Vanella Pty Ltd v TFM Epping Land Pty Ltd

Case •

[2019] NSWSC 1379

•

11 October 2019

No judgment structure available for this case.

Supreme Court


New South Wales

  • Amendment notes
Medium Neutral Citation: Vannella Pty Limited atf Capitalist Family Trust v TFM Epping Land Pty Ltd; Decon Australia Pty Limited v TFM Epping Land Pty Ltd; Vannella Pty Limited v TFM Epping Land Pty Ltd [2019] NSWSC 1379
Hearing dates: 18 September 2019
Date of orders: 11 October 2019
Decision date: 11 October 2019
Jurisdiction:Equity - Technology and Construction List
Before: Henry J
Decision:

See [218]

Catchwords:

BUILDING AND CONSTRUCTION – payment claims under the Building and Construction Industry Security of Payment Act 1999 (NSW) – application for summary judgment – whether validity of payment claim is a triable issue – whether email constitutes payment schedule – where email fails to specify the claims to which it objects and the grounds for objection

  COSTS – security for costs – relevance of personal undertaking by director – discretion to order – no issue of principle
Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW), ss 4, 5, 8, 13, 14, 15, 32
Corporations Act 2001 (Cth), s 1335
Uniform Civil Procedure Rules 2005 (NSW), rr 13.1, 42.21
Cases Cited: Agar v Hyde (2000) 201 CLR 552
Australia and New Zealand Banking Group Ltd v Oswal [2013] VSCA 156
Brodyn Pty Ltd trading as Time Cost & Quality v Davenport (2004) 61 NSWLR 421; [2004] NSWCA 394
Brookhollow Pty Limited v R & R Consultants Pty Limited [2006] NSWSC 1
Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448
Clyde Industries Ltd v Ryde Engineering Pty Ltd (1993) 11 ACLC 325
Coordinated Constructions Co Pty Ltd v JM Hargraves (NSW) Pty Ltd (2005) 63 NSWLR 385; [2005] NSWCA 228
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
General Steel Industries Inc v Commissioner for Railways New South Wales (1964) 112 CLR 125
Idoport Pty Ltd v National Australia Bank [2001] NSWSC 744
Jazabas Pty Ltd v Haddad [2007] NSWCA 291
KDL Building Pty Ltd v Mount [2006] NSWSC 474
KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd & Ors [2019] QSC 178
KP Cable Investments Pty Limited v Meltglow Pty Limited (1995) 56 FCR 189
Nepean Engineering Pty Limited v Total Process Services Pty Limited (2005) 64 NSWLR 462; [2005] NSWCA 409
Neumann Contractors Pty Ltd v Peet Beachton Syndicate Ltd [2011] 1 QD R 17
Parkview v Fortia [2009] NSWSC 1066
Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248
Silverton Ltd v Harvey [1975] 1 NSWLR 659
Spencer v Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28
Style Timber Floor Pty Limited v Krivosudsky [2019] NSWCA 171
Sunbird Plaza Pty Ltd v Boheto Pty Ltd [1983] 1 Qd R 248
Warren Mitchell Pty Limited v Australian Maritime Officers’ Union (1993) 12 ACSR 1
Webster v Lampard (1993) 177 CLR 598
Wollongong City Council v Legal Business Centre Pty Limited [2012] NSWCA 245
Category:Principal judgment
Parties:

Proceedings 2019/165506

 

Vannella Pty Limited atf Capitalist Family Trust (First Plaintiff)
Decon Australia Pty Ltd (Second Plaintiff)

 

TFM Epping Land Pty Limited (First Defendant)
Katoomba Residents Investment Pty Limited (Second Defendant)

 

Proceedings 2019/205661

 

Decon Australia Pty Limited (Plaintiff)

 

TFM Epping Land Pty Limited (First Defendant)
Katoomba Residents Investment Pty Limited (Second Defendant)

 

Proceedings 2019/228126

 

Vannella Pty Limited (Plaintiff)

  TFM Epping Land Pty Limited (Defendant)
Representation:

All proceedings:

 

Counsel:
I Roberts SC (plaintiffs)
A Greinke (defendants)

  Solicitors:
Piper Alderman (plaintiffs)
Auyeung Hencent & Day (defendants)
File Number(s): 2019/165506; 2019/205661; 2019/228126
Publication restriction: No

Judgment

  1. This decision concerns four notices of motion that have been filed in three proceedings relating to the development and construction of a residential apartment building in Epping, known as the Juniper Development.

  2. The proceedings involve disputes between the builder of the Juniper Development, Decon Australia Pty Limited (Decon) (the plaintiff in two of the proceedings), and the owners of the land on which the development was constructed, TFM Epping Land Pty Limited (TFM) and Katoomba Residents Investment Pty Limited (KRI) (the defendants). The disputes arise under the building contract entered into by Decon and the defendants (Building Contract) and under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SoP Act).

  3. The proceedings also involve disputes between Vannella Pty Limited atf Capitalist Family Trust (Vannella) (another plaintiff in the proceedings) and TFM, who are the parties to a joint venture agreement dated 20 January 2017 relating to the Juniper Development (JVA).

  4. The first notice of motion seeks summary judgment and is filed by Decon in proceedings (2019/205661) (Decon proceedings). Decon seeks judgment against the defendants in the amount of $6,355,352.46 following service of what Decon contends is a payment claim under s 13 of the SoP Act and the defendants’ failure to provide a payment schedule in response.

  5. By the second notice of motion, the defendants seek security for their costs in the Decon proceedings.

  6. The third notice of motion also seeks security for costs and is filed by TFM in proceedings 2019/228126. In those proceedings, Vannella (as plaintiff) claims a debt from TFM in the amount of $1,551,825.00 based on service of a payment claim under s 13 of the SoP Act and the failure by TFM to provide a payment schedule in response (Vannella proceedings).

  7. By the fourth notice of motion, the defendants seek security for costs from Decon and Vannella (as plaintiffs) in proceedings 2019/165506 (Equity proceedings). In the Equity proceedings, Vannella and Decon make claims against the defendants and Dr Yihao Zhang (the sole director of the defendants) for monies said to be owing under the JVA and the Building Contract, equitable interests in the sale proceeds of apartments in the development, equitable compensation for alleged breaches of fiduciary duty, and compensation for misleading and deceptive conduct.

  8. For the reasons that follow, I have granted Decon summary judgment against the defendants and dismissed the defendants’ notices of motion seeking security for costs from Decon in the Decon proceedings and the Equity proceedings.

  9. I have also declined to order that Vannella provide security for costs on the basis that Mr Daniel Saab, the sole director of Vannella and Decon, has proffered an undertaking to be jointly and severally liable for any adverse costs orders made against Vannella in the Equity proceedings and the Vannella proceedings.

Summary judgment motion

  1. Decon seeks summary judgment in the Decon proceedings pursuant to r 13.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) for the total of the claimed debt, being $6,355,352.46.

  2. The defendants oppose the application and assert there are a number of triable issues which means that summary judgment should not be granted.

Background facts and evidence

  1. The Building Contract entered into by Decon and the defendants was for a fixed lump sum of $28,215,000.00 (excl GST).

  2. Under the Building Contract, the defendants, as principals, appointed Decon as the contractor to design and construct the Juniper Development. Able Construction Management Pty Limited was the superintendent and MBMPL Pty Ltd QS and Technical Advisors (MBM) was the quantity surveyor.

  3. The Technology & Construction List Response filed by the defendants in the Decon proceedings (TCLR) puts in issue whether the applicable Building Contract is the version which Decon contends was entered into on 2 December 2016 or an amended version entered into on 1 March 2017 as the defendants contend. It is not necessary to resolve that issue as Decon accepts the 1 March 2017 version for the purposes of its summary judgment motion and the defendants acknowledge that Decon’s payment claim does not tie itself to either version (T9:34-35, T19:14-16).

