Top Cat Installations Pty Ltd v Southstar Homes Pty Ltd
[2019] VCC 1878
•22 November 2019
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-19-04781
| Top Cat Installations Pty Ltd (ACN 016 856 979), trading as Kitchen Innovations | Plaintiff |
| v | |
| Southstar Homes Pty Ltd (ACN 096 297 022), trading as Liberty Builders | Defendant |
---
JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 25 October 2019 | |
DATE OF JUDGMENT: | 22 November 2019 | |
CASE MAY BE CITED AS: | Top Cat Installations Pty Ltd v Southstar Homes Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2019] VCC 1878 | |
REASONS FOR JUDGMENT
---
Subject: CONTRACTS
Catchwords: Building contract – payment claim – whether payment claim included work under more than one construction contract – whether payment claim sufficiently identified the construction work to which it related – severance of part of payment claim – whether variations claimed were excluded amounts
Legislation Cited: Building and Construction Industry Security of Payment Act 2002 (Vic) ss4, 10A, 14(2) and 16
Cases Cited:APN DF2 Project 2 Pty Ltd v Grocon Constructions (Victoria) Pty Ltd [2014] VSC 596; Matrix Projects (Qld) Pty Ltd v Luscombe [2013] QSC 4; Trinco (NSW) Pty Ltd v Alpha A Group Pty Ltd [2018] NSWSC 239; John Beever (Aust) Pty Limited v Paper Australia Pty Ltd [2019] VSC 126; Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr K Naish | Frenkel Partners |
| For the Defendant | Mr B Mason | Brixton Legal |
HIS HONOUR:
1 In this proceeding, the plaintiff (“Kitchen Innovations”) makes an application by summons on originating motion dated 11 October 2019, for judgment against the defendant (“Liberty”) under s16(2) of the Building and Construction Industry Security of Payment Act 2002 (Vic) (“SOP Act”). The application arises out of works performed at a 10 townhouse development at 99 Pleasant Road, Hawthorn East (“development”). Kitchen Innovations asserts that it is entitled to judgment because no payment schedule was provided by Liberty to Kitchen Innovation’ valid payment claim 5 for $165,500.50, issued on 25 March 2019 (“claim 5”).
2 Liberty opposes the giving of judgment on claim 5 on three grounds, as follows:
· claim 5 relates to amounts arising under multiple “construction contracts”, and therefore is not a payment claim for the SOP Act’s purposes;
· claim 5 fails to identify the construction work or related goods or services to which the progress payment relates, as required by s14(2)(c) of the SOP Act; and
· alternatively, if claim 5 is a valid payment claim, the amount claimed relates to variations which are not “claimable variations”, and are instead “excluded amounts” under s10B(2) of the Act, with the result that judgment cannot be given on claim 5 by reason of s16(4)(a)(ii) of the SOP Act.
3 With one qualification, in my judgment none of the three grounds relied on by Liberty in opposition to claim 5 is made out. My reasons in respect of each ground are set out below. The qualification concerns that part of claim 5 that relates to what I have defined below as the Oral Variations, which have a value of $26,565.00 (excluding GST). However, I am satisfied that this Oral Variation part of claim 5 can be severed from the balance of the claim, leaving a valid payment claim under s14 of the SOP Act for $123,890.00 plus GST, which Liberty is liable to pay under s15(4) of the SOP Act. I am otherwise satisfied of the circumstances in s16(1) of the SOP Act and that the amount claimed in claim 5 do not include any excluded amounts.
4 There will therefore be judgment for the plaintiff Kitchen Innovations in the proceeding in the sum of $136,279.00, together with interest pursuant to s12(2) of the SOP Act. There will also be an order that Liberty pay Kitchen Innovations the costs of and incidental to the proceeding on the standard basis, in default of agreement, unless either party has a basis for seeking a different order as to costs. I will invite the parties to prepare draft orders to give effect to these reasons, and will determine any issue concerning costs on the papers.
The SOP Act and the legal test
5 The provisions of the SOP Act relevant to the issue in this case are as follows:
4 Definitions
…
construction contract means a contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods or services, for another party…
10A Claimable variations
(1)This section sets out the classes of variation to a construction contract (the claimable variations) that may be taken into account in calculating the amount of a progress payment to which a person is entitled in respect of that construction contract.
(2)The first class of variation is a variation where the parties to the construction contract agree—
(a)that work has been carried out or goods and services have been supplied; and
(b)as to the scope of the work that has been carried out or the goods and services that have been supplied; and
(c)that the doing of the work or the supply of the goods and services constitutes a variation to the contract; and
(d)that the person who has undertaken to carry out the work or to supply the goods and services under the contract is entitled to a progress payment that includes an amount in respect of the variation; and
(e)as to the value of that amount or the method of valuing that amount; and
(f) as to the time for payment of that amount.
