Watpac Constructions Pty Ltd v Collins & Graham Mechanical Pty Ltd
[2020] VSC 414
•10 July 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TECHNOLOGY, ENGINEERING AND CONSTRUCTION LIST
S ECI 2020 00407
| WATPAC CONSTRUCTIONS PTY LTD (ACN 010 462 816) | Plaintiff |
| v | |
| COLLINS & GRAHAM MECHANICAL PTY LTD AS TRUSTEE FOR THE CGM UNIT TRUST (ABN 59 390 232 267) (ACN 097 469 282) | First Defendant |
| TIMOTHY SULLIVAN | Second Defendant |
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JUDGE: | RIORDAN J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 26 May, 3 June and 19 June 2020 (Written submissions) |
DATE OF JUDGMENT: | 10 July 2020 |
CASE MAY BE CITED AS: | Watpac Constructions Pty Ltd v Collins & Graham Mechanical Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 414 |
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BUILDING CONTRACTS – Building and Construction Industry Security of Payment Act 2002 (Vic) (‘the Act’) – Deemed termination for convenience on a ‘finding’ of repudiation by the principal – Reference date referrable to the payment claim required a ‘finding’ of repudiation – Whether requiring a ‘finding’ of repudiation had the effect of excluding, modifying or restricting the operation of the Act within the meaning of s 48 – Whether s 48 of the Act rendered an offending clause as void in its entirety – Meaning of ‘provision’ in s 48 of the Act considered.
BUILDING CONTRACTS – Whether severance of the contractual provision engaging s 48 of the Act available.
JUDICIAL REVIEW – Finding by adjudicator of repudiation – Principles to be applied in deciding jurisdictional facts on judicial review – Burden of proving jurisdictional error rests with the applicant.
JUDICIAL REVIEW – Whether a court may exercise its residuary discretion not to permit a full trial of a construction dispute in determining a review of an adjudicator under the Act queried.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr B Reid | Maddocks |
| For the Defendant | Mr C P Young SC with Mr W J Stephenson | HFW Australia |
HIS HONOUR:
By originating motion filed 29 January 2020, the plaintiff (‘Watpac’) seeks an order in the nature of certiorari quashing the adjudication determination purportedly made by the second defendant (‘the Adjudicator’) on 10 January 2020 (‘the Purported Determination’) pursuant to s 23 of the Building and Construction Industry Security of Payment Act 2002 (Vic) (‘the Act’).
Background
By Major Works Subcontract Agreement executed by the first defendant (‘CGM’) on 17 August 2018 and by Watpac on 17 September 2018 (‘the Subcontract’), CGM agreed to design and construct the mechanical services package for the Casey Hospital Expansion Project in Berwick, Victoria, for a lump sum price of $10,600,000 (exclusive of GST).
The terms of the Subcontract included the following:
37. SECURITY OF PAYMENT ACT
37.1 Service of notices under the Security of payment act
The Subcontractor must:
(a)ensure that a copy of any written communication it delivers or arranges to deliver to Watpac of whatever nature in relation to the Security of Payment Act (including, without limitation, payment claims under the Security of Payment Act), is provided to Watpac at the same time; and
(b)if the Subcontractor becomes aware that a secondary subcontractor is entitled to suspend work pursuant to the Security of Payment Act, promptly and without delay give Watpac a copy of any written communication of whatever nature in relation to the Security of Payment Act which the Subcontractor receives from a secondary subcontractor.
37.2 Payment Claims
Each Reference Date is, for the purpose of the Security of Payment Act, a “reference date”.
37.3 Payment Schedules
The amount (if any) set out in a payment schedule as the amount of payment which is due from Watpac to the Subcontractor is, for the purposes of sections 9, 10, 10A, l0B, 11 and 12 of the Security of Payment Act, the amount of the “progress payment” (as defined in the Security of Payment Act) calculated in accordance with the Subcontract which the Subcontractor is entitled to be paid under the Subcontract.