  4. The Building Contract comprises 3 documents: a “Formal Instrument of Agreement”; an amended AS4902-2000 General Conditions of Contract; and Annexures to the General Conditions. It provides that:

  1. Decon shall claim payment for work done progressively, on the later of the 20th day of each month and the first business day after agreement by Decon and the quantity surveyor of the value of the work under the contract to the 20th day of that month: clause 37.1 and item 33 of Annexure Part A;

  2. each progress claim made by Decon is to be given in writing to the superintendent and shall include details of the value of the work done under the contract and may include details of other moneys then due to Decon: clause 37.1;

  3. the value of the work done is to be assessed by the quantity surveyor based on the percentage completed of each of the trades in the breakdown attached at Annexure Part Q: clause 37.1. I note there are no breakdowns listed in Annexure Part Q in the version of the Building Contract in evidence;

  4. Decon shall inform the superintendent at least 14 days before it anticipates practical completion will occur. Once Decon considers that practical completion has occurred, and has requested a certificate of practical completion, the superintendent will issue a certificate: clause 34.6;

  5. within 14 days of receiving a progress claim, the superintendent shall issue certificates indicating the amount of retention money and money pursuant to the contract owing to the contractor: clause 37.2

  6. interest at the rate of 10% is due and payable after the date of default in payment: clause 37.5 and item 35 of Annexure Part A; and

  7. variations to the work under the contract are to be as directed in writing by the principal and priced by the superintendent, in accordance with the procedures set out in clause 36.

  1. On 3 June 2019, Decon served Progress Claim 10 on the defendants by hand and by email under cover of a letter from Decon’s solicitors referring to “our client’s Progress Claim 10 dated 3 June 2019”. Because of its importance to the summary judgment motion, it is appropriate to set out Progress Claim 10 in some detail.

  2. Progress Claim 10 comprises five pages. Page one is headed “Progress Claim”. It states that the claim is made pursuant to the SoP Act for works completed in the Juniper Development in accordance with the Building Contract. It goes on to state that is it made for completion of construction work and related goods and services and is for the amount of $6,355,352.46 (incl. GST) (claimed amount).

  3. Page one also includes a breakdown of the claimed amount as follows:

Contract Sum (see Table 1)

$28,215,000.00

Variations (see Table 2)

$1,375,024.00

Subtotal

$29,590,024.00

Revised contract sum (inclusive of GST)

$32,549,026.40

Less Amounts paid

($27,549,026.61)

Plus interest on overdue progress claims (see Table 3)

$1,193,617.67

Progress Claim amount (including GST)

$6,355,352.46

  1. Table 1 (on page 2) is headed “Works within the Original Contract Sum”. The first two columns refer to twenty five items of work which are each described using one to three words, such as “Demolition”, “Excavation/Civil Works”, “Fittings, Fixtures and Equipment”. The following two columns are headed “Trade Total ($) (Exc GST)” and “Previously Certified ($) (Exc GST)”. They include the same dollar amounts in respect of each of the twenty five items of work, with the result that the total of each of the “Trade Total” and “Previously Certified” columns add up to $28,215,000.00, reflecting the fixed lump sum of the Building Contract excluding GST.

  2. Table 2 (on page 3) is headed “Variations” and contains 4 columns. The first two columns refer to six variations numbered (V01 – V06), with brief descriptions of each, such as “Basement extension” and “Design changes to achieve BCA compliance”. The third column, headed “Value of works performed (Exc GST)”, identifies a dollar amount for each variation ranging from $336,852 to $9,000, and totals $1,375,024.00 (excl GST). The last column is headed “Previously Certified”. No amounts are included in that column.

  3. Table 3 (on pages 4 and 5) is headed “Interest on overdue progress claims” and contains nine columns. The first four columns identify the dates of nine progress claims, nine invoice numbers, the value of each progress claim (totalling $31,036,500.00 incl. GST) and the due dates. Pausing here, the amount of $31,036,500.00 comprises the fixed lump sum amount of $28,215,000.00 plus GST of $2,821,500.00.

  4. The fifth, sixth and seventh columns identify the date on which payments were received, the amounts paid and the remaining invoice sums totalling $3,649,208.39 (incl. GST). The eighth column calculates interest at 10%, which totals $1,193,617.67 (incl. GST). The final column identifies that interest is calculated to 23 May 2019.

  5. Prior to serving Progress Claim 10, Decon had made at least eight other progress claims on the defendants (Progress Claims 1 – 8) (at [7], Ashpreet Singh affidavit 18 September 2019 and [5], Yvonne Lui affidavit 19 September 2019).

  6. There is a factual dispute about whether the defendants received Decon’s progress claim 9, being invoice 201818, and which is referred to in column 2 of Progress Claim 10. The defendants contend that it was not received (at [3], Yvonne Lui affidavit 19 September 2019). For the purpose of this application, I accept Ms Lui’s evidence.

  7. Each of the Progress Claims 1 – 8 received by the defendants included a one page document described as a costs breakdown, which was annexed to an MBM progress report. The process adopted by the parties was for MBM to assess each of the progress claims made by Decon and prepare a progress report which included a certificate in respect of the amounts claimed and assessed and a costs breakdown document as an annexure (T50:10-14; T51:37-38; at [5], Yvonne Lui affidavit 19 September 2019; at [7], Ashpreet Singh affidavit 18 September 2019; exhibit C).

  8. Copies of the costs breakdown documents for Progress Claims 1 – 8 are in evidence (at [7], Ashpreet Singh affidavit 18 September 2019). They each refer to the same twenty five work items listed in Table 1 of Progress Claim 10. The costs breakdown documents identify the trade total, percentage and dollar values of the competed work items, and amounts previously certified and claimed. They also include a line item for variations, which was “nil” in respect of Progress Claims 1 – 8.

  9. On 14 June 2019, the solicitor for the defendants in the Equity proceedings sent an email to the solicitor for Decon. The defendants say that part of the 14 June email, which is set out below, constitutes a payment schedule under s 14 of the SoP Act (14 June email):

“Your clients’ claims

Whilst our respective clients have previously exchange [sic] communications about what is paid and unpaid from Decon’s contract price, what has not been agreed are the variations and what has not been discussed to date are loss and damage caused to our client by Decon’s delay and defects in their work which has led to the inability for the project to achieve Practical Completion. The project remains without a Final Occupation Certificate and there are serious questions to be tried as to whether our client owes Decon any money at all, or, if after set off, Decon would be required to pay money to our client.

For Vannella, our client does not accept that it has performed, in any material manner, any part of its bargain under the alleged JV agreement. There will be a serious question to be tried as to whether Vannella is entitled to any of its asserted rights.”

  1. The evidence of Dr Zhang, which is not challenged on the summary judgment motion, is that the variations claimed in Progress Claim 10 were not agreed, were not the subject of written directions, variation declarations or notices as required by the terms of the Building Contract, and were not priced by the superintendent (at [9], Eric Zhang affidavit 5 September 2019). He also disputes that the Juniper Development has reached practical completion (at [10], Eric Zhang affidavit).

  2. Mr Daniel Saab, the sole director of Decon and Vannella and the primary beneficiary of the Capitalist Family Trust, gives evidence that the claimed amount remains outstanding and that he does not believe the defendants have a maintainable defence (at [16], Daniel Saab affidavit).

Decon’s submissions

  1. Decon’s claim for summary judgment is based on the operation of s 15 of the SoP Act.

  2. Decon says, and the defendants do not dispute, that the Building Contract is a construction contract as defined in s 4 of the SoP Act between Decon as builder and the defendants as principals.

  3. Decon submits that Progress Claim 10 was served on the defendants as the persons liable to make a progress payment under the Building Contract: s 13(1) of the SoP Act.

  4. Decon submits that Progress Claim 10 is a valid payment claim within the meaning of s 13(2) of the SoP Act. They say that it is in a traditional format that sets out the details of the construction work to which it relates, as required by s 13(2)(a), as follows:

  1. the first page of Progress Claim 10 sets out a reconciliation of the contract sum, adjustments, amounts claimed and paid and amount of the payment claim;

  2. table 1 sets out the building elements that made up the contract works by value and the amounts claimed against each;

  3. table 2 lists the six variation works that are claimed; and

  4. table 3 sets out the calculation details of the interest claimed for late payment of earlier payment claims.