(3)The second class of variation is a variation where—
(a)the work has been carried out or the goods and services have been supplied under the construction contract; and
(b)the person for whom the work has been carried out or the goods and services supplied or a person acting for that person under the construction contract requested or directed the carrying out of the work or the supply of the goods and services; and
(c)the parties to the construction contract do not agree as to one or more of the following—
(i)that the doing of the work or the supply of goods and services constitutes a variation to the contract
(ii)that the person who has undertaken to carry out the work or to supply the goods and services under the construction contract is entitled to a progress payment that includes an amount in respect of the work or the goods and services;
(iii)the value of the amount payable in respect of the work or the goods and services;
(iv)the method of valuing the amount payable in respect of the work or the goods and services;
(v)the time for payment of the amount payable in respect of the work or the goods and services; and
(d)subject to subsection (4), the consideration under the construction contract at the time the contract is entered into—
(i)is $5 000 000 or less; or
(ii)exceeds $5 000 000 but the contract does not provide a method of resolving disputes under the contract (including disputes referred to in paragraph (c)).
(4)If at any time the total amount of claims under a construction contract for the second class of variations exceeds 10% of the consideration under the construction contract at the time the contract is entered into, subsection (3)(d) applies in relation to that construction contract as if any reference to "$5 000 000" were a reference to "$150 000"
Example A building contractor enters into a construction contract. The consideration (contract sum) under the contract at the time the contract is entered into is $3 million. The contract contains a dispute resolution clause. The contractor undertakes work at the direction of the other party. The contractor claims (the new claim) that the work is a variation to the contract. The other party does not agree that the work constitutes a variation to the contract (disputed variation). The contractor has already made a number of claims for disputed variations under the contract. The new claim brings the total amount of claims for disputed variations under the contract to $350 000. This amount exceeds 10% of the contract sum. As the contract sum exceeds $150 000 and the contract contains a dispute resolution clause, the disputed variation in the new claim and all subsequent disputed variations under the contract will not be claimable variations under this Act.
10B Excluded amounts
(1)This section sets out the classes of amounts (excluded amounts) that must not be taken into account in calculating the amount of a progress payment to which a person is entitled under a construction contract.
(2) The excluded amounts are—
(a)any amount that relates to a variation of the construction contract that is not a claimable variation;
…
14 Payment claims
(1)A person…who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment.
(2) A payment claim—
…
(c)must identify the construction work or related goods and services to which the progress payment relates; and
(d)must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount); and
(e) must state that it is made under this Act.
(3)The claimed amount—
…
(b)must not include any excluded amount.
…
16Consequences of not paying claimant where no payment schedule
(1) This section applies if the respondent —
(a)becomes liable to pay the claimed amount to the claimant under section 15(4) as a consequence of having failed to provide a payment schedule to the claimant within the time allowed by that section; and
(b)fails to pay the whole or any part of the claimed amount on or before the due date for the progress payment to which the payment claim relates.
(2) In those circumstances, the claimant—
(a) may—
(i)recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction; or
…
(4)If the claimant commences proceedings under subsection (2)(a)(i) to recover the unpaid portion of the claimed amount from the respondent as a debt—
(a)judgment in favour of the claimant is not to be given unless the court is satisfied—
(i)of the existence of the circumstances referred to in subsection (1); and
(ii)that the claimed amount does not include any excluded amount; and
(b)the respondent is not, in those proceedings, entitled—
(i)to bring any cross-claim against the claimant; or
(ii)to raise any defence in relation to matters arising under the construction contract.
6 This court has previously endorsed the hearing of cases under s16 of the SOP Act as determinable on a summary basis by proceedings on summons with affidavit evidence.[1] I concluded that such claims were properly assessable on the balance of probabilities, noting (after quoting from the High Court decision in Neat Holdings[2]):
[1]3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 at [39]-[54]. See also SJ Higgins v The Bays Healthcare Group Inc [2018] VCC 805 at [26]
[2]Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 110 ALR 449, 449-450 (Mason CJ, Brennan, Deane and Gaudron JJ)
Subject to the note of warning in [the] above… passage, to my mind there is no obvious reason why s140(2) of the EA cannot be applied in a way so that the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary in both directions. The “nature of a cause of action or defence” in a proceeding under s16 of the SOP Act is one:
·that is brought under legislation plainly intended to enable a right to payment to be determined informally, summarily and quickly;
·where the right to defend the cause of action is expressly constrained by that legislation; and
·where the consequences flowing from a finding are not grave and are, indeed, temporary.
Thus, if there were a scale for the strength of the evidence necessary to establish facts on the balance of probabilities, an allegation of fraud or criminal conduct would sit at the high end of that scale, whereas proof of facts to establish a claim under s16(2) of the SOP Act would be at the low end.
7 Where the plaintiff applies for summary judgment under s16, it may be appropriate to apply the test for s61 of the Civil Procedure Act 2010 (Vic): see John Beever v Roads Corporation [2018] VSC 635; see also Best Fab Pty Ltd (ACN 105 906 876) v Australian High Bay Installations Pty Ltd (ACN 612 575 934) [2018] VCC 1053. But in the present case I will adopt the approach taken in 3D Flow Solutions and recommended in SJ Higgins.
