Total Construction Pty Ltd v Kennedy Civil Contracting Pty Ltd (subject to a Deed of Company Arrangement)

Case •

[2023] NSWCA 306

•

14 December 2023

Court of Appeal


Supreme Court


New South Wales

  • Summary available
Medium Neutral Citation: Total Construction Pty Ltd v Kennedy Civil Contracting Pty Ltd (subject to a Deed of Company Arrangement) [2023] NSWCA 306
Hearing dates: 7 December 2023
Date of orders: 14 December 2023
Decision date: 14 December 2023
Before: Meagher JA at [1];
Mitchelmore JA at [2];
Adamson JA at [41]
Decision:

(1)   Appeal allowed with costs.

(2)   The parties are to file short minutes of order on or before 2 February 2024 for the making of any further orders necessary to give effect to the result on the appeal.

Catchwords:

BUILDING AND CONSTRUCTION — Payment claim requirements — Where alleged payment claim consisted of letter from solicitors and attached invoices — Where correspondence between attached invoices and earlier submitted payment claims — Where indebtedness asserted in letter — Whether payment claim within meaning of s 13(1) of Building and Construction Industry Security of Payment Act 1999 (NSW)

Legislation Cited:

Building and Construction Industry Security of Payment Act 1999 (NSW)

Cases Cited:

Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1

Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448; [2005] NSWCA 391

Coordinated Construction Company Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229

Estate Property Holdings Pty Ltd v Barclay Mowlem Construction Ltd (2004) 61 NSWLR 515; [2004] NSWCA 393

Fernandes Constructions v Tahmoor Coal (trading as Centennial Coal) [2007] NSWSC 381

Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWCA 211

Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (In Liq) (2005) 64 NSWLR 462; [2005] NSWCA 409

Piety Constructions Pty Ltd v Megacrane Holdings Pty Ltd [2023] NSWSC 309

Category:Principal judgment
Parties: Total Construction Pty Ltd (Appellant)
Kennedy Civil Contracting Pty Ltd (subject to a Deed of Company Arrangement) (Respondent)
Representation:

Counsel:
D S Weinberger (Appellant)
A Greinke (Respondent)

Solicitors:
Crisp Law (Appellant)
Chamberlains Law Firm (Respondent)
File Number(s): 2023/00285557
Publication restriction: Nil
 Decision under appeal 
Court or tribunal:
District Court of NSW
Jurisdiction:
Civil
Citation:

[2023] NSWDC 325

Date of Decision:
18 August 2023
Before:
Abadee DCJ
File Number(s):
2022/00353359

HEADNOTE

[This headnote is not to be read as part of the judgment]

On 22 February 2022, the respondent, Kennedy Civil Contracting Pty Ltd (subject to a Deed of Company Arrangement) (Kennedy), entered into a contract with the appellant, Total Construction Pty Ltd (Total), for Kennedy to carry out construction works for a project in Arndell Park. Kennedy carried out those works between February 2022 and August 2022.

Between 25 February 2022 and 28 June 2022, Kennedy served four payment claims on Total, using the system stipulated in the contract for service of claims, being the PayApps system. In response, Total served payment schedules on Kennedy, and made payments in accordance with the amount specified in each payment schedule.

On 1 August 2022, Kennedy was placed into administration. On 4 August 2022, Kennedy served a further payment claim. In response, Total served a payment schedule with a negative amount, which meant that it would not make any payment.

On 25 October 2022, the solicitors for Kennedy’s administrators sent a letter and attachments to Total. The letter stated that Total was indebted to the company in the amount of $545,353.18 and demanded payment of that sum into the solicitor’s trust account by a deadline, being 5 business days. The letter also stated, inter alia, that if Total failed to pay, Kennedy anticipated commencing proceedings to recover the outstanding amount by way of statutory debt pursuant to ss 15 or 16 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act), and urged a commercial resolution without the need for further recovery action. A number of tax invoices were attached, which were created on or about the date of the letter, by the amending and updating of earlier tax invoices submitted with earlier payment claims. Total did not serve a payment schedule within 10 business days of receiving the letter.