  1. There is no dispute that Progress Claim 10 identifies the amount of the progress payment claimed to be due, as required by s 13(2)(b), and that it includes a statement that it was a claim made under the SoP Act.

  2. Decon submits that the defendants failed to provide a payment schedule in response to Progress Claim 10 within the time required by s 14(4)(b) of the SoP Act. Decon says that the 14 June email does not meet the requirements of s 14(2) of the SoP Act as it does not identify Progress Claim 10 and does not indicate the amount that the defendants propose to pay. Decon also submits that the 14 June email does not provide reasons for withholding payment as required by s 14(3) of the SoP Act.

  3. Decon says that, as a consequence, the defendants became liable to pay, and Decon is entitled to recover, the claimed amount in full as a debt, in accordance with s 15(2)(a) of the SoP Act, and that it is entitled to judgment under s 15(4)(a) of the SoP Act.

The defendants’ submissions

  1. The defendants oppose summary judgment.

  2. The defendants’ primary case is that Progress Claim 10 is not a valid payment claim. This is based on a number of arguments which they say raise serious questions to be tried.

  3. First, the defendants argue that the claim for interest (of $1,193,617.67) does not relate to construction work or related goods or services within the meaning of ss 9 or 10 of the SoP Act and that the inclusion of the interest claim makes Progress Claim 10 an invalid payment claim in whole or in part.

  4. They submit that interest is akin to a claim for damages for breach of contract which, they say, does not form part of the price of the contract works or constitute an amount for construction work. They rely on the statement of Hodgson JA in Coordinated Constructions Co Pty Ltd v JM Hargraves (NSW) Pty Ltd (2005) 63 NSWLR 385; [2005] NSWCA 228 at [41] (Coordinated Constructions), in which his Honour says that “any amount which is truly payable as damages for breach of contract is generally not an amount due for that construction work”.

  5. Second, they submit that Progress Claim 10 fails to identify the construction work to which the claim relates, as required by s 13(2)(a) of the SoP Act.

  6. The defendants argue that Progress Claim 10 does not sufficiently identify the construction work to which the claimed variations relate because it does not contain supporting schedules setting out the details of the work the subject of the claimed variations. The defendants submit that the failure to give those details means they were unable to respond by way of a payment schedule.

  1. The defendants also submit that, in a sense, there is no construction work identified in the payment claim, other than for variations, as the amounts referred to in “Trade Total” and “Previously Certified” columns in table 1 of Progress Claim 10 are identical (T23:41-45) and there is no other basis within Progress Claim 10 to identify the construction work claimed.

  2. They also submit that Progress Claim 10 is ambiguous as it is not clear that the only claims being made relate to variations, interest and amounts that have previously been claimed and not paid, and it seems that an amount for additional work is being claimed (T24:9-44).

  3. They argue that this ambiguity means the defendants have to engage in some process of reconciliation by reference to Decon’s previous progress claims to work out what has been sought and what the claim might be (T23:47-49). The defendants rely on Neumann Contractors Pty Ltd v Peet Beachton Syndicate Ltd [2011] 1 QD R 17 at [29] in which White J rejected the validity of a claim that was calculated, in part, on amounts previously claimed and unpaid because it would have required a detailed analysis of other documents. This approach was adopted by Brown J in KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd & Ors [2019] QSC 178 at [49] (KDV Sport).

  4. The defendants also submit that the question of whether Progress Claim 10 sufficiently identifies the construction work the subject of that claim turns on the previous communications between the parties, which raise factual issues that are inappropriate for summary determination.

  5. Third, the defendants submit that the variations claimed do not form part of the works under the Building Contract as they were not the subject of directions and were not valued in accordance with clause 36 of the Building Contract. As a consequence, they argue that the claim for variations cannot be a claim for construction work under the SoP Act and, at most, represents a claim for quantum merit, and also means Progress Claim 10 is invalid.

  6. Fourth, the defendants submit that, as Progress Claim 10 seeks payment of 100% of the contract sum, it must have included a claim for the release of retention monies. They argue that Decon was not entitled to include such a claim because, as a matter of fact, the Juniper Development had not yet reached practical completion.

  7. The defendants also argue that s 13(3)(b) of the SoP Act, which allows for the inclusion of retention monies in a claimed amount, should be read as requiring a payment claim to explicitly state that retention monies are being claimed. As Progress Claim 10 does not refer to a claim for retention monies, the defendants say they were not furnished with sufficient details of the claims to which they needed to respond.

  8. The final argument relating to Progress Claim 10 is that there is a triable issue as to whether any invalid parts of Progress Claim 10 (such as the claim for interest or variations) can be severed.

  9. The defendants also contend that the 14 June email is arguably a payment schedule within the meaning of s 14 of the SoP Act. This is because it identifies the Progress Claim 10 by the heading “Your Claims”, it states the amount intended to be paid which is nothing, and it gives reasons for non-payment, including that the variations are not agreed.

  10. At the hearing, counsel for the defendants did not press the other matters raised by the TCLR as triable issues, namely the date on which the Building Contract was entered into and validity of service of Progress Claim 10 (at [2], written submissions and T19:14-16).

Consideration

Legal principles

  1. As Decon has moved for summary judgment, it is required to show that the matters raised by the defendants cannot succeed and do not involve any substantial questions to be tried. This requires the “certain demonstration of the outcome of litigation”, not just that the defendants’ prospects of success are slight. In other words, Decon must show that the defences raised are, in substance, hopeless and should not be permitted to go to trial: General Steel Industries Inc v Commissioner for Railways New South Wales (1964) 112 CLR 125 (General Steel) at 128-129; Agar v Hyde (2000) 201 CLR 552; Spencer v Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28 at [54].

  2. The power to dispose of a claim summarily is recognised as one that should be exercised with caution and only in the clearest of cases where the Court is satisfied it has the requisite material to enable it to reach a definite and certain conclusion: General Steel at 129; Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99; Agar v Hyde (2000) 201 CLR 552 at [57].

  3. This does not mean summary judgment is limited to cases where argument is unnecessary. Argument, even of an extensive kind, may be necessary to demonstrate that the defendants’ case is so clearly untenable that it cannot possibly succeed: General Steel, at 130.

  4. Nor does it mean that the Court cannot resolve questions of law or issues of complexity if it considers it appropriate to do so. A Court can deal substantively with short points of law or construction on a summary basis. Particular care should be taken where the outcome turns on the resolution of disputed factual issues: Webster v Lampard (1993) 177 CLR 598; General Steel; Silverton Ltd v Harvey [1975] 1 NSWLR 659; Sunbird Plaza Pty Ltd v Boheto Pty Ltd [1983] 1 Qd R 248 at 255-256 per McPherson J.

  5. Decon’s summary judgment application is made in the context of the statutory regime contained in the SoP Act. That regime provides for a unique form of fast track adjudication procedures to enable progress payments to be made promptly, on account, and without prejudice to disputes under the parties contract or other rights at law being effected: Style TimberFloor Pty Limited v Krivosudsky [2019] NSWCA 171 (Style Timber), at [25]; Brodyn Pty Ltd trading as Time Cost & Quality v Davenport (2004) 61 NSWLR 421; [2004] NSWCA 394 at [51].

  6. Progress payments include a final payment for construction work: s 4 of the SoP Act.

  7. The statutory regime has led to the requirements under the provisions of the SoP Act being characterised by a deal of informality, with courts focusing on assessing the validity of payment claims and payment schedules based on whether what is claimed or disputed is sufficiently described to enable a recipient to respond: Style Timber, at [47]; Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448 at [31]; Coordinated Construction at [45].

  8. The nature of the statutory regime and relatively low threshold for the validity of payment claims and payment schedules is also the context in which courts have recognised that it is appropriate to resolve on a final basis short points of law or construction on a summary judgment application under the SoP Act and that there is often no distinction between a summary and final determination, particularly where disputes are wholly documentary in nature: Style Timber at [43] and [80]; Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248 at [30].

Is there a triable issue regarding the validity of Progress Claim 10?