Failure by Watpac to set out in a payment schedule an amount which Watpac is entitled to retain, deduct, withhold or set off (whether under the Subcontract or otherwise) from the amount which would otherwise be payable to the Subcontractor by Watpac will not prejudice Watpac’s right to subsequently exercise that right to retain, deduct, withhold or set off any amount.
37.4 Subcontractor Suspension
If Watpac becomes aware that a secondary subcontractor is entitled to suspend work pursuant to the Security of Payment Act, Watpac may (in its absolute discretion) pay the secondary subcontractor such money that is or may be owing to the secondary subcontractor in respect of that work, and any amount paid by Watpac shall be a debt due from the Subcontractor to Watpac. The Subcontractor acknowledges and agrees that Watpac may have regard to the value of any such debt when valuing a progress payment under clause 36, including for the purposes of applying a set-off under clause 36.13 in a payment schedule with respect to the debt.
37.5 Indemnity
The Subcontractor indemnifies Watpac against all Liability or Losses suffered or incurred by Watpac arising out of or in connection with:
(a)a suspension pursuant to the Security of Payment Act by a secondary subcontractor of work which forms part of the Work Under the Subcontract; or
(b)a failure by the Subcontractor to comply with this clause 37.
37.6 Adjudication
If the Subcontractor applies for adjudication under the Security of Payment Act, the Subcontractor agrees that it will make its application to one of the three authorised nominating authorities listed in Schedule 1.
37.7 Suspension by the Subcontractor
If the Subcontractor suspends the whole or part of the Work Under the Subcontract under the Security of Payment Act, the suspension does not of itself affect the Date for Substantial Completion but the reason for the suspension may be a ground for an extension of time under clause 27.5.
37.8 Method of Resolving Disputes
The parties agree that clause 40 is a “method of resolving disputes” for the purposes of section 10A(3)(d) of the Security of Payment Act.
38. DEFAULT AND TERMINATION
38.1 Acts of Default by Watpac
The following are acts of default by Watpac:
(a) an Insolvency Event occurs in relation to Watpac; or
(b)Watpac fails to make any payment due to the Subcontractor in accordance with clause 36.4 which is not disputed and such failure continues for a period greater than 28 days following notice in writing from the Subcontractor to Watpac of such failure.
38.2 Subcontractor to Give Written Notice of Default
If an act of default under clause 38.1 occurs, the Subcontractor may by hand or by registered post give Watpac a written notice to show cause. The notice to show cause must:
(a)state that it is a notice to show cause under clause 38.2 of the Subcontract and be titled “Notice to Show Cause”;
(b)identify and provide full particulars of the alleged act of default, referring with precision to the specific relevant provisions of the Subcontract;
(c)state that Watpac is required to show cause in writing why the Subcontractor should not exercise its rights under this clause 38.2; and
(d)state the date and time by which Watpac must show cause, which shall be not less than 28 days after receipt of the notice by Watpac.
If Watpac fails to show reasonable cause by the time and date stated in the notice to show cause and Watpac's default continues for a further 28 days after the time and date stated in the notice to show cause, the Subcontractor may suspend the whole or part of the Work Under the Subcontract until Watpac’s act of default ceases or is remedied.
If the Subcontractor properly suspends the whole or part of the Work Under the Subcontract under this clause 38.2, it may, no earlier than the expiry of 28 days of suspension, terminate the Subcontract if the default has not been remedied by giving further written notice. In this case, within 14 days after the issue of the notice, Watpac shall pay the Subcontractor the amount payable under clause 38.6(c) and 38.6(d) as if the Subcontract were terminated under clause 38.6. The Subcontractor’s entitlement to such payment in accordance with clause 38.6(c) and 38.6(d) is its sole Entitlement arising out of or in connection with the Subcontractor's termination of the Subcontract.