On 23 November 2022, Kennedy commenced proceedings against Total in the District Court, claiming $545,353.18. Abadee DCJ held that the 25 October 2022 letter and attachments satisfied the requirements for a payment claim in s 13 of the Act and, in the absence of serving a payment schedule, Total was liable for the claimed amount.

The issue on appeal was whether the 25 October 2022 letter and attachments constituted a payment claim within the meaning of s 13(1) of the Act. Total contended that, objectively, the letter was a demand for payment in respect of a pre-existing debt, supported by the attached documents. Total also contended that the 25 October 2022 letter and attachments did not comply with s 13(2) of the Act, or with s 13(6)(b).

The Court (Mitchelmore JA, Meagher and Adamson JJA agreeing), allowing the appeal, held:

  1. The 25 October 2022 letter was, objectively, a letter of demand for payment of an outstanding indebtedness by the stipulated deadline, failing which the solicitors would likely be instructed to commence recovery proceedings. The following features of the letter inform that conclusion: it was drafted on the letterhead of, and was signed by, solicitors acting for the administrators appointed to Kennedy; it asserted that Total was “indebted” to Kennedy; it was reasonable to infer that the attachments supported the assertion of current indebtedness; the deadline for payment was less than that permitted under the Act for service of a payment schedule; unlike previous payment claims, Total was instructed to make payment into the solicitors’ trust account; the “outstanding amount” was not to be paid to satisfy any third party debts; it foreshadowed proceedings “to recover the outstanding [amount] as well as seek costs and interest”; and the solicitors urged Total to consider the benefits of early resolution and referred to “further recovery action”: at [29]-[31].

    Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1, considered.

  2. The invoices that were attached to the letter served only to support its objective characterisation as a letter of demand. They were dated well before 25 October 2022; four out of the five invoices referred to an amount already paid and gave the balance as the amount due; only one of the invoices contained any detailed description of the relevant construction work; there was nothing on the face of one of the invoices to indicate the construction work to which it related; and the specified payment method was outdated by the directions in the letter. The statement in each invoice that each was a payment claim made under the Act was of no more than historical significance, when read with the terms of the letter: at [32]-[37].

    Estate Property Holdings Pty Ltd v Barclay Mowlem Construction Ltd (2004) 61 NSWLR 515; [2004] NSWCA 393; Coordinated Construction Company Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229; Fernandes Constructions v Tahmoor Coal (trading as Centennial Coal) [2007] NSWSC 381; Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448; [2005] NSWCA 391; Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWCA 211; Piety Constructions Pty Ltd v Megacrane Holdings Pty Ltd [2023] NSWSC 309, considered; Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (In Liq) (2005) 64 NSWLR 462; [2005] NSWCA 409, distinguished.

JUDGMENT

  1. MEAGHER JA: I agree with Mitchelmore JA.

  2. MITCHELMORE JA: On 22 February 2022, the respondent, Kennedy Civil Contracting Pty Ltd (subject to a Deed of Company Arrangement) (Kennedy), entered into a contract with the appellant, Total Construction Pty Ltd (Total), for Kennedy to carry out demolition, excavation, pavement and associated works for a project in Arndell Park. The issue in this appeal is whether a letter and attachments that the solicitors for Kennedy’s Administrators sent to Total on 25 October 2022, in which the sum of $545,353.18 was claimed, constituted a payment claim within the meaning of s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

  3. It was common ground that Total did not serve a payment schedule on Kennedy within 10 business days of receiving the letter dated 25 October 2022. It followed that if the 25 October 2022 letter and attachments constituted a payment claim, Total was liable to pay the amount claimed in the letter, pursuant to s 14(4) of the Act. On 23 November 2022, Kennedy commenced proceedings against Total in the District Court, claiming that amount.