Does the payment claim relate to two construction contracts?
8 The construction contract between the parties in respect of the development is dated 6 August 2018 (“Contract”). Under the Contract, Liberty subcontracted to Kitchen Innovations the joinery and stonework in the kitchens and laundries of the townhouses for the total price of $668,395.00, plus GST. Kitchen Innovations notes in its submissions that: “Significantly, no works were then specified for Townhouse 8”. Kitchen Innovations then asserts that there were “a number of agreed variations” to the scope of the works for the Contract, which are described below. It is these variations that gave rise to claim 5. Liberty argues that at least one of the variations forming part of claim 5 is not in fact a variation under the Contract, but must instead be seen as work done under some other “construction contract” within the meaning of the SOP Act.
9 The terms of the Contract relevant to this issue are as follows:
“1.1 Definitions
…
Contract Price means:
(a)where Schedule 2 states that the Contract Price is a lump sum, the lump sum amount set out in Schedule 2;…
as adjusted in accordance with the express terms of this Agreement…
Works means the works and services to be carried out by [Kitchen Innovations] to Liberty Builders as described in Schedule 1.
[Clause 5.1]: Liberty Builders will pay the Contract Price to [Kitchen Innovations] progressively in accordance with this Clause 5.
[Clause 7]:… [I]f Liberty Builders does not issue a Payment Schedule within the time required under Clause 6 , Liberty Builders must pay [Kitchen Innovations] the Claimed Amount within 30 days of the date of the Payment Claim.
[Clause 27] Variations
27.1Liberty Builders may direct a variation in writing to the Works including increasing, decreasing or omitting any part of the Works.
27.2If [Kitchen Innovations] believes that complying with any instruction or other written directions from Liberty Builders constitutes a variation to the Works, then [Kitchen Innovations] must immediately notify Liberty Builders and proceed only after a written instruction has been issued by Liberty Builders to proceed.
27.3[Kitchen Innovations] must not undertake any additional work without Liberty Builders’ written approval which must be in the form of a variation quotation or an Instruction to proceed in the absence of an approved quotation. Any additional works performed by [Kitchen Innovations] in breach of this Clause will be at [Kitchen Innovations’] own cost and expense.”
10 The Contract incorporates Liberty’s purchase order number 011276 dated 19 July 2018 (“Contract PO”), as part of Schedule 1, “Scope & Specifications and Purchase Order”. It is clear from the face of the Contract PO that it sets out the total cost for each of the townhouses in the development, except townhouse 8. The “Total Lump Sum Price” of $668,395.00 is the total of the cost for each of townhouses 1 to 7 (inclusive) and townhouses 9 and 10. On page “2 of 5” of the detailed “scope of works” included in the Contract PO, there appears under “Hardware” three entries that: “Allow for the supply and installation of” soft close runners to kitchen, bathroom and ensuite drawers and push-to-open doors in the kitchen.
11 The evidence is that on 19 July 2018 (the same date as the Contact PO), Kitchen Innovations sent to Liberty a spreadsheet headed “Tender Proposal Rev F”, issued 19 July 2018 (“Rev F Spreadsheet”). The Rev F Spreadsheet sets out a breakdown of the pricing for each townhouse that makes up the per townhouse cost figure included in the Contract PO. One of the columns in that spreadsheet, under the heading “Optional Cost”, lists individual costings per townhouse for soft close drawers and push-to-open doors, totalling $10,560.00 for all townhouses, except townhouse 8 which is marked “TBC” (to be confirmed).
12 After the Contract comprising the Contract PO was executed on 6 August 2018, Liberty issued two further purchase orders and a written acceptance of a quote from Kitchen Innovations as follows:
· purchase order 01127601 “Variation 1 to Order 011276” for “Joinery Soft Closures” at a cost of $3,200.00, excluding GST;
· purchase order 01127602 “Variation 2 to Order 011276” for “TH08 excl Cellar” (that is, townhouse 8, not including the cellar) at a total cost of $107,320.00, excluding GST; and
· an email dated 23 November 2018 from Liberty and attached drawings and signed Liberty “quote response”, approving the townhouse 8 cellar cost at $2,370.00, excluding GST.
13 Kitchen Innovations asserts that, in addition to the works set out in the two purchase orders and email listed above, Liberty instructed Kitchen Innovations “to carry out additional work as variations”. The evidence was that this additional work is the third item in claim 5 referred to as “Joinery…Variations” and charged at $26,565.00, excluding GST, and that the instructions from Liberty for these variations were given orally (“Oral Variations”). In particular, Mr Steinke, a senior manager of Kitchen Innovations, deposed that much of the work undertaken at the development was sub-contracted by Kitchen Innovations to North Geelong Kitchens. He described the circumstances of the Oral Variations as follows:
“The instructions for further works were either given to me (when the instructions related to stonework) or in my presence to Tony Siketa of North Geelong Kitchens (when the instructions related to joinery works).”
