Teleios Group Pty Ltd v Wright Children Pty Ltd
[2017] VCC 449
•3 May 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-17-00454
| Teleios Group Pty Ltd | Plaintiff |
| v | |
| Wright Children Pty Ltd | Defendant |
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JUDGE: | Lewitan | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 2 March 2017 | |
DATE OF RULING: | 3 May 2017 | |
CASE MAY BE CITED AS: | Teleios Group Pty Ltd v Wright Children Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 449 | |
REASONS FOR RULING
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Subject: Building contract; whether email in law sufficient to be payment schedule
Legislation Cited: Sections 16(2)(a)(i), s15(2)(b) of the Building and Construction Industry Security of Payment Act 2002
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr B Reid | Kliger Partners |
| For the Defendant | Mr T Cogley | Herbert Smith Freehills |
HER HONOUR:
1 Teleios Group Pty Ltd (Teleios) is a construction contractor for commercial projects. Wright Children Pty Ltd (Wright) engaged Teleios to carry out the refurbishment of a warehouse at 12 Nellbern Road, Moorabbin (works) in the State of Victoria. Teleios first commenced carrying out construction work on the site on 8 August 2016. Teleios and Wright are parties to a construction contract (the contract) dated 16 September 2016. On 25 December 2016 Teleios served a progress payment claim called “Progress claim No 5” on Wright claiming the sum of $93,896.21 (payment claim).[1] On 11 January 2017, within the time for Wright to provide a payment schedule to Teleios, Wright forwarded an email to Teleios responding to the payment claim (the email). Teleios says that the email was not a payment schedule.
[1] Exhibit JP5 to an affidavit by John Paraskevas made 7 February 2017 (Paraskevas affidavit).
2 Teleios seeks summary judgment pursuant to s16(2)(a)(i) of the Building and Construction Industry Security of Payments Act 2002 (the Act) in the amount of $93,896.21 (together with interest) by reason of the failure of Wright to provide to it a payment schedule in response to its payment claim.
3 There is no controversy that the payment claim was a claim made pursuant to s14 of the Act. The main issue in dispute is whether the email dated 11 January 2017 is sufficient in law to be a payment schedule.
Terms of the Contract
4 The following provisions in relation to payments under the contract are set out in clause 18.
18. Payments
18.1The Principal [Wright] will pay to the Contractor the Contract Sum in accordance with and subject to this Contract.
18.2The Contractor may, not more than monthly submit to the Principal a progress payment claim. The claim must show the value of the Works (as varied) carried out to the date of the claim.
18.3Within 10 Business Days of receipt by the Principal of progress payment claim complying with this Contract and any documents which are required by this Contract, to accompany a claim for payment, the Principal must determine the value of the claim and issue a payment schedule with reason on the value to the Contractor.
18.4The Principal must, pay to the Contractor the amount of the progress payment claim, being the value as determined by the Principal under clause 18.3, or if not so determined, the amount of the progress claim under clause 18.3, not exceeding 14 days after the progress payment claim is submitted.
5 Point number 2 of the “Clarifications and Exclusions” page of the contract provided that progress claims are to be submitted on the 25th of each month.
6 The contract contains the following default provision:
22.3If there is a Termination Default, the Principal may by notice in writing take the whole or any part of the Works remaining to be completed out of the hands of the Contractor, exclude the Contractor from the Site and complete the Works by any other means. On completion of the Works, the Principal must certify the cost incurred by the Principal in completing the Works. Should the amount so certified be greater than any further amount payable to the Contractor if the whole of the Works had been completed by the Contractor, the difference between the two amounts shall be a debt due from the Contractor to the Principal.
7 A right of set-off is contained in clause 25.8 of the contract.
25.8The Principal may set-off against any amounts payable by the Principal to the Contractor, any amounts payable by the Contractor to the Principal.
8 The payment claim for $93,896.21 comprises an amount of $22,900 for completion of the contract works and an amount of $62,460 for variations plus GST of $8536.02.