  1. There is no dispute that an invalid payment claim can be raised as a defence on an application for summary judgment: Brookhollow Pty Limited v R & R Consultants Pty Limited [2006] NSWSC 1 at [40]; Parkview v Fortia [2009] NSWSC 1066 at [32] – [33].

  2. The question is, do any of the issues raised by the defendants in respect of the validity of Progress Claim 10 have substance and should be permitted to go to trial. In my view, they do not.

  3. I deal with each of the matters raised by the defendants below.

Interest claim

  1. The first issue relates to the inclusion of the claim for interest on overdue amounts.

  2. The defendants argue that Decon’s claim for interest invalidates Progress Claim 10 as it does not relate to construction work and is akin to a claim for damages for breach of contract.

  3. The difficulty with the defendants’ argument is that it is contrary to the Court of Appeal’s conclusion in Coordinated Constructions regarding claims for interest under a construction contract.

  4. In Coordinated Constructions, a builder had, as part of its payment claim, included interest on overdue amounts in an amount calculated in accordance with the terms of its contract with the principals. The subsequent adjudication determination allowed the builder’s claim for interest as a valid component of the builder’s progress payment claim.

  5. The question for the Court of Appeal was whether the adjudication determination was void because it allowed, amongst other disputed amounts, the interest component. The principals argued that it was void as interest is not an amount in respect of “construction work” within the meaning of s 5 of the SoP Act.

  6. The Court of Appeal concluded that the inclusion of the interest amount did not render the adjudication determination (or payment claim) void. The Court considered that interest under the contract could be claimed by the builder to be due for construction work carried out or for related goods or services supplied. In doing so, the Court accepted that any amount that a construction contract requires to be paid as part of the total price is an amount due for that construction work, even if labelled “interest”, as it represents the increased cost or price for the work: at [41] and [43], per Hodgson JA, Ipp JA at [55] and Basten JA at [58].

  7. The Court also held that, even if s 13 of the SoP Act is to be construed as being limited to claims for payment of construction work or related goods and services supplied, it is a matter for an adjudicator to determine whether interest could be claimed and not for the Court: per Hodgson JA at [45].

  8. Counsel for the defendants accepted that Coordinated Constructions was binding on this Court (T26:25). He also accepted that the contract being considered in Coordinated Constructions provided for interest to be payable in precisely the same terms as clause 37.5 of the Building Contract, save that the rate of interest was 8%, not 10% (T26:7).

  9. It follows, in my view, that the defendants’ argument that Progress Claim 10 is invalid because the claim of interest is not for construction work or related goods or services under the Building Contract is bound to fail.

  10. Further, if the defendants disputed Decon’s claim for interest, the appropriate course was to raise that dispute in a payment schedule which could then be assessed and determined by an adjudicator. They did not do so.

Failure to identify construction work

  1. The requirements for a payment claim include that it must identify the construction work (or related goods and services) to which the progress payment relates: s 13(2)(a) of the SoP Act.

  2. The authorities make clear that the threshold test for whether a payment claim is valid for the purposes of s 13(2)(a) of the SoP Act is relatively undemanding.

  3. What is required is the identification of the construction work (or related goods and services) to which the progress payment relates in sufficient detail to enable the recipient to understand the basis of the claim, to determine whether to make payment or to dispute it by providing a payment schedule in response with reasons as to why it is disputed: Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448 at [27] – [29]; Nepean Engineering Pty Limited v Total Process Services Pty Limited (2005) 64 NSWLR 462; [2005] NSWCA 409 at [48] (Nepean Engineering).

  4. As noted by Palmer J in Multiplex Constructions Pty Ltd vLuikensandAnor [2003] NSWSC 1140, in relation to the form of payment claims and payment schedules, at [76]:

“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.”

  1. The test of whether the payment claim sufficiently identifies the construction work is an objective one which can be determined not only by reference to the terms of the payment claim itself but also by reference to the factual circumstances and background knowledge of the parties, including previous payment claims and correspondence passing between them before and at the time the payment claim was exchanged: Nepean Engineering; Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448, at [33] – [34]; Leighton v Arogen [2012] NSWSC 1323; Neumann Contractors Pty Limited v Peet Beachton Syndicate Limited [2011] 1 Qd R 17 at [25].

  2. A payment claim does not fail the requirement under s 13(2)(a) merely because it can be seen, after a full investigation of all the facts and circumstances, not to successfully identify all of the construction work for which payment is claimed. If the payment claim purports to identify the work in respect of the claim of which it is made in a reasonable way, it is not an arguable defence to a summary judgment application to show that it was not entirely successful in identifying all the work: Nepean Engineering at [34] and [39].

  3. Noting the high bar necessary for summary judgment and the threshold for a valid payment claim, I do not accept the defendants’ arguments raise real or substantive issues of fact or law which provide the basis for a defence to succeed at trial that Progress Claim 10 does not sufficiently identify the construction work to which the claim relates such that it did not enable them to understand the claims made and to respond with reasons in a payment schedule.

  4. When Progress Claim 10 is considered as a whole document and in context (which relevantly includes the format of the costs breakdown documents relating to Progress Claims 1 – 8), it is clear that Progress Claim 10 is a claim for a progress payment made under the SoP Act for the amount of $6,355,352.46, which amount comprises three elements relating to construction work or related goods and services.

  5. The three elements are:

  1. a claim for interest of $1,193,617.67 (incl GST) as set out in table 3. I have dealt with the reasons why this claim is for construction work at [64] - [73] above,

  2. a claim for the unpaid portions of amounts previously claimed by Decon in respect of 100% of the fixed lump sum contract works referred to in table 1, in the amount of $3,649,208.39 (incl GST) as set out in table 3; and

  3. a claim for the value of construction works in respect of the variations set out in table 2, in the amount of $1,375,024.00 (excl GST).

  1. I do not accept the defendants’ submission that Progress Claim 10 is unclear and appears to claim an additional amount for construction works not identified. That submission assumes that the amounts referred to in each of tables 1, 2 and 3 do not reconcile with the claimed amount of $6,355,352.46 on page 1 (T25:4-8). They do reconcile.

  2. The claimed amount of $6,355,352.46 is GST inclusive. It comprises the GST inclusive amounts referred to in table 3 (being the interest claimed of $1,193,617.67 and the total of the remaining invoice sums of $3,649,208.39) plus the total of the claimed variations in table 2 inclusive of GST (being the amount of $1,375,024.00 referred to plus GST of $137,502.40).

  3. It follows that I do not consider it to be arguable that there is any ambiguity in the figures contained in Progress Claim 10, or the construction work to which they relate. I accept Decon’s submission that it is clear that Progress Claim 10 does not claim for construction of the building elements that make up the fixed lump sum Building Contract works other than unpaid portions of the earlier progress claims.

  4. As there is no ambiguity, I also do not consider it to be arguable that the only way in which the defendants could make sense of Progress Claim 10 was to have engaged in some reconciliation process through the previous progress claims to work out what was being sought (T23:47-49, T24:41–43), like the processes referred to by White J in Neumann Contractors and Brown J in KDV Sport.

  5. The question of whether Progress Claim 10 sufficiently identifies the construction work to which it relates is to be determined via a consideration of that document and the factual circumstances known to the parties, which in this case relevantly includes the costs breakdown documents in Progress Claims 1 – 8. The defendants’ reliance on other decisions and their reasoning as to the application of s 13 is less instructive having regard to the particular facts in each of those cases: Watpac Constructions (NSW) Pty Limited v Charter Hall Finds Management Limited [2017] NSWSC 865. This is particularly because Progress Claim 10 is, in my view, quite different to the payment claims considered by the Court in each of KDV Sport and Neumann Contractors.

  6. KDV Sport involved a payment claim that was made during the course of the project which required the principal to identify the work that related to the percentage claimed to be completed. Relevantly, the payment claim in that case included errors in respect of at least fifteen items, which meant that it was unclear what the percentages actually meant and what items reconciled with other claims. The payment claim also failed to include any substantive description of some of the work done the subject of the claim. Those errors impacted the Court’s view on whether the payment claim reasonably identified the construction work to which it relates (at [44]).