  4. On 18 August 2023, Abadee DCJ gave judgment for Kennedy. His Honour concluded that the 25 October 2022 letter and attachments satisfied the requirements for a payment claim in s 13 of the Act and, in the absence of serving a payment schedule, Total was liable to pay the amount claimed: Kennedy Civil Contracting Pty Ltd (subject to a Deed of Company Arrangement) v Total Construction Pty Ltd [2023] NSWDC 325.

  5. Total contends that the primary judge erred in concluding that the 25 October 2022 letter and attachments was a payment claim within the meaning of s 13(1) of the Act. It submitted that, looked at objectively, the letter was a demand for payment in respect of a pre-existing debt, supported by the attached documents. For the reasons that follow, I have concluded that the primary judge erred in that respect, as Total has alleged. It follows that the appeal should be allowed.

  6. Total also contended that the 25 October 2022 letter and attachments did not comply with s 13(2) of the Act, or with s 13(6)(b). In light of the view I have reached on Total’s first argument, it is unnecessary to reach a concluded view on those arguments.

Relevant provisions of the Act

  1. There was no dispute that the Act applied to the contract between Total and Kennedy, and the works that Kennedy performed pursuant thereto. Section 8 of the Act confers an entitlement on a person who, under a construction contract, has undertaken to carry out construction work, to receive a progress payment. Part 3 of the Act prescribes the procedure for recovering progress payments. Section 13 of the Act is titled “Payment claims” and relevantly provides (at the time the construction contract was made):

“(1)    A person referred to in section 8 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—

(a)    must identify the construction work (or related goods and services) to which the progress payment relates, and

(b)    must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount), and

(c)    must state that it is made under this Act.

(3)    The claimed amount may include any amount—

(a)    that the respondent is liable to pay the claimant under section 27(2A), or

(b)    that is held under the construction contract by the respondent and that the claimant claims is due for release.

…

(5)    Except as otherwise provided for in the construction contract, a claimant may only serve one payment claim in any particular named month for construction work carried out or undertaken to be carried out (or for related goods and services supplied or undertaken to be supplied) in that month.

(6)    Subsection (5) does not prevent the claimant from—

(a)    serving a single payment claim in respect of more than one progress payment, or

(b)    including in a payment claim an amount that has been the subject of a previous claim, or

(c)    serving a payment claim in a particular named month for construction work carried out or undertaken to be carried out (or for related goods and services supplied or undertaken to be supplied) in a previous named month.

…”

  1. Section 14 of the Act is titled “Payment schedules” and 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).

(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 reasons for withholding payment.

(4)    If—

(a)    a claimant serves a payment claim on a respondent, and

(b)    the respondent does not provide a payment schedule to the claimant—

(i)    within the time required by the relevant construction contract, or

(ii)    within 10 business days after the payment claim is served,

whichever time expires earlier,

the respondent becomes liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates.”

  1. Section 15 of the Act applies if the respondent becomes liable to pay the claimed amount to the claimant under s 14(4) as a consequence of not having provided a payment schedule within the time allowed by that section, and 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: s 15(1). Section 15(2) provides that in those circumstances, the claimant may, relevantly for present purposes, “recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction”: s 15(2)(a)(i). Section 15(4) provides:

“(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 of the existence of the circumstances referred to in subsection (1), 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.”

  1. Section 16 of the Act applies if the respondent provides a payment schedule that indicates an amount that the respondent proposes to pay, and fails to pay the whole or any part of that amount on or before the due date for the progress payment: s 16(1). Section 16(2) provides that the claimant may recover the unpaid portion of the scheduled amount from the respondent as a debt due in any court of competent jurisdiction, or may apply for an adjudication of the payment claim.

Kennedy’s payment claims between February and August 2022

  1. Between February 2022 and August 2022, Kennedy carried out construction works at the Arndell Park site. Between 25 February 2022 and 28 June 2022, Kennedy served four payment claims on Total (Payment Claims 1, 2, 3 and 5), using the system stipulated in the contract for service of claims, being the PayApps system. In response to each of those payment claims, Total served a payment schedule on Kennedy, and made a payment in accordance with the amount it specified in the payment schedule.