14 Counsel for Kitchen Innovations Mr Naish conceded in relation to the Oral Variation component of claim 5, that there was “not […] a lot of detail about what those variations’ works consist of or how the instructions were given”. He acknowledged (in effect) that a complaint might therefore be made that the Oral Variations do not satisfy the pre-requisites in clause 27 of the Contract entitling Kitchen Innovations to payment for these variations. That complaint has indeed been made, and it forms the basis of Liberty’s argument that claim 5 relates to two construction contracts. For its part, Kitchen Innovations argues that the Oral Variations were a variation under the Contract. But if they were made in breach of clause 27 and thus are not claimable under the Contract, they can be severed from claim 5, leaving the balance of the claim payable by Liberty.
15 In its written submissions, Liberty argues that the variations which appear to be included in claim 5, do not constitute variations under the Contract and therefore relate to a different arrangement, such that claim 5 impermissibly covers more than one “construction contract’”. In oral submissions, counsel for Liberty Mr Mason focussed this argument on the Oral Variations. In particular, he argued in substance that because the Oral Variations departed so dramatically from what was contemplated under the Contract, they must be taken to have been performed under a separate construction contract within the meaning of s4 of the SOP Act.
16 Mr Mason commenced his submissions by going in detail to the “Variations” provisions of the Contract in clause 27, as set out above. He emphasised the requirements in clause 27 for writing: first in respect of Liberty’s direction for a variation and next for Liberty’s instruction to proceed. He noted that under clause 27.4 all variations “shall have an identity number, copy of a written instruction from Liberty…and the agreed amount where agreed”. Mr Mason submitted that the arrangements reflected in clause 27 “is attaching a premium on certainty” and that, in the case of the Oral Variations, there was no evidence that these arrangements were complied with.
17 Mr Mason then turned to the definitions of “construction contract” and “variation” in s4 of the SOP Act, noting that by these definitions, the SOP Act “is contemplating that you can have a construction contract for a scope of work which is varied in accordance with the contract's terms, but you can also have this other beast, which is an ‘other arrangement’ which constitutes a separate construction contract for the purposes of the Act”. Relying on authority discussing the construction of the expression “other arrangement” in the s4 definition of “construction contract”,[3] Mr Mason argued that the Oral Variations “falls within the scope of an ‘other arrangement’, and therefore constitutes a separate construction contract for the purposes of the [SOP] Act”.
[3]Machevitch v Andrew Building Constructions [2012] NSWSC 546, per McDougal J at [15]-[18] and [27]-[29]
18 Mr Mason developed this argument by reference to the decision of Vickery J in APN DF2 Project 2 Pty Ltd v Grocon Constructions (Victoria) Pty Ltd, where His Honour said:[4]
“It is plainly obvious that the concept of “construction contract“ as defined in s 4 of the Act, encompasses both an original contract entered into between the parties (in this case the D&C Contract) and any instrument which validly effects a variation to the original contract (in this case the Side Deed). The Act could not properly operate in a commercial context if this was not the case.”
[4][2014] VSC 596 at [58]
19 Mr Mason submitted that the facts of this case were very different. He continued:
“So you have a situation, Your Honour, where if you follow the contract's processes you remain within the scope of your construction contract, and all that work may be included in the one payment claim, but if you fall outside the contracts arrangements, you may have a situation that gives rise to an ‘other arrangement’. If you have such an ‘other arrangement’, you have another construction contract. And… that other work must be included in a discrete payment claim.”
20 Finally, Mr Mason went to authority confirming the prohibition against payment claims covering more than one contract, which Liberty had summarised in its written submissions as follows:
“The prohibition against payment claims covering more than one construction contract was acknowledged by Douglas J in Matrix Projects (Qld) Pty Ltd v Luscombe [2013] QSC 4 at [37]. Justice McDougall accepted and applied his Honour’s reasoning in Trinco (NSW) Pty Ltd v Alpha A Group Pty Ltd [2018] NSWSC 239 at [55]-[61], noting that there was no distinction of relevance to this issue between the Queensland and New South Wales security of payment legislation. This prohibition has also been accepted in this Court, although the relevant facts meant it was not engaged in Best Balustrades Pty Ltd v APM Group (Aust) Pty Ltd [2014] VCC 1659 and Constructpro Pty Ltd v Maicome Pty Ltd [2014] VCC 1719.”
