect. It follows that it (and cl 12.6(h) if it would have a similar effect) is void as a provision that, in terms of s 99(2)(b) of the Act ‘purports to … modify … or otherwise change the effect of a provision of this Act, or would otherwise have the effect of … modifying, or otherwise changing the effect of a provision of this Act.’
A similar issue came before Applegarth J in Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd [2014] QSC 293. This case concerned a dispute arising out of the supply of high voltage and fibre-optic cable in Central Queensland. The contractual obligations existing between the parties included provisions set out at clauses 33.7 and 33.8 of the documentation dealing, respectively, with draft payment claims. His Honour concluded that s99 of the Queensland Act – the contracting-out-provision:
‘… renders clauses 33.7 and 33.8 void to the extent they condition a ‘reference date’ under the Act and a statutory entitlement to a progress payment coming into existence. A reference date had arisen at the time the payment claim was made under the Act. As a result, the adjudicator had jurisdiction to determine the adjudication proceeding.’[111]
Applegarth J reasoned that the effect of these clauses was to create a condition precedent to the occurrence of a reference date which was inconsistent with the terms of the statute. His Honour said:
‘… A contract which erects requirements which pre-condition the coming into existence of a reference date may be inimical to the Act and be invalided by s 99. To take an extreme example, a contract which provides that the date on which a claim for a progress payment may be made is 14 days after the contractor has finally jumped through 47 burning hoops may render the reference date illusory. It may be practically impossible to jump through so many hoops. The statutory entitlement to a progress payment, as contemplated by s 12, from each reference date would be effectively denied.’ [33]
Later in the judgment, the learned judge referred to the same theme, saying:
‘The authorities establish that contractual provisions which require, as it were, a contractor to jump through a number of hoops, failing which, a reference date that has arisen is deferred are invalidated. It might be observed that, on the applicant’s argument, whilst the Act does not permit a reference date that has arisen to be deferred until the hoops are jumped through, it permits a contract to provide that a reference date will not arise until the same hoops are jumped through. This curiosity or anomaly may simply be that. It may be, as Mr O’Shea QC who appeared with Mr May for the applicant submitted, that this curiosity follows from the wording of the Act. If this is so, then the curiosity or anomaly must be accepted, since it is not the function of a court to construct its own idea of a desirable policy and impute it to the legislature.’ [65]
He continued:
‘There is a distinction between two categories of case. The first is where a reference date has arisen and the contract purports to require a payment claim to meet certain conditions in making a payment claim or provides that if certain conditions are not met, the payment claim is ineffective and the reference date is deferred. In such a case, the statutory reference date is not conditional upon compliance with the condition, such as the delivery of a statutory declaration. Also the contract is ineffective to defer what would have otherwise been the contractor’s statutory entitlement to a progress payment from a reference date. The second category of case, and the one with which I am concerned, is where a reference date has not arisen because the contract purports to provide that no reference date will arise until certain conditions are fulfilled. Authorities about the first category of case do not determine what the position should be in the second category.’
(Footnotes omitted.)
After further analysis, his Honour said that the examples he considered indicated it was ‘impossible to say that provisions which condition the timing of a reference date for the purpose of the Act are necessarily valid or necessarily invalid’. [71] Therefore, he said, there was no ‘hard and fast rule about the validity of such conditions’. [72]
He concluded:
‘The inquiry into validity requires the identification of the condition or conditions in the absence of which there would be a statutory entitlement to a progress payment. Even a condition which has some utility in a contractor making a payment claim and receiving a progress payment may be excessively onerous and be invalid because of its unjustified effect in denying a party what otherwise would be a statutory entitlement. A condition which has no significant utility in terms of the scheme created by the Act may be invalid, not because it is particularly onerous, but because it impedes a statutory entitlement without any corresponding benefit.’[76]
It will be seen that Applegarth J analysed the matters by reference to the effect of the terms of the contract upon the occurrence of reference dates which is not the manner in which Mr El-Hissi put his contentions. Ultimately, however, the issues considered by Applegarth J can be seen as going to the question whether moneys were due and payable in accordance with section 12(1).