  2. In its written submissions, Total provided the following summary of the payment claims, payment schedules, and payments:

Claim

Date

Sum

Payment Schedule

Amount Paid

1

25 February 2022

$186,606.83

17 March 2022

$186,606.83

$167,946.14 (retention withheld)

2

31 March 2022

$29,732.39

21 April 2022

$29,732.39

$26,759.16 (retention withheld)

3

28 April 2022

$142,480.35

12 May 2022

$84,096.91

$75,687.21 (retention withheld)

5

28 June 2022

$621,371.93

11 July 2022

$117,847.08

$106,062.37 (retention withheld)

(References to appeal book omitted.)

  1. On 1 August 2022, Kennedy was placed into administration. On 4 August 2022, Kennedy served a further payment claim for $164,049.70 (Payment Claim 7). In response to that claim, Total served a payment schedule for - $323,216.13. It followed from the negative amount that Total included in the payment schedule that it would not be making any payment to Kennedy pursuant to this payment claim.

The letter of 25 October 2022

  1. At 12:40pm on 25 October 2022, the solicitors for the Administrators sent an email to a number of email addresses. The addresses included, relevantly, [email protected] and [email protected]. The subject of the email was “Letter of Demand | Kennedy Civil Contracting Pty Ltd”, and it relevantly stated:

“Dear Sir/Madam

We confirm we act on behalf of Kennedy Civil Contracting Pty Ltd (Administrators Appointed).

Please see attached our correspondence, dated 25 October 2022.

If you have any queries, please do not hesitate to contact our office directly.

…"

  1. Attached to the email was a letter addressed to Total, written on Kennedy’s solicitors’ letterhead. The subject of the letter was “Kennedy Civil Contracting (Administrator Appointed) (ACN 166 354 692) (the Company)” and it relevantly stated:

“1. We act for the Administrators Trent Andrew Devine and Bradd William Morrelli, who were appointed as Joint and Several Administrators of the company on 1 August 2022.

2. The books and recovers (scil records) of the Company indicate that you are indebted to the Company in the amount of $545,353.18. A copy of the relevant documents are attached.

3. Accordingly, we demand that you forward to our office the sum of $545,353.18 being the total outstanding amount owing to the Company, by 5:00PM on 1 November 2022 (Deadline).

4. Payment can be made into our trust account, details are as follows:

…

5. Please note the above outstanding amount is required to be paid to the Company only and may be utilised to pay any third-party debt(s) previously outstanding and/or to be incurred in the future.

6. If we do not receive payment before the Deadline, we anticipate being instructed to commence proceedings without further notice to recover the outstanding as well as seek costs and interest, by way of statutory debt pursuant to section 15 or 16 of the Building and Construction [Industry] Security of Payment Act 1999 (NSW) and an application for summary judgment.

7. It is our client’s goal to obtain a commercial resolution in the matter for the benefit of the creditors of the Company. Our client accordingly urges you to consider the benefits of any early resolution of the matter without the need for further recovery action.

8. Should you require any further information in this regard, please contact our office directly.”

  1. Attached to the letter were a number of tax invoices which were created on or about the date of the letter by the amending and updating of earlier tax invoices submitted with earlier payment claims, and one PayApps record for the last tax invoice. Each of the documents attached to the letter bore the notation: “This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW”:

  1. The tax invoice numbered INV-1123 was dated 25 February 2022 and stipulated a “due date” of 28 March 2022. The description of the invoice was “February Claim 001 – Contract Civil Works Pa[c]kage”. The invoice stated the total as $186,606.83, included a line item for what Total had paid to Kennedy ($167,946.14), and provided the “Amount Due” was $18,660.69.

  2. The tax invoice numbered INV-1158 was dated 31 March 2022 and stipulated a due date of 30 April 2022. The description was “Works for March – Payapps”. It gave a total of $29,732.40, made allowance for the sum that Total had paid ($26,759.16), leaving $2,973.24 as the amount due.