21 Turning to this final submission first, clearly a payment claim can relate to only a single construction contract (and any agreed variations to that contract). However, as Mr Naish pointed out in oral submissions, the two cases relied on by Liberty in support of this proposition are very different cases to the present. Matrix Projects (Qld) Pty Ltd v Luscombe[5] involved wide-ranging rectification and remediation works following the Brisbane floods in 2011. There were two discrete regimes for work performed by the builder. One involved work done pursuant to a formal written subcontract which was done in response to a separate written purchase order for each property requiring rectification work. The second regime involved more informal requests, where the builder retained the right to decide not to perform the work when it was offered. Douglas J held that a single payment claim covering claims under both regimes “cannot be described as one being made under a single construction contract”.
[5][2013] QSC 4
22 The second decision (Trinco (NSW) Pty Ltd v Alpha A Group Pty Ltd[6]) did at least involve a work at a single property, but there was clear evidence (and the court found) that a written subcontract between the parties had been formally terminated, before the subcontractor returned to site and performed further work. McDougall J found that the relevant payment claim covered work done under the written subcontract before it was terminated, as well as work done post-termination, under what he described as the “fresh subcontract”.[7] His Honour accepted the submission that the SOP Act did not authorise a payment claim to be made under more than one construction contract.[8]
[6][2018] NSWSC 239
[7][2018] NSWSC 239 at [48]
[8][2018] NSWSC 239 at [55]
23 I agree with Mr Naish that the facts of each of these cases are far removed from the present. Here there was a single development, where Kitchen Innovations was performing similar work across all 10 townhouses, comprising joinery and stonework. There was no sense in which the work allegedly done pursuant to the Oral Variations was of a different character, done pursuant to a different regime, or completed independently or following termination of the Contract. In those circumstances, Liberty’s argument that the Oral Variations constituted a separate construction contract, cannot be sustained.
24 As I put to Mr Mason in the course of argument, it seems to me that the Oral Variations are no more or less than variations that failed to rise to the requirements of clause 27 of the Contract, and are thus not claimable by Kitchen Innovations in accordance with claims procedures under the Contract or the SOP Act. They lack both the written direction for a variation and the written approval or instruction to proceed. I therefore agree with Mr Naish that the Oral Variations do not relate to some other separate construction contract, but are variations that relate to the Contract for Works at the development, “and they either do or do not fall within a contractual entitlement to payment”. I am satisfied that they do not so fall, but I say nothing about whether any work done pursuant to the Oral Variations may be recoverable on some other basis (for example quantum meruit).
25 If the position were otherwise, even a minor departure from procedure in respect of a variation under a contract, could lead to the invalidation of any payment claim that included that variation as part of the claim. Mr Mason was unable to locate any authority that supported the conclusion that a variation that failed to comply with contractual requirements gave rise to a separate contract. That is not surprising. Indeed, the Contract itself contemplates non-conforming variations being undertaken under the Contract, providing in clause 27.3 that additional works performed in breach of the Variations clause “will be at the Subcontractor’s own cost and expense”.
26 Thus, in my view, while the sum claimed in claim 5 for the Oral Variations may not be recoverable under the terms of the Contract, it does not invalidate the payment claim by giving rise to a separate construction contract.
Does claim 5 fail to identify the construction work?
27 On this issue, Liberty submits that claim 5 fails to satisfy the requirements of s14(2)(c) of the SOP Act, because it does not identify with the necessary precision the construction work or related goods and services to which the progress payment relates. Liberty concedes that the authorities recognise that the court is to consider the payment claim as a whole, and in context. More particularly, Liberty concedes that:
“The context ‘may extend beyond the terms of the document and any covering note to the ‘factual matrix’ – at least, insofar as that matrix is one that is (or should be) known to both parties, and therefore to the hypothetical reasonable observer by whom the analysis of the document is undertaken’ [citing Fernandes Constructions v Tahmoor Coal [2007] NSWSC 381, [27]. See also Walter Construction Group Ltd v CPL (Surry Hills) Pty Ltd [2003] NSWSC 266, [82] and Pittwater Council v Keystone Projects Group Pty Ltd [2014] NSWSC 1791, [22]]. The relevant context recognises that ‘[p]ayment claims are usually given and received by parties experienced in the building industry who are familiar with the particular construction contract, the history of the project and any issues which may have arisen between them regarding payment’ [citing Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248, [10] and Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140, [76].”
28 Liberty submits that claim 5 fails to satisfy this threshold. It asserts that the tax invoice included in claim 5 (“claim 5 invoice”) does not provide any details of the work to which it relates. It merely lists three components of work described as either ‘joinery’ or ‘stone benchtops edged’ and an amount claimed. It notes that the invoice provides for the giving of a purchase order number (by including the term “PO Ref”), but no numbers are included. Liberty continues:
“The hypothetical reasonable observer is not assisted by the table attached to the email by which Claim No. 5 was issued to the Defendant. That table specifies amounts for the joinery and stone presumably installed in townhouse 8. It does not specify the joinery and stone to which that amount relates, such as by providing a description or by specifying as a percentage the extent to which that work has been completed. The equivalent tables attached to the earlier progress claims also do not assist. They also merely specify an amount for the joinery and stone. The amounts specified do not evolve progressively from one progress claim to the next. The hypothetical reasonable observer cannot therefore deduce the extent to which this work has progressed since the previous progress claim was issued. Further, the table relating to Claim No. 5 contains a column referring to optional costs amounting to $10,560, but it does not specify the work or services to which these costs purportedly relate.”