38.3 If Subcontractor is also in Default
The Subcontractor is not entitled to exercise any of the rights set out in clause 38.2 to suspend the whole or part of the Work Under the Subcontract or to terminate the Subcontract if, at the relevant time, an act of default by the Subcontractor has occurred and has not been remedied to the reasonable satisfaction of Watpac.
38.4 Acts of Default by Subcontractor
The following are acts of default by the Subcontractor:
(a) the Subcontractor breaches any condition or warranty;
(b)the Subcontractor discontinues or suspends all or any part of the Work Under the Subcontract, other than as permitted under legislation or as Directed by Watpac in accordance with the Subcontract;
(c) failure to proceed with due expedition and without delay;
(d)failure to use the materials or standards of workmanship required by the Subcontract;
(e) failure to provide evidence of insurance as required by the Subcontract;
(f)failure to comply with a Direction of Watpac, including a Direction as to the rectification of a Defect;
(g)failure to provide a safe system of work or to safely protect any person or property;
(h)failure to act reasonably in the discharge of obligations relating to industrial relations;
(i) failure to meet a requirement of the Building Code;
(j)an Insolvency Event occurs in relation to the Subcontractor or the Subcontractor advises Watpac that it is unable to pay its debts or part of them as they fall due; or
(k)there is a material and adverse change, or a material and adverse accumulation of changes, in the financial circumstances of the Subcontractor such that Watpac forms the opinion that the Subcontractor is not capable of completing the Work Under the Subcontract and the Subcontractor fails to provide Watpac, within a reasonable time, with sufficient financial and accounting reports certified by a qualified accountant, which demonstrates to the satisfaction of Watpac, the Subcontractor's capacity to complete the Work Under the Subcontract in accordance with the Subcontract.
38.5Watpac May Terminate Subcontract or take Work under the Subcontract out of Subcontractor’s Hands
If an act of default under clause 38.4 occurs, Watpac may, by written notice to the Subcontractor, do either of the following:
(a) terminate the Subcontract; or
(b)take all or any part of the Work Under the Subcontract out of the hands of the Subcontractor.
If Watpac has exercised its right to take all or any part of the Work Under the Subcontract out of the hands of the Subcontractor, it may then by further written notice:
(c) exercise its right to terminate the Subcontract; or
(d)exercise its right to take the Work Under the Subcontract wholly or partially (in respect of some other part) out of the Subcontractor’s hands.
If Watpac has exercised its rights under this clause 38.5 to terminate the Subcontract or take all or any part of the Work Under the Subcontract out of the hands of the Subcontractor:
(e)Watpac may do all things necessary to ensure the proper execution and completion of the Subcontract Works to best serve its interests and all resulting costs incurred by Watpac shall be a debt due from the Subcontractor to Watpac;
(f)at Watpac’s request, the Subcontractor must assign or hand over to Watpac:
(i)the benefit of any agreement for the supply of materials or labour which the Subcontractor is party to; and
(ii)any materials, plant, equipment, facilities, shop drawings, design documents and other property and things at the Site that were being used by the Subcontractor for the Work Under the Subcontract;
(g)Watpac shall not be obliged to make any further payment to the Subcontractor (whether pursuant to a payment schedule or otherwise) until all of the following conditions are satisfied:
(i) the Subcontract Works are completed;
(ii) the proper compilation of accounts;
(iii)Watpac and the Subcontractor agree on the proper compilation of accounts; and
(iv)the Subcontractor has provided all documents and information required under the Subcontract for the use and maintenance of the Subcontract Works and all Approvals, guarantees and warranties required under the Subcontract (insofar as such documents/information have been created or can be obtained at the time Watpac terminated the Subcontract or took the Work Under the Subcontract wholly or partially out of the hands of the Subcontractor); and
(h)Watpac may recover as a debt due from the Subcontractor, at its election (in its absolute discretion), either the actual or anticipated cost incurred or anticipated to be incurred by Watpac (including amounts paid or allowed to the Subcontractor and any liquidated or other damages payable by Watpac to the Principal and any other Liability or Losses suffered or incurred by Watpac) as a result of the relevant act of default, less the amount which would otherwise have been paid to the Subcontractor if the relevant act of default had not occurred and the Subcontractor had completed the Work Under the Subcontract.