9 The response from Dunia Wright to John Paraskevas on 11 January 2017 states:
Subject: 12 Nellbern Road, Moorabbin & Progress Payment Claim No.5
John
I refer to your email of 25 December 2016, attaching your Progress Payment Claim No 5. Your Payment Claim fails to be accompanied by the necessary documentation required to verify the value of some of the items (such as invoices, receipts, hours worked by subcontractors, hourly rates, etc), particularly in respect of the works to the laundry/external toilet, brickworks, infill works, some works to the level 1 office, etc. Please supply this documentation as soon as possible.
As you are aware, the Principal’s rights pursuant to Clause 22.3 of the Contract were exercised on 9 January 2017. Teleios Group Pty Ltd has now been excluded from the Site and the whole of the Works remaining, will be completed by other means.
I am arranging completion of the Works and in due course, will certify the cost incurred by the Principal in completing the Works. As Clause 22.3 provides, should the amount so certified be greater than any further amount payable to the Contractor if the whole of the Works had been completed by the Contractor, the difference between the two amounts will be a debt due from the Contractor to the Principal.
I am also attending to rectification of the Defects previously notified and which the Contractor failed/refused to rectify within a reasonable time at the Contractor’s expense. Clause 8.3 of the Contract provides that these Defects may be rectified by the Principal at its own expense, but that the reasonable cost incurred by the Principal in so doing shall be a debt due from the Contractor to the Principal which may be deducted from the Contract Sum or recovered by the Principal.
Additionally, Clause 25.8 provides that the Principal may set off against any amounts payable by the Principal to the Contractor, any amounts payable by the Contractor to the Principal. This will include liquidated damages.
Once the process outlined above is complete and you have provided all documents which are required by the Contract to accompany a claim for payment, I will be in a position to determine the value of your Progress Payment Claim No.5 and issue the relevant payment schedule under Clause 18.3.
Is the email a payment schedule?
10 Section 15 of the Act relevantly provides:
(1)A person on whom a payment claim is served (the respondent) may reply to the claim by providing a payment schedule to the claimant.
(2)A payment schedule –
(a)must identify the payment claim to which it relates; and
(b)must indicate the amount of the payment (if any) that the respondent proposes to make (the scheduled amount); and
(c)must identify any amount of the claim that the respondent alleges is an excluded amount; and
(d)must be in the relevant prescribed form (if any); and
(e)must contain the prescribed information (if any).
(3)If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent’s reason for withholding payment.
11 The plaintiff argued that the email did not satisfy the requirements for a payment schedule in s15 of the Act for three reasons:
First, contrary to s15(2)(b), it did not specify the amount Wright proposed to pay Teleios in response to the payment claim.
Second, contrary to s15(3), it did not indicate its reasons for withholding payment.
Third, it did not purport to operate as a payment schedule.
Did the email indicate the amount of the payment Wright proposed to make?
12 In Façade Treatment Engineering Pty Ltd (In Liq) v Brookfield Multiplex Constructions Pty Ltd [2] (Façade) the Court of Appeal stated:
Section 15(2)(b) requires a payment schedule to ‘indicate the amount of the payment (if any) that the respondent proposes to make’. It is evident from reading the 5 October 2012 email as a whole that Multiplex did not intend to pay Facade anything in relation to Payment Claim 19 as submitted. The email requested that Façade resubmit documentation, and also stated that Multiplex ‘will be in a position’ to issue a payment schedule once the identified issues have been addressed – suggesting that Multiplex was not in such a position at the time of sending the email. This was sufficient to ‘indicate’ to Façade that no payment was forthcoming. In this respect, we adopt the observations of Palmer J in Luikens regarding the use of the word ‘indicate’, which suggests that some lack of precision is permissible as long as the essence of what the respondent is intending to do is sufficiently communicated to the claimant.[3] We note the parallels that can be drawn here between the 5 October 2012 email and the relevant pieces of correspondence in Barclay[4] and Minimax[5], both of which did not expressly state that the respondent intended to pay the claimant nothing, but both of which were regarded as sufficiently indicating that the respondent would be paying ‘nil’ in response to the payment claim.
[2] [2016]VSCA 247,[255].
[3] [2003] NSWSC 1140, [78].
[4] [2004] NSWSC 1232.
[5] [2007] QSC 333.