  3. The tax invoice numbered INV-1185 was dated 29 April 2022 and stipulated a due date of 27 May 2022. This invoice described the work as “Preliminaries” and gave a total of $84,096.90. Making allowance for what Total had paid Kennedy ($75,687.21), the amount due was $8,409.69.

  1. The tax invoice numbered INV-1127 was dated 28 June 2022 and stipulated a due date of 28 July 2022. The description was “Contract Works carried out to Date” and the amount claimed was $621,371.93. One of the administrators, Mr Devine, was cross-examined on this invoice and acknowledged that he could not work out, by reference to the invoice alone, what work had previously been completed or was previously the subject of a claim.

  2. The tax invoice numbered INV-1239 was dated 4 August 2022 and stipulated a due date of 3 September 2022. The amount claimed in this invoice was $147,644.73. In addition to this invoice, the solicitors provided a 10-page PayApps record.

  1. In a letter dated 31 October 2022, which was emailed to the Administrators’ solicitors on 9 November 2022, Total replied to the solicitors as follows:

“We refer to the Letter of Demand received by (sic) Chamberlains Law Firm on 25 October 2022, relating to an alleged amount owing from Total Construction Pty Ltd (‘Total’) to Kennedy Civil Contracting Pty Ltd (‘Kennedy Civil’).

Total refer to the last in time Payment Schedule enclosed (Attachment A) showing that Kennedy Civil is indebted to Total in the amount of $(293,832.84) + GST. The scheduled amount reflects costs incurred by Total in exercising its step=in rights as a result of Kennedy Civil’s defaults under Sub-Contract Reference No.1CITYK-2.3 dated 23/12/22. Total continues to incur further costs to complete Sub-Contract obligations on Kennedy Civil’s behalf.

Please advise how Total can be registered on the creditor list with consideration to the above debt owing.”

  1. When pressed as to the information he had relied upon to assert that Total was indebted to Kennedy for the claimed amount, Mr Devine’s evidence was that he had looked at the company’s books and records. He rejected the proposition that the intention in sending the letter was to convey a demand as distinct from a payment claim under s 13 of the Act.

  2. The Contract Administrator for Total, Mr Francois, gave evidence denying that he understood the documents Kennedy sent on 25 October 2022 amounted to a payment claim under the Act. However, he accepted that he appreciated that there was a correspondence between the tax invoice numbered INV-1123 and Payment Claim 1, the tax invoice numbered INV-1158 and Payment Claim 2, the tax invoice numbered INV-1185 and Payment Claim 3, the tax invoice numbered INV-1127 and Payment Claim 5, and the tax invoice numbered INV-1239 and Payment Claim 7.

The decision of the primary judge

  1. His Honour concluded that the 25 October 2022 letter and attachments constituted a single claim, “comprising (or purporting to comprise) an aggregate total derived from the combination of the sums in the individual invoices”: at [92]. In concluding that this claim was a payment claim within s 13 of the Act, his Honour did not consider himself limited to the letter and attachments. Instead, his Honour had regard to what he described as “the context”, which included Kennedy’s contractually mandated deployment of the PayApps system “and the circumstance that all of the invoices were updated modifications of tax invoices previously supplied to Total (as payment claims) which had prompted Total to serve payment schedules”: at [84].

  2. His Honour observed that each of the invoices submitted with the 25 October 2022 letter bore the same date as the payment claims that had been lodged under the contract: at [85]. His Honour considered that, in reality, Mr Francois had “little real difficulty” in matching the invoices attached to the 25 October 2022 letter and those that had previously been submitted.

  3. In relation to the use of the word “indebted” in the letter of 25 October 2022, his Honour described it as “inapt for the purposes of a statutory claim”: at [87]. Nonetheless, this “misdescription or mischaracterisation” did not invalidate a payment claim which otherwise satisfied the requirements in s 13(2) of the Act: at [88]. His Honour stated at [89]:

“It was, to my mind, obvious that a majority of the invoices submitted on 25 October 2022 were modifications (in terms of the amounts claimed) of earlier invoices that had been submitted, under the PayApps system, with reduced amounts from the earlier invoices claimed; often amounting to retention amounts.”