If Watpac exercises its right under this clause 38.5 to terminate the Subcontract, or take the whole of the Work Under the Subcontract out of the hands of the Subcontractor, in addition to Watpac's remedies and rights and the Subcontractor's liabilities as set out above in this clause 38.5, Watpac shall have any other remedies and rights and the Subcontractor shall have any other liabilities as they would respectively have at Law had the Subcontractor repudiated the Subcontract and Watpac elected to treat the Subcontract as at an end and recover damages.
38.6 Termination for Convenience
Watpac may terminate the Subcontract by written notice to the Subcontractor at any time for any reason (including where the Head Contract is terminated) and may in its absolute discretion then either itself or by engaging other contractors, complete any of the Work Under the Subcontract remaining to be completed.
At Watpac’s request, the Subcontractor must assign or hand over to Watpac:
(a)the benefit of any agreement for the supply of materials or labour which the Subcontractor is party to; and
(b)any materials, plant, equipment, facilities, shop drawings, design documents and other things that were being used by the Subcontractor for the Work Under the Subcontract.
Subject to and without limiting any other rights of Watpac, Watpac must pay the Subcontractor for the following if it terminates the Subcontract under this clause 38.6:
(c)for Work Under the Subcontract performed before the date of termination, being the amount which would have been payable if the Subcontract had not been terminated and the Subcontractor had made a progress claim on the date of termination; and
(d)the cost of materials reasonably ordered by the Subcontractor to perform the Work Under the Subcontract which the Subcontractor is legally liable to accept, but only if the materials become the property of Watpac on payment and are not included in any other payment or money paid or payable by Watpac.
The Subcontractor must make a claim for payment for any amount due to it under this clause 38.6 within 28 days after receiving the notice referred to in this clause 38.6. The claim must satisfy the requirements set out in clause 36.2.
The Subcontractor’s entitlement to payment under paragraphs (c) and (d) is its sole Entitlement in connection with Watpac’s exercise of its rights under this clause 38.6. Following Watpac’s exercise of this right the Subcontractor releases Watpac from any Entitlement by it, to the maximum extent permitted by Law.
If Watpac terminates the Subcontract under this clause 38.6, the Subcontractor must:
(e)take all steps necessary to mitigate any expense, cost or loss incurred by it as a result of the termination; and
(f)immediately return or provide to Watpac all copies of documents provided by or on behalf of Watpac under or in respect of the Subcontract and any documents prepared by the Subcontractor (or secondary subcontractors) to the date of termination to which Watpac would be entitled under the Subcontract but for the termination.
38.7 Wrongful Termination
If Watpac purports to terminate the Subcontract and a court or other relevant tribunal determines that such purported termination was wrongful, or if Watpac is found to have repudiated the Subcontract and the Subcontractor elects to treat the Subcontract as at an end, then such termination or election shall be deemed to be termination by Watpac under clause 38.6 and the Subcontractor shall have no Entitlement arising out of or in connection with such purported termination or election other than as provided in clause 38.6.
On 8 August 2019, Watpac served a notice pursuant to cl 38.5 (‘the Take Out Notice’), in which it purported to exercise its right to take out of CGM’s hands all works that remained to be completed under the Subcontract. The Take Out Notice stated that:
(a) Watpac was not obliged to make any further payment until all of the conditions in cl 38.5(g) were satisfied; and
(b) CGM was required to hand over to Watpac all materials, plant, equipment, facilities, shop drawings, design documents and other property and things at the site that were being used by CGM for the works.
The Take Out Notice relied on the following alleged acts of default under cl 38.4:
(a) breach of conditions and warranties;
(b) failure to proceed with due expedition and without delay;
(c) failure to use materials or standards of workmanship required by the Subcontract; and
(d) failure to comply with the directions of Watpac.