  7. In Neumann Contractors, the payment claim included an amount against which the description read “Add previously claimed and unpaid”. No other explanation was given for that amount and it was accepted that the principal would not be able to identify the amounts it had paid, and for what work, from the schedules attached to the claim (at [23]). It was in that context that the Court concluded that the principal should not have to undertake analysis to marry the work referred to in the schedules with the amounts it had paid to arrive at the outstanding amounts and held that the payment claim did not fulfil the requirement of identifying the construction work to which the claim related.

  8. By contrast, Progress Claim 10 is a claim made at the end of the Juniper Development. It accurately identifies the amount of each claim.

  9. As to the claim for the unpaid portion of previous amounts claimed, the Building Contract entitled Decon to include details of moneys then due: clause 37.1.

  10. Further, table 3 to Progress Claim 10 identifies the date and value of each of Decon’s nine previous progress claims and the date and value of each of the payments made by the defendants in response to those claims. These details enable the defendants to identify both the total amount that remains unpaid (being $3,649,208.39 incl. GST), as well as the amounts in respect of each prior claim which remains unpaid (see column 7 of table 3).

  11. Relevantly, the total of the amount of Decon’s previous progress claims referred to in column 3 of table 3 equates to the total of the works within the original contract sum referred to in table 1, with the only difference being that the table 3 amount is GST inclusive and the table 1 amount is GST exclusive. This also makes clear that the claim is in respect of the unpaid portion of all completed construction works previously claimed.

  12. Put another way, Decon’s claim is for the unpaid portions of 100% of the fixed lump sum Building Contract works, the construction of which is complete. I accept Decon’s submission that the nature of this claim being in respect of all completed works is also apparent from the “Trade Totals” and “Previously Certified” amounts referred to in table 1 being the same.

  1. Progress Claim 10 adopts, in table 1, a description of each of the building elements under the Building Contract which have been completed and to which the claim for the unpaid portion of the previous claims relate in the same format and using the same descriptors for each of the building elements used in the costs breakdown documents for Progress Claims 1 – 8.

  2. In that context, I reject the defendants’ submission that they needed to undertake a careful analysis or reconciliation process to arrive at the outstanding amounts and determine the payment claims and work to which those amounts relate. The basis of calculation is explained in table 3. By itself, and together with the previous progress claim documents in evidence, it is very clear that Progress Claim 10 is claiming an entitlement to be paid for the unpaid balance of past progress claims made in respect of all the fixed lump sum works, rather than a new claim for work done or a claim for additional works or ancillary activities.

  3. The defendants also submit that a factual issue arises as to the parties’ previous communications and understanding of Decon’s prior progress claims. I accept that such evidence may be relevant and of assistance in construing Progress Claim 10.

  4. That said, there is no real dispute as to any of the relevant material facts. The defendants accept they received Progress Claim 10 and Progress Claims 1 – 8, which included the costs breakdown documents certified by MBM.

  5. The dispute about whether Progress Claim 9 was received does not, in my view, raise a substantive factual question which affects whether Progress Claim 10 meets the requirements of s 13(2)(a). From table 3, the defendants were on notice that Decon claimed to have made progress claim 9 in an amount which equated to that identified in the costs breakdown document in Progress Claim 8 as amounts yet to be claimed. It was open to the defendants to reject that amount as not having been the subject of a prior progress claim or seek further information about it. There is no evidence that they did.

  6. The Court can only assess the application based on the submissions and evidence before it.

  7. The evidence does not indicate any objection or lack of understanding on the part of the defendants in respect of the description of the building elements in Progress Claim 10 and the past progress claims, or that the descriptions did not adequately identify the relevant construction work to which the past claims related. Nor does the evidence suggest the defendants did not understand the claim in respect of the unpaid portion of the previously claimed amounts or that they did not have the information relating to the earlier claims available to them to respond. As Decon’s counsel accepts, if that were the case, Decon might have had something to answer (T36:22-27).

  8. I also do not accept the defendants’ contention that there is a triable issue as to whether table 2 adequately identifies the construction work to which the variations claim relates in a way that did not enable the defendants to understand and respond in a payment schedule.

  9. Each of the six variations are described by reference to an item number and a single word or line item description of the work the subject of the claim. The descriptive words used are of a similar nature to the description of the twenty five building elements referred to in the costs breakdown documents to Progress Claims 1 – 8 and table 1 in Progress Claim 10 and, in some cases provide more details, such as “basement height increase of 400 mm”.

  10. Accordingly, Progress Claim 10 cannot be described as providing no description of the variation work at all, as was the case in Parkview Qld Pty Ltd v Fortia Funds Management Limited [2009] NSWSC 1065 where there was simply a reference to “Approved Variations” and no attached schedule, and summary judgment was refused. See also KDV Sport, in which many of the impugned variations referred to “Variation” and did not identify the work whatsoever (or related goods or services).

  11. Progress Claim 10 also includes the amount claimed for each work element, and what amounts had previously been certified which, in this case, was zero.

  12. The context and background to the inclusion of the variations claimed is also a relevant consideration. The costs breakdown documents for Progress Claims 1 – 8 indicate that Decon had not previously claimed amounts for variations.

  13. In those circumstances, it seems to me that there can be no serious debate that the variations claimed in Progress Claim 10 were new amounts claimed for work undertaken additional to the building elements that comprised the fixed lump sum amount under the Building Contract. There was no evidence to suggest the defendants did not understand that or thought otherwise.

  14. I also do not consider that Brown J’s decision in KDV Sport, or McDougall J’s decision in Isis Projects Pty Ltd v Clarence Street Pty Ltd [2004] NSWSC 714 (which was upheld by the Court of Appeal) requires a claimant to provide supporting schedules in support of the claimed variations, as the defendants submit. The level of detail provided in Progress Claim 10 was sufficient given the specificity of the previous costs breakdown documents.

  15. Consistent with the principles referred to at [74] - [80], the test is whether each of the variations claimed apprised the defendants of the nature of the construction work involved sufficient for them to determine whether to make payment or to dispute the claimed variations in a payment schedule, including with reasons as to why each of the variations were disputed.

  16. Mr Zhang’s evidence is that the claimed variations were not the subject of any direction or valuation in accordance with the terms of the Building Contract. The 14 June email also states that variations had not been agreed, assuming that reference was to the variations claimed in Progress Claim 10.

  17. Put simply, the defendants were on notice of the nature of the construction work for which the variation claims related and their value and were in a position to dispute them. All they had to do was to identify in a payment schedule that each of the variations were disputed for the reason that they were not undertaken or valued in accordance with the requirements of clause 36 of the Building Contract.

  18. It follows from the above, that I do not accept the defendants arguments that Progress Claim 10 did not sufficiently identify in a reasonable way the construction work to which the claim related such that the defendants were not able to understand the basis of claims made or to prepare a payment schedule.

Variations

  1. The defendants also rely on the defence that Decon’s variations were not the subject of agreement or directions or valued by the superintendent, in accordance with clause 36 of the Building Contract.

  2. Essentially, the defendants argue that Progress Claim 10 is invalid because it includes amounts which Decon was not contractually entitled to claim as the process for variations provided for by clause 36 of the Building Contract had not been engaged or complied with, and were not related to construction work within the meaning of the SoP Act.

  3. In my view, this argument is bound to fail as it relies on defences which arise under the Building Contract. In a challenge to a valid payment claim, it is not a defence that the claimant failed to comply with the contractual requirements for what is claimed: s 15(4)(b)(ii) of the SoP Act.

  4. Factual and legal matters going to whether the variations were proper claims under the Building Contract or were quantum meruit claims are not grounds for resisting summary judgment. The appropriate course is, rather, for the defendants to raise these matters in a payment schedule, to be determined by an adjudicator: Nepean Engineering, at [76]. For the reasons set out below, in my view, the defendants have not done so.

  5. Having not raised the matters of contractual non-compliance referred to in Mr Zhang’s evidence in response to the claim for variations in a payment schedule, it is now not open for the defendants to raise them in defence of these proceedings: Isis Projects Pty Ltd v Clarence Street Pty Ltd [2004] NSWSC 714 at [65]; Ampcontrol SWG Pty Ltd v Gujarat NRE Wonga Pty Ltd [2013] NSWSC 707 at [20] – [25].