One might have thought, at least in the context of the Victorian Act, that the question as to whether provisions such as the one under consideration, here, are avoided by s48(2), would turn upon whether they attempted or purported to exclude, modify or restrict the operation of the Act or have that effect. Yet, according to the reasoning in the Lean Field Developments case, the question is whether conditions have “some utility” or are “excessively onerous” or “unjustified”. An analysis on these lines appears to inject and require the making of value judgements upon which reasonable minds may differ. Given that the statute is aimed at establishing speed and certainty in cash flow in the building and construction industry, it is difficult to see that requiring this sort of analysis advances such a policy. It seems calculated to enhance cash flow in the legal profession rather than the building and construction industry. Nevertheless, this approach has been adopted by court decisions of high authority. The extrajudicial analysis referred to earlier by McDougall J of the Supreme Court of New South Wales, similarly points up the complexity of analysis required in this area.
40 Turning next to the decision of the New South Wales Court of Appeal in Plaza West, relied on by Spirito, the court there dealt with a provision of a contract (clause 37.2) to the effect that, if the superintendent did not issue a progress certificate within 14 days of receiving a progress claim (under clause 37.1), that progress claim was deemed to be the relevant progress claim. Hodgson JA, referring to the New South Wales equivalent of s10(1) of the Act, said:[61]
“I adhere to the view I expressed in Transgrid v Siemens Limited [2004] NSWCA 395, (2004) 61 NSWLR 521 at [35] and John Holland Pty Limited v Road and Traffic Authority of New South Wales [2007] NSWCA 19 at [38], to the effect that “calculated in accordance with the terms of the contract” in s 9(a) of the Building and Construction Industry Security of Payment Act 1999 (the Act) does not engage contract mechanisms determining what is due under the contract, independently of calculations referrable to the work performed.
This means that contractors are not deprived of entitlement to payment under the Act because a condition precedent, such as the obtaining of a superintendent’s certificate, has not been satisfied; and it means equally that contractors are not ipso facto entitled to payment because of the operation of a deeming provision such as cl 37(2) of the contract in this case.”
[61][2008] NSWCA 279 at [53]-[54].
41 Finally, a similar issue has recently been considered much closer to home by Justice Digby in Shells Venture Management v Agresta[62] (“Shells Venture”). In that case, the contract relevantly provided that:
[62][2019] VSC 863.
“36.0When the Builder considers that the Building Works have reached Completion the Builder is to give to the Owner:
·a Notice of Completion; and
·the Final Claim.
36.1Notwithstanding any other provision of this Contract, the Builder must not demand Final Payment until after the Builder has given to the Owner either:
·a copy of the occupancy permit under the Building Act 1993, if the building permit for the Building Works requires the issue of an occupancy permit; or
·in any other case, a copy of the certificate of final inspection.
42 His Honour began his consideration of the effect of these provisions as follows (emphasis added):[63]
Clause 36.1 of the Contract, set out in full above, does not constitute a contractual precondition to issuing a final claim. The only requirement which must be met for the issue of a final claim is as set out in cl 36.0 of the Contract, namely that the builder considers that the building Works have reached completion. Here the first defendant, as builder, so considered. The Adjudicator has affirmed that view by finding that the Works have reached completion
Clause 36.1 of the Contract is a contractual precondition to demanding Final Payment, not to the builder issuing or claiming a Final Claim.
Furthermore, even if the plaintiff’s above argued interpretation was correct, a claimant is not to be deprived of an entitlement to payment under the SoP Act because a contractual condition precedent has not been satisfied.
[63]At [96]–[98].
43 His Honour then set out the passage from Plaza West above and continued:[64]
“Similarly, a requirement to obtain an occupancy permit prior to issuing a Final Payment Claim is, in this particular instance, a contractual requirement in the nature of a precondition to payment, which, as explained in Plaza West and in the following paragraph below, does not deprive a claimant builder of the entitlement to progress payments referred to in the SoP Act.
The first defendant’s entitlement to a progress payment under s 9(1) and 10(1) of the SoP Act is to be determined by calculation in accordance with the terms of the contract or on the basis of the value of construction works carried out or related goods and services supplied as provided by s 10(1) of the SoP Act and valued in accordance with the terms of the contract or as provided by s 11 of the SoP Act.