  1. The primary judge considered that with the exception of the tax invoice numbered INV-1127, Kennedy was not again asserting claims for money that had previously been paid in full, but was asserting a claim largely centred on amounts the subject of prior claims, a permissible approach pursuant to s 13(6)(b) of the Act: at [90]. His Honour had earlier described INV-1127 as the least informative, but nonetheless held that Mr Francois had understood, on 25 October 2022 or shortly thereafter, that the amount claimed ($621,371.93) was the same as the amount in the payment claim of that date, albeit without having taken into account Total’s payment schedule or payment ($106,062.37): at [86].

  2. Although the letter of 25 October 2022 did not state that it was a payment claim made under the Act, his Honour stated that “what counts is whether the documents (and, I would add, where there are multiple documents, treated as a composite whole and read in context including prior dealings), reasonably convey to Total that Kennedy intended to engage the operation of the Act”: at [93]. In his Honour’s opinion, “[p]aragraph 6 of the letter would, alone, have satisfied this requirement, but I agree that the intention would have reasonably been apparent to Total from the notation which did appear on each of the supporting invoices”: at [93].

  3. His Honour concluded at [119]:

“(a) Kennedy’s letter of 25 October 2022 attached tax invoices identifying the relevant construction work, the detailed nature of which had previously been provided to Total in PayApps. The requirement in s 13(2)(a) was satisfied;

(b) generally the amounts in the invoices attached to the letter reflected Kennedy’s asserted entitlement to claim release of retention amounts (s 13(3)(b)) and which had been the subject of prior claims (s 13(6)(b)) and the covering letter identified the amount ($545,353.18) which Kennedy claimed was due. A qualification was that the sum of approximately $147,000 from one invoice … was omitted from the amount claimed in the covering letter. That omission (or error) benefitted Total. As to the accuracy of what was claimed, the sum claimed took into account the circumstance that Total had previously paid $106,062.37 and if Total could not reconcile what was claimed against what the work identified, the proper response for it to take was to say as much in a payment schedule and thereby enable an adjudicator to assess the reasonableness of its position. The requirement in s 13(2)(b) was satisfied;

(c) the documents emailed by Kennedy to Total on 25 October 2022, as a whole, adequately conveyed to Total that Kennedy intended to engage the operation of the Act so as to satisfy s 13(2)(c)."

The Appeal

  1. Total advances two grounds of appeal:

“1. The trial judge erred in finding that the letter of demand dated 25 October 2022 (together with attachments) was a payment claim within the meaning of s13(1) of the Building and Construction [Industry] Security of Payment Act 1999 (NSW) (Act).

2. The trial judge erred in finding that the letter of demand dated 25 October 2022 (together with attachments) complied within s13(2) of the Act.”

  1. There is a degree of overlap between the two grounds, in the sense that whether the letter of 25 October 2022 and its attachments has the features one would expect of a payment claim, by reference to the requirements of s 13(2) of the Act, is relevant to the objective characterisation of the documents. Ultimately, however, it is the characterisation exercise that is the subject of ground 1 that is determinative in this appeal.

  2. By ground 1, Total submitted that the 25 October 2022 letter and attachments did not, viewed objectively, purport to be made under the Act. Rather, the letter stated that a debt existed which was the subject of a demand. That reading of the letter was, in Total’s submission, supported by the invoices that were attached to the letter, each of which, on its face, was historical.

  3. The letter bears the following features that are relevant to how it would be understood by a reasonable reader in the position of Total:

  1. It was drafted on the letterhead of, and was signed by, solicitors.

  2. The solicitors were acting for the Administrators appointed to Kennedy.

  3. Numbered paragraph 2 of the letter asserted that on the basis of Kennedy’s books and records, Total was “indebted” to Kennedy in the specified amount. The reasonable inference from the next sentence, which referred to the “relevant documents” being attached, was that the attachments to the letter supported Total’s current indebtedness.