  6. Alternatively, they are matters which can be raised and resolved in other civil proceedings as contemplated by s 32 of the SoP Act.

Retention monies

  1. The defendants argue that Progress Claim 10 is ambiguous because it fails to state that it includes a claim for the release of retention monies. As defendants’ counsel put it, a payment claim must state that what is being sought is not merely a claim for work done but also the release of retention which it claims is due (T31:41-44).

  2. In support of this submission, the defendants point to s 13(3)(b) of the SoP Act which, they argue, should be read as requiring a party to specifically identify that a payment claim under s 13(2) includes a claim for the release of the retention monies. They rely on the words “that the claimant claims is due for release” in s 13(3)(b).

  3. The defendants could point to no authority in support of their interpretation of s 13(3)(b) and their submission that a payment claim is required to expressly state that it seeks the release of retention monies.

  4. Section 13(3)(b) of the SoP Act is permissive, allowing for the claimed amount (being the amount of the progress payment that a claimant claims to be due) to include retention monies. It does not mandate the inclusion of retention monies or that any claim for their release has to be identified in a payment claim.

  5. The requirements for a payment claim are set out in s 13(2) of the SoP Act. Relevantly, a claim must indicate the amount of the progress payment which is claimed to be due: s 13(2)(b). It is only the amount of the progress payment that must be indicated, not that release of retention monies are claimed, or the amount of those monies as a separate item.

  6. As noted above, I do not consider that Progress Claim 10 is ambiguous. It makes clear that the claim for unpaid amounts relates to the completion of 100% of the fixed lump sum Building Contract works. As required by s 13(2)(a), the payment claim was reasonably sufficient to apprise the defendants of the construction works to which the claim related.

  7. Further, and as Decon’s counsel points out, where a party claims 100% of a construction contract sum, it must include retention monies (T37:34-35).

  8. Accordingly, I accept Decon’s submission that the defendants’ argument that Progress Claim 10 is invalid because it failed to explicitly refer to a claim for the release of retention monies is not a triable issue.

  9. The other argument made by the defendants is that the retention monies were, in fact, not available for release because the project had yet reached practical completion and certain requirements under clause 34 of the Building Contract had not been met (at [11], Zhang affidavit).

  10. This argument is similar to the defendants’ argument in respect of the variations claim. That is, the defendants say that Progress Claim 10 is invalid because it includes a claim for the release of retention monies to which Decon was not contractually entitled. This issue, they say, raises questions of fact which should be determined at a final hearing.

  11. As noted above, a challenge by the defendants that Progress Claim 10 is invalid because Decon failed to comply with the contractual requirements is no answer to a summary judgment application as it relies on defences which arise under the Building Contract: s 15(4)(b)(ii) of the SoP Act.

  12. The issue of whether Decon was entitled to claim the release of retention monies as part of Progress Claim 10 is a matter that the defendants could, and should, have raised in a payment schedule. It is also an issue raised in the Equity proceedings. The merits of the parties’ respective positions under the Building Contract can be resolved at the final hearing of those claims: s 32 of the SoP Act.

Severance

  1. As I have concluded that the bases on which the defendants have sought to impugn the validity of Progress Claim 10 do not raise matters that answer Decon’s summary judgment application, the question of whether the issue of severance raises a triable issue does not arise.

Is the 14 June email a payment schedule?

  1. The requirements for a payment schedule under the SoP Act are set out in s 14(2) and s 14(3) which provide:

(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.

  1. The functions of and requirements for a payment schedule have recently been considered by the Court of Appeal in Style Timber. Relevantly, the Court concluded that:

  1. the functions of a payment schedule are to inform the claimant of the metes and bounds of its dispute to enable an informed choice as to whether to engage in an adjudication procedure, and to articulate the respondents case to a prospective adjudicator (at [45]); and

  2. while an abbreviated description may suffice, vague, generalised objections to payment which are not directed to any particular payment claim will not be sufficient to describe the dispute to apprise the claimant of the case it would have to meet in an adjudication (at [2], [47] and [82]).

  1. Based on those principles and the evidence before me, I have determined that the 14 June email is not a payment schedule.

  2. A valid payment schedule need not be a formal document but it must, at the very least, identify the claim to which it is responding, what the respondent proposes to pay instead, and what parts of the claim are objected to and why.

  3. The terms of the 14 June email are telling in its omissions.

  4. First, the 14 June email fails to identify the payment claim to which it relates, being Progress Claim 10. There is no reference whatsoever to a claim made on 3 June 2019.

  5. The reference to “Your Clients’ Claims” is in very general terms, encapsulating claims made by both Decon and Vannella. Given there had been a number of progress claims made by Decon in the past, the general reference to “claims” could refer to one or more of those past claims.

  6. It could also have been a reference to the claims made in the Equity proceedings, given those proceedings had been commenced on 17 May 2019, they also raised claims by Decon under the Building Contract, and the 14 June email was sent by the lawyers representing the defendants in the Equity proceedings.

  7. Second, the 14 June email does not indicate the amount that the defendants propose to pay instead of the claimed amount. It states that there are doubts as to whether the defendants owe Decon money at all. It leaves open the question of whether, and in what amount, payment will be made, and it certainly does not identify a particular amount for payment.

  8. Third, the 14 June email does not specify particular reasons for withholding payment other than some general observations regarding variations, loss and damage. It also refers to previous correspondence which was not attached to the 14 June email or in evidence at the hearing. It also makes no reference at all to the claims for interest.

  9. Not only does the 14 June email fail to inform Decon that it is in response to Progress Claim 10, it also fails to identify the areas of dispute with respect to the claim, other than to say that the variations have not been agreed and the defendants maintain some form of claim against Decon.

  10. Simply put, the 14 June email does not inform Decon of the “metes and bounds” of the dispute to enable it to decide whether to engage in adjudication.

  11. I am also unpersuaded by the defendants’ submission that the issue of whether the 14 June email constitutes a payment schedule should be left open to trial as there may be other documents and conversations which are relevant to determining that question.

  12. The TCLR does not refer to any other documents or conversation that may be relevant to the construction of the 14 June email. It particularises the 14 June email only. Nor does Mr Zhang allude to any such material in his evidence. Indeed, he did not even put into evidence the full version of the email to which the 14 June email was responding.

  13. The 14 June email refers to “previous…communications” about what sums were paid and what remained outstanding. Any documents that a party purports to incorporate by reference must be identified with sufficient particularity to allow the recipient to identify the documents: Style Timber at [3] - [4]. The reference in the 14 June email to “previous…communications” does not satisfy this threshold, failing as it does to identify key details such as the dates of these communications.

  14. As noted above, the Court must assess the arguments raised based on the evidence before it. The relevant evidence in this case is the 14 June email and Progress Claim 10.

  15. The mandatory requirements under s 14 of the SoP Act are not onerous. In this case, I am not satisfied they were met and I do not consider it to be arguable that they were. It follows that the payment schedule issue does not justify withholding judgment in this case.

Conclusion on summary judgment motion

  1. Decon’s claim for summary judgment is based on the legislative scheme of the SoP Act which provides that judgment is not to be given unless the Court is satisfied of the existence of the circumstances referred to in s 15(1) of the SoP Act.

  2. The relevant circumstances are that the defendants have become liable to Decon to pay the claimed amount as a consequence of having failed to provide a payment schedule within the time required and failed to pay the whole or any part of the claimed amount.

  3. There is no dispute that the defendants have failed to pay the claimed amount.

  4. For the reasons set out above, I am satisfied the defendants have no substantive defences in respect of the validity of the Progress Claim 10 and that the defendants have failed to provide a payment schedule.

  5. Accordingly, I have concluded that judgment should be ordered for Decon in the amount claimed.

  6. Granting summary judgment on this motion resolves finally the arguments advanced by the defendants. The arguments raised questions of law and the construction of documents in the context of the requirements of the SoP Act, rather than divergence on material facts.