13 In this case it is evident from reading the email as a whole that Wright did not intend to pay Teleios anything in relation to the payment claim for the following reasons:
(a) Wright stated in the email that the principal’s rights pursuant to clause 22.3 of the Contract were exercised on 9 January 2017, that Teleios had been excluded from the site and the whole of the works remaining would be completed by other means. Wright stated that she was arranging completion of the Works and would certify the cost incurred by the Principal in completing the works. Wright referred to clause 22.3 of the contract and stated that should the amount so certified be greater than any further amount payable to the Contractor if the whole of the works had been completed by the contractor, the difference between the two amounts will be a debt due from the contractor to the principal. This was sufficient to indicate to Teleios that Wright was not in a position to issue a payment schedule at the time of sending the email and that no payment was forthcoming.
(b) Wright also stated that she was attending to rectification of the defects which the contractor had failed or refused to rectify within a reasonable time. Wright claims that clause 8.3 of the contract provides that the defects may be rectified by the principal at its own expense, but that the reasonable cost incurred by the principal in so doing shall be a debt due from the contractor to the principal which may be deducted from the contract sum.
(c) Wright stated that the payment claim failed to be accompanied by the necessary documentation required to verify the value of some of the variations and that she would not be a position to issue the relevant payment schedule until these documents had been provided.
14 Accordingly Wright stated that she was not in a position to issue a payment schedule at the time of sending the email. This was sufficient to indicate to Teleios that no payment was forthcoming and that Wright would be paying ‘nil’ in response to the payment claim.
Did the email indicate Wright’s reasons for withholding payment from Teleios?
15 The plaintiff submits that the email refers to documentation required for only “some” of the items and that Teleios should not be required to speculate what items the email refers to.
16 There is a dispute about whether Wright is entitled to production of any of the documentation required to verify the valuation of the variations the subject of the payment claim. The following clauses concerning variations are set out in clause 6.
6. Variations
6.1The Contractor must not vary the Works under this Contract and/or carry out extra work, except as directed by the Principal or approved by the Principal in writing.
6.2The Principal, before the Date of Practical Completion, may direct the Contractor in writing by way of variation order to vary the Works or execute additional work (“Variation Order”) but such a Variation shall be of a character and extent contemplated by, and capable of being carried out under, the provisions of this Contract.
…
6.6Within 10 days of receipt of a Variation Order the Contractor shall provide the Principal with a written quote for the Variation. The price for a Variation shall be agreed. In the absence of agreement, the price for a Variation shall be a reasonable price as determined by an independent quantity surveyor at the Principal’s cost.
17 In Paraskevis’ affidavit, Paraskevis states that most of the variations were performed by agreement. In an affidavit made by Wright on 28 February 2017 (Wright’s affidavit) in opposition to the plaintiff’s claim, Wright denies that the costs of the variations were agreed.
18 Teleios submits that Wright is not entitled under the contract to any of the “necessary documentation required to verify the value of some of the items (such as invoices, receipts, hours worked by subcontractors, hourly rates, etc).” Teleios refers to clause 6.6 of the Contract which provides that in the absence of agreement, the price for a Variation shall be a reasonable price as determined by an independent quantity surveyor at the Principal’s cost. Teleios submits that if the principal wished to dispute the cost of a variation, and for variations where the price was not agreed, it could only do so by engaging an independent quantity surveyor.
19 In Multiplex Constructions Pty Ltd v Luikens and Anor [6] (Luikens) Palmer J set out the approach that the court should take in considering whether documents purporting to be payment schedules complied with the relevant mandatory requirements of the Act.
A payment claim and a payment schedule are, in many cases, given and received by parties who are experienced in the building industry and are familiar with the particular building contract, the history of construction of the project and the broad issues which have produced the dispute as to the claimant’s payment claim. A payment claim and a payment schedule must be produced quickly; much that is contained therein in an abbreviated form which would be meaningless to the uninformed reader will be understood readily by the parties themselves. A payment claim and a payment schedule should not, therefore, be required to be as precise and as particularised as a pleading in the Supreme Court. Nevertheless, precision and particularity must be required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute.
[6] [2003] NSWSC 1140, [76].