29 Mr Mason developed these arguments in oral submissions. Referring to Mr Naish’s explanation of the figures both in the claim 5 invoice and the spreadsheet included in claim 5 (“claim 5 spreadsheet”), he argued that this demonstrated that a fair degree of detective work and deduction is required before it is possible to work out what work claim 5 encompasses. He submitted that this is not what the SOP Act contemplates and that, when it requires that a payment claim identify the construction work to which it relates, “the authorities require that the claimant do a bit more than sending a respondent out on a Sherlock Holmes investigation”. There is some force in these submissions. I will first summarise Mr Naish’s explanation before explaining why, on balance, I have concluded that the description of the work in claim 5 is nevertheless sufficient.
30 Mr Naish’s explanation can be summarised as follows:
· the claim 5 invoice and the claim 5 spreadsheet are to be read together – the first thing to note is that (disregarding the figure of $26,565.00 relating to the Oral Variations) the sums for joinery ($97,025.00) and stone ($26,865.00) in the claim 5 invoice add up to $123,890.00, being the same as the “combined total” figure showing in the claim 5 spreadsheet;
· the claim 5 spreadsheet shows that the work for townhouse 8 is divided by room and each room gives a price for joinery and a price for stone;
· the spreadsheet also shows amounts claimed for each of townhouses 1 to 10 (inclusive) for stone for each pantry and for “optional costs”;
· the spreadsheet and invoices are similar in content and form to those comprising payment claims 1 to 4, which Liberty appeared to understand sufficiently to either pay (payment claims 1 to 3) or challenge, by serving a payment schedule (payment claim 4);
· further, the cells that have figures in them in the claim 5 spreadsheet had not had numbers in them in the spreadsheets forming part of claims 1 to 4, demonstrating that the items claimed for in the claim 5 spreadsheet, were the ones left over from the earlier spreadsheets;
· all of the spreadsheets for claims 1 to 5 follow the format of the Rev F Spreadsheet dated 19 July 2018, and the column in the claim 5 spreadsheet for “Optional Costs” contains identical figures to those in the “Optional Costs” column in the Rev F Spreadsheet, thus confirming that those optional costs relate to joinery (that is, the soft close drawers and push-to-open doors);
· the amounts for joinery in the claim 5 spreadsheet in the row for townhouse 8, are identical to the equivalent figures in purchase order 1127602 for that townhouse, except for storage;
· in relation to storage for townhouse 8, the figures in purchase order 1127602 for townhouse 8 are $2,070.00 and $3,235.00. If those figures are added to the agreed figure for the cellar for townhouse 8 ($2,370.00, excluding GST), the total storage (which can be taken to refer to wine storage in the cellar) is $7,675.00, which is $95.00 less than the “storage joinery” figure for townhouse 8 in the claim 5 spreadsheet;
· if you add the amounts for stone in the claim 5 spreadsheet in the townhouse 8 row, you get a figure of $23,129.00, which is only $1.00 less than the amount allowed for stone in purchase order 1127602 for townhouse 8 ($23,130.00);
· thus whilst there are some differences between the totals of the figures in purchase order 1127602 for townhouse 8 and the townhouse 8 row in the claim 5 spreadsheet, the differences are both minor (that is $95.00 and $1.00) and have resulted in an undercharge to Liberty; and
· as with the spreadsheets for claims 1 to 4, if you add up all of the items in the claim 5 spreadsheet for joinery (including the “optional costs”), you arrive at the figure for joinery in the claim 5 invoice ($97,025.00) and if you add up all of the items in the claim 5 spreadsheet for “stone”, you arrive at the figure for “stone benchtops edged” in the claim 5 invoice of $26,865.00.
31 It is true (as Mr Mason contends) that this explanation is lengthy and somewhat convoluted to someone coming cold to claim 5. However, this is not the test. As Liberty properly conceded in its written submissions, the question of whether a payment claim satisfies s14(2) is objective, but is not assessed from the perspective of a complete stranger to the development. The relevant context comprises both industry conventions and “the usage adopted by parties in their earlier contractual dealings”. In oral submissions on this issue, Mr Naish took me to the recent decision of Lyons J in John Beever (Aust) Pty Limited v Paper Australia Pty Ltd,[9] which he described as “doing a very neat job of summarising the jurisprudence applicable in this area to what is the standard required of information in a payment claim”. I agree (with respect).