The foregoing provisions of the SoP Act do not countenance the application of contractual terms which might otherwise deny the builder’s entitlement to a progress payment on the basis of the non-fulfilment of contractual preconditions to payment.
In Age Old Builders Pty Ltd v John Arvanitis & George Arvanitis,95 Judge Shelton found that the SoP Act did not oblige the plaintiff to demonstrate compliance with the provisions of the Contract for making progress claims prior to making a Payment Claim. His Honour noted that entitlement to a progress payment is referable, pursuant to s 9(1)(a) of the SoP Act, to a person ‘who has undertaken to carry out construction work under the contract’ and that there is nothing in s9 of the SoP Act to fetter this right by reference to contractual preconditions.”
[64]At [100]–[103].
44 In my view, the unequivocal and unqualified statements by Digby J in Shells Venture above apply with even greater force to purported contractual preconditions to payment, such as the provision of statutory declarations or statements verifying that a sub-contractor has paid its employees. These have even less relevance to whether the construction works have reached a particular stage than, for example, a superintendent’s certificate (as in Plaza West) or an occupancy permit (as in Shells Venture).
45 To the extent that the authorities summarised by Macnamara J in Argyle above suggest that a contractual precondition must be onerous or of no utility in order to offend s48 of the Act, I decline to follow them and prefer, instead, the unqualified approach of Digby J in Shells Venture.
46 Having said that, I am not persuaded that Applegarth J in Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd[65] (“Lean Field Developments”) posited a more qualified approach. In particular, his Honour:
[65][2014] QSC 293.
· expressly held that where a reference date has arisen and the contract provides that if certain conditions are not met, the payment claim is ineffective and the reference date is deferred, the statutory reference date is not conditional upon compliance with the condition, “such as the delivery of a statutory declaration”; and
· qualified his reference to a condition “which has no significant utility”, with the words “in terms of the scheme created by the Act”. In my view, his Honour is here tying the issue of utility to the scheme created by the Act. Put another way, to have utility, the condition must be one that furthers the scheme of the Act.
47 In my view, Lean Field Developments may stand as authority for the proposition that, in certain circumstances, an unsatisfied contractual precondition to the existence of a reference date may invalidate a payment claim. But Applegarth J seemed concerned to draw a clear distinction between that type of case and those (like the present) where a valid reference date has arisen and the contractual precondition purports to:
· add elements to those stated in s14 for a valid payment claim (such as a statement that employees have been paid); or
· allow a respondent to withhold payment despite failing to provide a payment schedule.
48 I would therefore, with respect, paraphrase Macnamara J’s observation at the conclusion of the extract from Argyle above, but without the qualification suggested by Lean Field Development. In my view, at least in the context of the Victorian Act, the question of whether provisions such as the one under consideration here contravenes48(2), turns upon whether they attempt or purport to exclude, modify or restrict the operation of the Act or have that effect. Given that the Act seeks to promote speed and certainty in cashflow in the building and construction industry, an analysis that depends on questions of whether conditions have “some utility” or are “excessively onerous” or “unjustified” fails to advance such a policy. As Macnamara J observed: “It seems calculated to enhance cash flow in the legal profession rather than the building and construction industry”.
49 I therefore reject Sinjen’s submission that a payment claim by Spirito that does not include a statement signed by Spirito that all wages due to its employees have been paid is not a valid payment claim under the Act.
Overpayment
50 Spirito disputes that Sinjen is entitled to return or set-off in this proceeding of any sum that it claims it has overpaid.[66] Spirito argues that there is no mechanism as part of a s16 application by which a defendant is entitled to “set-off” any overpayment made by it in relation to a payment claim. I agree. While amounts paid pursuant to the security of payments regime are without prejudice to the parties’ ultimate contractual rights under s47 of the Act, there is no mechanism in this proceeding for a repayment or set-off of the kind claimed by Sinjen in this proceeding.
[66]Sinjen submissions [23].
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Certificate
I certify that these 38 pages are a true copy of the judgment of His Honour Judge Woodward delivered on 3 September 2020
Dated: 3 September 2020
Claire Findlay
Associate to his Honour Judge Woodward
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