20 Palmer J also said that in requiring a respondent to “indicate” its reasons for withholding payment, s15(3) of the Act does not require that a payment schedule give full particulars of those reasons.
The use of the word “indicate” rather than “state”, “specify” or “set out”, conveys an impression that some want of precision and particularity is permissible as long as the essence of “the reason” for withholding payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication.
21 In Barclay Mowlem Construction Ltd v Tesrol Walsh Bay Pty Ltd[7] (Barclay) the relevant payment claim was for “some amount for variations, an amount for costs said to have been incurred as a result of extensions of time to which Barclay Mowlem Construction Ltd said it was entitled, and (it was said) an amount for work under the contract.” The contractor submitted that the respondent’s letter had not dealt with all the variations, so that it should be inferred that some were admitted. The contractor submitted that the respondent had given no reason for not paying those impliedly admitted claims. McDougall J held that there are two answers to that submission.
…The first is that s14(3) [s15(3)] requires in substance that the respondent to a payment claim indicate in its payment schedule its reasons if it proposes to pay less than the claimed amount. The subsection is not concerned with the adequacy or sufficiency of those reasons. …If the reasons are inadequate, the claimant will no doubt proceed to adjudication. In that event, the respondent will be limited, in its adjudication response, to the reasons given in the payment schedule (s20(2B).[8]
…
Finally, the 18 May letter stated that TWB claimed liquidated damages of $145,000. It is, I think, a clear inference from the letter that TWB intended to set off that claim against any amount that might be found to be owing to BMC.
I therefore consider that the 18 May letter satisfied the requirements of s14(3). It therefore meets the formal requirement of s.14 and is…a valid payment schedule.[9]
[7] [2004] NSWSC 1232, [8].
[8] [2004] NSWSC 1232, [26].
[9] [2004] NSWSC 1232, [29]-[30].
22 In this case the email refers to Wright’s right to exclude Teleios from the site on 9 January 2017 pursuant to clause 22.3 of the contract. The matters giving rise to the exclusion of Teleios from the site were well known to the parties to the contract. The email states that Wright is arranging completion of the works and that the expense of the works shall be a debt due from Teleios to Wright. Wright also referred to clause 25.8 of the contract which provides that the principal may set off any amounts payable by Teleios to Wright which included liquidated damages. Teleios had notice that Wright claimed that liquidated damages continued to accrue at the rate of $400 per day from 12 December 2016.
23 In relation to the contract works, the email refers to defects in the base contract works which had previously been notified to Teleios. Those defects are the subject of the defect notices dated 21 December 2016[10] and 4 January 2017.[11]
[10] Exhibit DMW7 to Wright’s affidavit.
[11] Exhibit DMW10 to Wright’s affidavit.
The email did not purport to be a payment schedule
24 Teleios submitted that the email foreshadowed an intention to issue a payment schedule in the future. Teleios referred to the last paragraph of the email which states that “once the process outlined above is complete and you have provided all documents which are required by the Contract to accompany a claim for payment, I will be in a position to determine the value of your Progress Payment Claim No. 5 and issue the relevant payment schedule under Clause 18.3.” The Court of Appeal (Warren CJ, Tate and McLeish JJA) considered a similar submission made by the contractor in Façade. In that case the relevant email ended by saying that upon Façade remedying the defects identified in the email, the contractor would be in a position to issue Façade with a payment schedule. Façade argued that in those circumstances the email could not be a payment schedule. The Court of Appeal rejected that submission and held that there was no requirement in the Act that a document must indicate that it is a payment schedule in order to satisfy the s15 requirements.The Court of Appeal stated:
In our view, in answering the question of whether a document constitutes a payment schedule, the focus of the assessment must be on whether the document meets the requirements of s.15.[12]
[12] [2016] VSCA 247, [262].
Conclusion and orders
25 Having considered the whole of the evidence and the submissions made by counsel, I have formed the view that the email meets the requirements of s15 and constitutes a payment schedule.
26 I do not accept the plaintiff’s submission that the defendant’s defence to its application has no real prospects of success. The plaintiff’s application for summary judgment is dismissed.
27 I will hear further from counsel as to the appropriate form of the orders, including on the issue of costs.
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