[9][2019] VSC 126
32 After extracting and summarising the relevant passages from the leading authorities (which I would respectfully adopt without repeating),[10] His Honour distils the following principles:[11]
[10]John Beever (Aust) Pty Limited v Paper Australia Pty Ltd [2019] VSC 126, per Lyons J at [60]-[82]
[11]John Beever (Aust) Pty Limited v Paper Australia Pty Ltd [2019] VSC 126, per Lyons J at [83]
“(1)the test of whether a claim is a payment claim for the purpose of the Act is objective;
(2)however, the manner in which compliance is tested is not overly demanding and should not be approached in an unduly technical manner or from an unduly critical point of view;
(3)for the purposes of the identification requirement, it is necessary that the payment claim reasonably identifies the construction work to which it relates such that the basis of the claim is reasonably comprehensible to the recipient party when considered objectively i.e. from the perspective of a reasonable party who is in the position of the recipient;
(4)in evaluating the sufficiency of the identification of the work, it is appropriate to take into account the background knowledge of the parties from their past dealings and prior exchanges of information including correspondence passing between them before and at the time of the payment claim. To that extent, the Court may go beyond the face of the document itself.”
33 I am satisfied that a reasonable observer in the position of Liberty, on receiving claim 5, would have readily comprehended from the documents comprising claim 5 (and notably the claim 5 spreadsheet) that:
· being a claim from Kitchen Innovations, it related to the joinery and stone work for the townhouses;
· the detail in the claim 5 spreadsheet showed that claim 5 primarily concerned townhouse 8, with additional minor items of laundry stonework and the optional cost items for the other townhouses, being items omitted from previous claims;
· the first two items of costs claimed in the claim 5 invoice read with the claim 5 spreadsheet were, apart from some minor discrepancies that worked in Liberty’s favour, consistent with the applicable purchase orders and other approvals referable to those items; and
· the third item in the claim 5 invoice (representing the Oral Variations) was not explained by the claim 5 spreadsheet and did not appear to be otherwise supported by any purchase order or any other written approval.
34 The arguments advanced by Mr Mason on behalf of Liberty, should be rejected for three reasons. First, contrary to Liberty’s concession about the importance of context discussed above, Mr Mason downplayed the significance of the information about the construction work imparted by the claim 5 spreadsheet. In my view, when viewed against the background of the Rev F Spreadsheet and the spreadsheets attached to each of claims 1 to 4, a reasonable observer in the position of Liberty would have discerned with sufficient clarity what construction work was covered by claim 5. Second, I am satisfied that the minor arithmetical discrepancies between the figures in the claim 5 schedule and the relevant approvals, are insufficient to defeat the claim. To find otherwise would, in my view, amount to approaching the claim “in an unduly technical manner or from an unduly critical point of view”, particularly in circumstances where the errors favoured Liberty.
35 The third reason concerns the third item in the invoice included in claim 5, namely, the $26,565.00 relating to the Oral Variations. In my view, Mr Mason’s complaints about this aspect of claim 5 are justified. It clearly falls outside the construction work covered by the claim 5 spreadsheet and there is nothing in the documentation that otherwise links this item to the oral instructions deposed to by Mr Steinke. Further, in the absence of any written instruction or approval, it appears that by clause 27.3 of the Contract, the additional work covered by this item “will be at [Kitchen Innovations’] own cost and expense”.
36 However, in my judgment, this too is not a sufficient basis for a finding that claim 5 is not a valid payment claim within the meaning of s14(2) of the SOP Act. I would, with respect, take the same approach to this part of the claim that Vickery J took in Gantley Pty Ltd v Phoenix International Group Pty Ltd (“Gantley”).[12] After considering and rejecting the application of s6 of the Interpretation of Legislation Act 1984 (Vic), His Honour examined at length the application of the common law principles of severance.[13] I agree with and would respectfully adopt His Honour’s analysis. Further, I am satisfied that His Honour’s conclusion in Gantley applies to the facts of this case. That conclusion was as follows:[14]
“Here, that part of the payment claims, namely the claims for payment for variations, clearly provides a sufficient description of each item of the work for which payment is sought, such as to comply with s.14(3)(a). Further, that part of the claims which does not in each case properly identify the work for which payment is claimed is able to be separated from the balance of each claim which is properly described, and in doing so, no material alteration to what remains is introduced.
It was submitted by Mr Robins, who appeared for the respondent, that severance should not be permitted because the Act did not permit this to occur. Either the progress claim was fully compliant in all of its facets, or it was not, it was argued. If one part of the progress claim did not satisfy the requirements of s.14(3)(a) the whole of the progress payment would therefore fail and should be set aside as being invalid.
I do not accept this submission. The question should be whether the Act, either expressly or impliedly, operates to exclude the common law doctrine of severance. I find that it does not. Indeed, the purposes and objects of the Act earlier described are best served by processes which, so far as possible, ought to accommodate reasonable flexibility and avoid unnecessary technicality.
Severance in this case would operate to achieve the purpose and objects of the Act and would not operate to diminish the attainment of these goals. A respondent to a payment claim and an adjudicator, if appointed, should be able to assess the valid part of this progress claim which sufficiently describes the work for which payment is claimed, and provide a rational response or adjudication determination in respect of that part of the claim, and exclude from consideration that part of the claim which does not comply.”