  7. I considered it appropriate to deal with the defendants’ arguments on this application noting there is little difference between a summary and final determination of many of the issues raised and because the SoP regime does not affect any rights the defendants may have under the Building Contract or the Equity proceedings: s 32 of the SoP Act.

Security for costs motions

  1. The defendants’ notices of motion seek security for their costs in each of the three proceedings pursuant to r 42.21 of the UCPR and s 1335 of the Corporations Act 2001 (Cth).

  2. At the hearing, defendants’ counsel confirmed that the defendants did not press their motions seeking security for costs from Decon if the Court ordered summary judgment, but continued to press for security from Vannella in relation to the Vannella proceedings and the Equity proceedings (T30:46 - T40:8, T58:11-20).

  3. It is, therefore, not strictly necessary for me to deal with the motions seeking security for the defendants costs from Decon. However, as submissions were made, I have set out why I would not have ordered Decon to provide security for the defendants’ costs.

  4. Given the structure of argument at the hearing, I have approached these reasons by considering the issues raised in respect of each of Decon and Vannella, rather than as raised by each of the three notices of motion.

Legal principles

  1. Rule 42.21(1)(d) of the UCPR provides that the Court may order a plaintiff to give security for a defendant’s costs of the proceedings where there is reason to believe the plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so.

  2. Section 1335(1) of the Corporations Act provides that, where a corporation is a plaintiff in any legal proceeding, the Court may order the corporation to give security for costs if it appears that there is reason to believe the corporation will be unable to pay the defendant’s costs if the defendant is successful.

  3. The Court’s discretion to award security for costs is broad and unfettered, although it must be exercised judicially: KP Cable Investments Pty Limited v Meltglow Pty Limited (1995) 56 FCR 189 at 196.

  4. The principles applicable to determining whether to exercise the Court’s power under both r 42.2(1)(d) of the UCPR and s 1335 of the Corporations Act were not in dispute at the hearing. I respectfully adopt the approach of Brereton J in KDL Building Pty Ltd v Mount [2006] NSWSC 474 at [6], namely that the Court should consider the following three matters in a security for costs application:

  1. whether there is reason to believe that the plaintiff will be unable to pay the defendant's costs if ordered to do so;

  2. whether, as a matter of discretion, an order should be made; and

  3. if security is to be ordered, the quantum and the terms on which the order is to be made.

  1. As the parties seeking orders for security for costs, the defendants bear the onus of establishing that there is reason to believe that Decon and Vannella will be unable to pay their if unsuccessful: Idoport Pty Ltd v National Australia Bank [2001] NSWSC 744 at [60].

  2. Once the defendants have discharged that onus, the (evidentiary) onus shifts to the plaintiffs to establish why, as a matter of discretion, security should not be granted: Wollongong City Council v Legal Business Centre Pty Limited [2012] NSWCA 245 at [30].

Submissions

  1. The defendants accept that Decon’s and Vannella’s claims in the three proceedings are bona fide and arguable.

  2. They submit that the Court should make orders for security for costs because the evidence indicates that Decon and Vannella do not have the financial ability to meet any adverse costs orders. The defendants point to the evidence that both Decon and Vannella are limited liability companies, they have nominal paid up capital, neither own any real property and each is subject to various personal property security register (PPSR) charges.

  3. The defendants also submit that the evidence adduced by Decon and Vannella as to their financial position in response to the motions is not satisfactory and insufficient for the Court to conclude that they will be able to meet an adverse costs order.

  4. In relation to Decon, the defendants point to the lack of recent audited financial statements and tax returns, minimal cash in bank, assets which largely comprise of related company debts, and unexplained inter-company arrangements.

  5. In relation to Vannella, the defendants point to the lack of any financial statements in respect of the trust assets of which it is trustee, a lack of financial statements in respect of the four companies in which it holds shares, and questions surrounding the purchase by Vannella of property in Redfern and its apparent value.

  6. Decon and Vannella oppose the application for security for costs. They submit that the defendants’ evidence does not meet the threshold required to satisfy the Court there are reasons to believe they will be unable to satisfy any costs orders if ordered to do so.

  7. They contend that their paid up capital is not a true measure of their ability to satisfy costs orders in circumstances where the evidence is that they each have a trading history and ongoing construction projects. They also contend that registration of charges on the PPSR is not indicative of any financial stress but is simply an ordinary incident of trading. The defendants’ counsel accepted this, although raised a query regarding the NAB lending arrangement which appeared on the PPSR (T46:34-8).

  8. Decon relies on its most recent balance sheet, which shows a net equity position of over $8 million. Vannella relies on the indemnity in its favour in the trust deed for liabilities incurred and the equity of $600,000 it will receive from a recent acquisition of a property in Redfern.

  9. Decon and Vannella also contend that orders for security for costs are unnecessary given the offer, on a without admissions basis, to provide security in the form of a personal undertaking from Mr Saab to be jointly and severally liable for any adverse costs order made in any of the proceedings.

  10. They also say that a number of other discretionary factors tend against security being ordered, including that Decon has strong prospects of success in the Decon proceedings, the value of the combined claims is more than $10 million, and the defendants have admitted that they owe Decon over $5 million.

Should security be ordered?

Security from Decon

  1. The threshold question is whether the defendants have established, by credible evidence, that there is a reason to believe that Decon will be unable to pay the costs of the defendants if they are successful in defending the Decon and Equity proceedings. In my view, the defendants have not.

  2. Decon is an established building and construction company. It was incorporated in 1997 and has held a contractor licence since 2000.

  3. Decon has completed significant residential building projects valued at over $304 million and is currently involved in active construction projects of which it is the builder to the value of $45 million. While these values do not identify the profit from these projects, they suggest that Decon has previously generated sufficient revenue and profit to continue to trade and undertake substantial building projects, and may continue to do so in the future. I reject the defendants’ submission that the value of its current projects is indicative of Decon being at financial risk.

  4. Decon’s financial records also support the conclusion that it continues to trade and generates sufficient revenue and profit and would be in a position to satisfy any costs orders.

  5. Decon’s current financial position is set out in its unaudited balance sheet as at 30 June 2019, annexed to the affidavit of Decon’s chief financial officer. It shows current assets of $20.7 million, including accounts receivable, work in progress and accrued income of more than $12.2 million. It also shows total liabilities of some $14.6 million, leaving it with net assets and equity of $7.8 million.

  6. Accepting the defendants’ submission that there may be some questions regarding the inter-company arrangements, excluding the intercompany loans from Decon’s assets and liabilities, as recorded in the 2019 balance sheet, still leaves Decon with a net asset position of $8.5 million.

  7. Decon’s audited 2017 financial report and tax return show that Decon was in a financial position at that time consistent with the position reflected in Decon’s (unaudited) 2019 balance sheet.

  8. Decon’s profit and loss statement for the year ending 30 June 2017 shows gross contract revenues of $17.7 million, expenditures of $15.8 million, leaving a profit after income tax of over $1.7 million.

  9. The balance sheet for the year ending 30 June 2017 shows current assets of $14.8 million, of which trade and other receivables and work in progress comprise the bulk, and net assets and total equity of $6.2 million.

  10. Relevantly, in 2017, Decon’s current assets comprising trade debtors, accrued income and work in progress was $14.3 million, which is not significantly different to the position in the unaudited 2019 balance sheet of $12 million.

  11. I accept that the amount of cash that Decon has at hand has reduced substantially over the past two years, from about $400,000.00 in 2017 to $662.41 in 2019. This does not mean there is a real risk that Decon would be unable to meet an adverse costs order. A respondent to a motion for security need not have immediate access to liquid assets. The ability to liquidate or have recourse to other assets should also be taken into account: Australia and New Zealand Banking Group Ltd v Oswal [2013] VSCA 156 at [11] - [12].

  12. In my view, the amount of security which the defendants seek from Decon is also relevant. The amount is no more than $275,000, but could be as low as $144,000 (if the defendants require Decon to provide 50% of the security claimed for the Equity proceedings). That amount is low relative to the asset position available to Decon based on the financial records in evidence.