  4. Numbered paragraph 3 included a demand for payment of the “total outstanding amount” by the “Deadline”, being five business days after the letter was served. That period was less than that permitted under the Act for service of a payment schedule (being 10 business days: s 14(4)(b)(ii) of the Act)).

  5. Rather than pay Kennedy (as had occurred in the case of the four payment claims for which Total had made a payment), the solicitors instructed Total, in numbered paragraph 4, to make payment into the firm’s trust account.

  6. In numbered paragraph 5, the solicitors again referred to the “above outstanding amount”, stating that it was to be paid to the Company only and could not be used to pay any third party debt(s).

  7. The solicitors next, in numbered paragraph 6, foreshadowed commencing proceedings without further notice “to recover the outstanding as well as seek costs and interest”, by way of statutory debt pursuant to s 15 or s 16 of the Act.

  8. Recovery action was again referred to in numbered paragraph 7, in which the solicitors noted that their clients urged Total to consider the benefits of early resolution “without the need for further recovery action”.

  1. In Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1, Palmer J observed, among other things, that in the case of a payment claim which does not purport reasonably on its face to comply with the requirements of s 13(2) of the Act, the claim is a nullity for the purposes of the Act: at [41(vi)]. Having regard to the features that I have identified above, the 25 October 2022 letter reads objectively, and obviously, as a letter of demand for payment of an outstanding indebtedness by the stipulated deadline, failing which the solicitors would likely be instructed to commence recovery proceedings.

  2. Kennedy relied on numbered paragraph 6 of the letter (as had the primary judge), and the reference therein to ss 15 and 16 of the Act. Kennedy submitted that those provisions of the Act would only come into play if Total did not submit a payment schedule (s 15), or it submitted a payment schedule but did not pay the scheduled amount (s 16). That submission accurately reflected the proper operation of ss 15 and 16, but the context in which those provisions were cited in the letter does not lead inexorably to the conclusion that paragraph 6 would have been objectively understood in the manner for which Kennedy contends. As I have noted, paragraph 6 also foreshadowed the commencement of further proceedings “without further notice to recover the outstanding”, if the outstanding amount was not paid by a deadline that did not account for the statutory period in s 14 of the Act; and the following paragraph encouraged Total to resolve the matter so as to avoid recovery action.

  3. The invoices that were attached to the letter serve only to support its objective characterisation as a letter of demand. The invoices were created on or about 25 October 2022, but each of them was dated well before that date. Each invoice stipulated an amount that was due, with four of the five referring to an amount that had already been paid and giving the balance as the amount due. Only one of the invoices contained any detailed description of the work to which the invoice related. The payment details on the invoices emphasised their historical nature, noting that Kennedy was in administration by 25 October 2022 and the solicitors’ letter directed payment of the outstanding amount be made to their trust account.

  4. Kennedy relied on the statement that appeared in each of the invoices, “This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW”, as supporting that a payment claim was made under the Act. However, there was force in Total’s responsive submission that, having regard to the dates of the invoices (long since passed), this statement was also of no more than historical significance, particularly when the invoices were read together with the terms of the letter to which they were attached. Indeed, as counsel for Kennedy submitted of the first three invoices, those invoices were claiming outstanding amounts that were due under previous claims, consistently with paragraph 2 of the letter.

  5. In concluding that the 25 October 2022 letter and attachments constituted a payment claim, the primary judge emphasised what his Honour described as the context and what would have been subjectively understood by Total upon receipt of the letter. So much was apparent from his Honour’s treatment of the tax invoice numbered INV-1227. Kennedy accepted before the primary judge, and on the appeal, that this was the least informative of the tax invoices, with the limited description of the works as “Contract works to date”. Apart from the statement asserting it was a claim under the Act, which I have addressed above, there was nothing on the face of the invoice that indicated the construction work to which it related: see Estate Property Holdings Pty Ltd v Barclay Mowlem Construction Ltd (2004) 61 NSWLR 515; [2004] NSWCA 393 at [17]; Coordinated Construction Company Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229 at [25]. However, his Honour relied by way of answer on Mr Francois’ evidence that he had understood, on 25 October 2022 or shortly thereafter, that the amount claimed ($621,371.93) was the same amount for the earlier payment claim of that date, although it had not taken into account the scheduled amount Total had made ($117,847.08) and had not taken into account the amount Total paid ($106,062.37): at [86].