[12][2010] VSC 106
[13][2010] VSC 106 at [93]-[112]
[14][2010] VSC 106 at [113]-[116]
37 Accordingly, for the purposes of this proceeding, I will treat item 3 in the claim 5 invoice (representing the Oral Variations) as severed from claim 5. It follows that I am satisfied that claim 5 is a valid payment claim to the extent of the first two items stated in the claim 5 invoice, totalling $123,890.00 (plus GST). I note (as discussed above) that this also is the total of the sums set out in the claim 5 spreadsheet, and it is the figure appearing at the bottom of the “combined total” column of that spreadsheet.
Are the amounts claimed in claim 5 “claimable variations”?
38 In view of my finding above that the third item in the claim 5 invoice is to be severed from claim 5, it is unnecessary for me to consider whether the Oral Variations are claimable variations. Further, Mr Mason accepted in oral submissions that this issue extends only to those parts of claim 5 that arise from:
· purchase order 2 dated 29 October 2018 for “TH08 excl Cellar” (that is, townhouse 8, not including the cellar) at a total cost of $107,320.00, excluding GST; and
· the email dated 23 November 2018 from Liberty approving the townhouse 8 cellar cost at $2,370.00, excluding GST.
39 As to these parts of claim 5 (“townhouse 8 variations”), Liberty submits in substance that these fall outside the “first class of variation” under s10A(2) of the SOP Act on two bases. First, because there is no agreement as to the value of the variation work as required by s10A(2)(e) and, second, because there is no agreement between the parties as to the time for payment as required by s10A(2)(f). Liberty then argues that the work comprising the townhouse 8 variations also does not constitute a second class of “claimable variation” under clause 10A(3) of the SOP Act, because section 10A(4) of the SOP Act is engaged. I am satisfied that the townhouse 8 variations are in the first class of variation, and so it is unnecessary for me to say more about the SOP Act provisions dealing with the second class of variation.
40 In relation to the first basis relied on by Liberty as excluding the first class of variations, Liberty submitted that the dispute over value can be demonstrated “in the aggregate”, pointing to the fact that the total of Kitchen Innovations’ claims 1 to 5 exceeded the total of the purchase orders and additional claims. Mr Mason did not develop this argument in oral submissions and it seems to me to lack substance. As Mr Naish pointed out, the authorities establish that the relevant agreement as to variations for the purposes of s10A(2) of the SOP Act is one arrived at before serving the relevant payment claim. It is not an agreement arrived at in the course of the parties engaging in the statutory process for the recovery of the relevant progress payment.[15] Here the necessary agreement is to my mind unequivocally established by the documentation comprising the townhouse 8 variations and nothing more is required.
[15]Seabay Properties Pty Ltd v Galvin Constructions Pty Ltd [2011] VSC 183, per Vickery J at [54]
41 Turning to the second basis, Liberty submitted that the agreement as to time for payment for the townhouse 8 variation is not addressed by the variation arrangements at clause 27 of the Contract and nor is it addressed by the arrangements for claiming payment at clause 5 of the Contract. Liberty further submitted that: “There is no evidence of the parties having concluded an agreement on this issue before Claim No. 5 was issued”. In oral submissions, Mr Mason argued clause 5.1 of the contract provided that Liberty “will pay the Contract Price”, the definition of which took the reader (ultimately) to the figure in item 5, Annexure A of $668,395.00 plus GST, “so clause 5.1 is a mechanism for claiming payment, it’s not a mechanism for claiming payment of variations”. He added that clause 5.2 linked to the definition of “Works” which likewise did not encompass variations.
42 Mr Naish described this analysis as “highly artificial”. I agree. First, although clause 5.1 does indeed invoke the definition of “Contract Price” which in turn references (ultimately) the lump sum figure in item 5 of Annexure A, the definition expressly adds “as adjusted in accordance with the express terms of this Agreement”. Similarly, while the definition of “Works” invokes Schedule 1 (and, in turn, the Contract PO), clause 27 (Variations) expressly provides that Liberty “may direct a variation in writing to the Works”, and clause 25 deals with how variations are to be valued. In my view, by providing a time for payment for the “Works”, clause 5.2 of the Contract clearly constitutes the mechanism (and thereby the agreement) as to the time for payment for any variation approved in accordance with clause 27, which thereby forms part of the “Works”. There was no suggestion in the submissions that the townhouse 8 variations were not so approved.
43 Thus in my view, the townhouse 8 variations are both in the first class of variations as described in s10A(2) of the SOP Act and are thereby not excluded amounts under s16(4)(a)(ii).
- - -
Certificate
I certify that these 22 pages are a true copy of the judgment of His Honour Judge Woodward delivered on 22 November 2019.
Dated: 22 November 2019
Simone Karmis
3
19
0