  13. When considered as a whole, I am not satisfied that the defendants have shown that the material before the Court is sufficiently persuasive to permit a rational belief that, if ordered to do so, Decon would be unable to pay the defendants’ costs up to $275,000: Warren Mitchell Pty Limited v Australian Maritime Officers’ Union (1993) 12 ACSR 1 (Warren Mitchell) at 30.

  14. In coming to this view, I do not consider particularly relevant the evidence given by Mr Saade that it is highly unlikely that Decon would allow itself to be wound up in order to avoid legal fees. Rather, I have reached my conclusion based on the financial material referred to above and Decon’s trading history.

  15. Even if the defendants had met the threshold, I am not satisfied that it would have been appropriate to exercise my discretion and order Decon to provide security.

  16. The defendants appear to have accepted that they owed Decon $5,719,120.39 as at 11 October 2018. Just over $2 million of that has been paid, leaving $3.7 million outstanding. Relevantly, that $3.7 million excludes the amount for variations claimed by Decon in Progress Claim 10.

  17. If I had refused to grant summary judgment, I would have also concluded that Decon’s prospects in the Decon proceedings were strong. The prospects of success or failure are generally regarded as a neutral factor in the exercise of the court’s discretion: Jazabas Pty Ltd v Haddad [2007] NSWCA 291. But that presumes that the defendants have arguable defences. In my view, they do not.

  18. While not determinative, the undertaking offered by Mr Saab would also weigh against an order for security.

  19. It follows that the defendants have not succeeded on their motion for security for costs in the Decon proceedings, or in the Equity proceedings in so far as they seek an order against Decon.

Security from Vannella

  1. Vannella’s position is different to the financial position of Decon.

  2. Vannella is a trustee company. No evidence was adduced as to the existence or value of any assets in the trust fund from which it has a right of indemnity under the Capitalist Family Trust Deed.

  3. Unlike Decon, Vannella did not provide copies of any relevant financial records.

  4. There is evidence that Vannella has purchased a property in Redfern valued at $3 million, the purchase of which was due to complete in September 2019 and after which Vannella will retain approximately $600,000 in equity. But, as the defendants noted, that does not explain the source of the $2.4 million debt. Nor does it give any picture of Vannella’s overall financial position, including whether it has other liabilities or creditors who may have a right to call on the expected equity of $600,000.

  5. While there is evidence that Vannella has shareholdings in four companies, a statement that three of them are “profitable” is not, in my opinion, sufficient to demonstrate that Vannella would have available to it funds from those companies to meet an adverse costs order to the value of up to $241,000 should it be unsuccessful in the litigation.

  6. I am not persuaded that the evidence relating to the Redfern property is sufficient to negate the lack of evidence regarding Vannella’s financial position. In the absence of further evidence from Vannella, and in view of the evidence put forward by the defendants, I am satisfied that the defendants have established the threshold requirement for an order for security against Vannella.

  7. As to discretionary factors, in the absence of evidence relating to the pending Vannella and Equity proceedings, I do not consider it appropriate to treat Vannella’s claims as anything other than genuine and the defendants’ defences as arguable, rendering the issue of prospects as a neutral factor.

  8. To my mind, the question is whether the Court should exercise its discretion and not order security because of the proffer of a personal undertaking from Mr Saab, the sole shareholder and director of Vannella and controller of the Capitalist Family Trust (and its assets), to be jointly and severally liable for any costs order made in respect of Vannella in the Equity and Vannella proceedings.

  9. Vannella argues that the undertaking by Mr Saab should be enough. It relies on the approach of the Court in Warren Mitchell in which the Court concluded it would not have ordered security but would have accepted a personal undertaking from a director and shareholder of the plaintiff company if necessary.

  10. The defendants submit that the offer of a personal undertaking from Mr Saab is worthless given they asked, and he has not provided, a statement of his personal financial position. They also point to evidence which they say suggests he owns assets not in his own name but through proposed entitles and trusts.

  11. I do not accept the defendants’ submission that Mr Saab’s proffer of an undertaking is worthless.

  12. While the Court does not have a detailed picture of his financial position, the evidence shows that he is the sole shareholder and director of Decon. As noted above, Decon’s financial statements show that it had significant equity available to shareholders in 2017. The unaudited 2019 balance sheet indicates that Decon currently has a significant net asset and equity position. The 2019 balance sheet also indicates that Mr Saab is a creditor in the amount of $6.7 million which, presumably, he may call on if needed.

  13. The Court may also take into account the impact of Mr Saab giving an undertaking and not fulfilling it. The threat of bankruptcy, if he did not honour the undertaking when called upon, should provide some form of comfort to the defendants, even if indirect: Clyde Industries Ltd v Ryde Engineering Pty Ltd (1993) 11 ACLC 325 at 328.

  14. At the hearing, Senior Counsel for Vannella also confirmed that Mr Saab was prepared to proffer that undertaking to the Court (T55:41). That should also provide another form of indirect security to the defendants, given the consequences of non-compliance.

  15. The provision of an undertaking by Mr Saab would also put the defendants in a no more disadvantageous position than if Mr Saab had commenced the Vannella proceedings and the Equity proceedings in person: Warren Mitchell, at 6.

  16. In my view, the amount of security being sought by the defendants is also a relevant factor in assessing the value of any undertaking provided by Mr Saab. On my calculations, it is likely to be somewhere in the region of $130,000.

  17. The costs for which security is claimed by the defendants in relation of the Vannella proceedings are estimated to be $21,000. The costs for which security is claimed by the defendants in relation to the Equity proceedings are estimated to be $220,000, but those costs also relate to the claims made by Decon. Without any breakdown in the evidence, I can only assume that the costs claimed in the Equity proceedings should be equally divided between Vannella and Decon.

  18. Taking into account all of those considerations and in the exercise of my discretion, I decline to make an order for Vannella to provide security for the defendants’ costs, by way of money paid into Court, bank guarantee, or some other form. This is on the basis that Mr Saab is to provide an undertaking to the Court that he will be jointly and severally liable for any costs order made against Vannella in the Equity proceedings and the Vannella proceedings.

  19. I invite the parties to confer and agree on the precise form of the undertaking to be provided by Mr Saab and, within 14 days, to approach my Associate to have the undertaking included as part of the Court record.

Costs

  1. Given my findings, in my view it is appropriate that the defendants pay Decon’s and Vannella’s costs of the security for costs motions.

  2. As Decon has obtained judgment in the Decon proceedings, I also see no reason why the usual rule should not apply with the defendants having to pay Decon’s costs of the proceedings.

  3. I will make orders accordingly.

  4. If any party considers that some other costs orders should be made, they are to confer with the other parties and, within 14 days, notify my Associate that some other costs order is sought, specifying briefly the grounds on which it is sought. They should also provide an agreed timetable so that any remaining issues can be determined on the papers.

Orders

  1. For these reasons, I make the following orders:

  1. In proceedings 2019/165506:

  1. dismiss the defendants’ notice of motion filed 9 July 2019 seeking security for costs (security for costs motion) in so far as it relates to the second plaintiff;

  2. adjourn the defendants’ security for costs motion in so far as it relates to the first plaintiff to 9.30am on 30 October 2019, with the intent that it is to be dismissed after the Court has received an undertaking from Mr Saab in respect of the defendants’ costs; and

  3. the defendants to pay the first and second plaintiff’s costs of the security for costs motion.

  1. In proceedings 2019/205661:

  1. pursuant to rule 13.1 of the Uniform Civil Procedure Rules 2005 (NSW), order summary judgment for the plaintiff against the defendants in the amount of $6,355,352.46;

  2. dismiss the defendants’ notice of motion seeking security for costs filed on 9 September 2019; and

  3. the defendants to pay the plaintiff’s costs of the proceedings.

  1. In proceedings 2019/228126:

  1. adjourn the defendant’s security for costs motion to 9.30am on 30 October 2019, with the intent that it is to be dismissed after the Court has received an undertaking from Mr Saab in respect of the defendant’s costs of the proceedings; and

  2. the defendant to pay the plaintiff’s costs of the security for costs motion.

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Amendments

11 October 2019 - Typographical error.

Decision last updated: 11 October 2019

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