  6. One may accept, as Kennedy emphasised, the need to adopt a “fair but broad” and not “pedantic” approach to compliance with the statutory requirements for a payment claim in the Act: Fernandes Constructions v Tahmoor Coal (trading as Centennial Coal) [2007] NSWSC 381 at [38] (McDougall J) ("Fernandes"). One may also accept that payment claims are to be read in context, which may include, inter alia, industry conventions and the usage adopted by the parties in their earlier contractual dealings; and that construction work may be identified by reference to earlier documents, such as variation claims or other documents capable of being identified by reference to the contract or the earlier dealings of the parties: Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448; [2005] NSWCA 391 at [40] (Mason P, Giles JA and Santow JA agreeing); see also Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWCA 211 at [22] (Basten JA, Macfarlan JA and Emmett JA agreeing). Nonetheless, as is inherent in McDougall J’s description of the approach in Fernandes, the approach must be fair, reading the relevant documentation as a whole, for which context cannot be a substitute.

  7. The final tax invoice that was attached to the 25 October 2022 letter, numbered INV-1239, did contain a detailed description of the work to which the invoice related, which detail was replicated in the PayApps data that was also provided. Kennedy relied in this respect upon Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (In Liq) (2005) 64 NSWLR 462; [2005] NSWCA 409, in which Hodgson JA stated at [35] that:

“…if a respondent is able to identify some of the work in respect of which a payment claim is made, it can in the payment schedule say it does not propose to make any payment in respect of that work because it cannot identify the work, and because for that reason it disputes that the work was done or done to a standard justifying payment, or was within the contract or within any variation of it, and that any pre-condition to payment was satisfied.”

  1. Kennedy submitted that in circumstances where the payment claim comprised five invoices, where three invoices were clearly for retentions and one had a detailed description of the construction work, a lack of clarity in one invoice (being the invoice numbered INV-1127) would not render the payment claim as a nullity; and Total could have taken the approach to which Hodgson JA referred. Kennedy’s reliance on this passage was misplaced in the particular circumstances of the present case. The detail in the final invoice has to be read with the balance of the documents, including the covering letter and the other invoices, which had the features I have identified above. So read, the documents did not constitute a payment claim within s 13 of the Act. The primary judge erred in concluding to the contrary.

  2. It does not follow from the conclusion I have reached that a letter of demand could not, in other circumstances, satisfy the requirements of a payment claim under s 13 of the Act. Thus, in Piety Constructions Pty Ltd v Megacrane Holdings Pty Ltd [2023] NSWSC 309, to which Kennedy drew the Court’s attention, Richmond J rejected the plaintiff’s submission that the letter in that case was one of demand, rather than a payment claim, with the invoices attached by way of reference alone. His Honour rejected the submission on the basis of considering the letter sent by the administrator and attached invoices as a whole: at [43]. The conclusion I have reached similarly depends on a consideration of the 25 October 2022 letter and attachments, read objectively and as a whole.

Conclusion

  1. The appeal should be allowed. It is unnecessary finally to determine ground 2 of the notice of appeal, or the additional contention that Total raised on the appeal, as to whether s 13(5) and s 13(6)(b) of the Act, properly construed, permit the inclusion in a payment claim of an amount that has been the subject of a previous claim.

  2. The parties informed the Court that in the event that the appeal was allowed, they had reached agreement as to what should occur in so far as Total has paid the money the subject of the claim to Kennedy. Accordingly, I propose the following orders:

  1. Appeal allowed with costs.

  2. The parties are to file short minutes of order on or before 2 February 2024 for the making of any further orders necessary to give effect to the result on the appeal.

  1. ADAMSON JA: I agree with Mitchelmore JA.

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Decision last updated: 14 December 2023

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