By letter dated 19 August 2019 to Watpac, CGM responded to the Take Out Notice and the alleged acts of default. CGM asserted that the Take Out Notice was a repudiation of the Subcontract, which it accepted, and terminated the Subcontract.
By letter dated 5 September 2019 to CGM, Watpac refuted CGM’s responses to the four alleged categories of default and maintained that the Take Out Notice was lawful and justified.
By Payment Claim dated 19 November 2019, CGM claimed $748,321.07 ($823,153.18 inclusive of GST) as a previously unpaid adjudicated amount plus a new claim of $187,322.40 ($206,054.64 inclusive of GST), for a total of $935,643.47 ($1,029,207.82 inclusive of GST).
By Payment Schedule dated 2 December 2019, Watpac determined that it did not owe anything to CGM.
By application for adjudication dated 16 December 2019 (‘Adjudication Application’), CGM applied for an adjudication under s 18(1)(a)(i) of the Act and sought the following determinations:
(a) it is entitled to payment of $651,877.48 plus GST in respect of its Payment Claim;
(b) it is entitled to interest of 10% per annum on the adjudicated amount pursuant to s 12(2) of the Act from 3 December 2019; and
(c) Watpac is liable for 100% of the Adjudicator’s fees.
By letter dated 17 December 2019 to Watpac and CGM, the Adjudicator accepted the Adjudication Application and gave directions for the service of submissions.
By letter dated 18 December 2019 to Watpac and CGM, the Adjudicator requested, pursuant to s 22(5)(a) of the Act, that both parties advise whether a copy of the Adjudication Application was served on Watpac as required by s 18(5) of the Act. On the same day Watpac’s solicitors confirmed it had been served with the Adjudication Application.
By Adjudication Response dated 20 December 2019, Watpac submitted that the Adjudicator had no jurisdiction and that any determination regarding a progress payment to be paid by Watpac to CGM should be nil dollars.
By letter dated 22 December 2019 to Watpac and CGM, the Adjudicator requested, pursuant to s 22(5)(a) of the Act, further submissions on the issue of the reference date or absence of a reference date for the Payment Claim, having regard to the judgment of Ball J in Patrick Stevedores Operations (No 2) Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd.[1]
[1][2014] NSWSC 1413 (‘Patrick Stevedores’).
By letter dated 22 December 2019 to CGM and Watpac, the Adjudicator required CGM, pursuant to s 21(2B) of the Act, to respond to the new reasons for withholding payment raised by Watpac in their Adjudication Response, but that were not included in the Payment Schedule.
By the Purported Determination dated 10 January 2020, the Adjudicator determined that:
(a) the Adjudicated Amount (s23(1)(a)) is $329,818.78 excluding GST; and
(b) the date on which the Adjudicated Amount became payable (s23(1)(b)) was 8 January 2020; and
(c) the applicable rate of interest payable (s23(1)(c)) on the Adjudicated Amount is 10% per annum.
In his reasons for the Purported Determination, the Adjudicator concluded that he did have jurisdiction because cl 38.6 provided for a reference date, having regard to s 9 of the Act, for the following reasons:
(a) Clause 38.6 provided, in part, that CGM ‘must make a claim for payment for any amount due to it under this clause 38.6 within 28 days after receiving the notice referred to in this clause 38.6. The claim must satisfy the requirements set out in clause 36.2’, which provided as follows:
36.2 Form of Payment Claims
Without limiting clause 36.10, each payment claim must be in the form approved by Watpac and must include:
(a) details of the value of Work Under the Subcontract performed;
(b) the relevant Lodgement Documentation; and
(c) such other information and documents as Watpac may require.
The existence of this provision, which expressly provides for the making of a payment claim, distinguished it from the contract in Patrick Stevedores, which had no similar requirement.
(b) Clause 38.6 had been triggered by cl 38.7 because the Take Out Notice effected a repudiation by Watpac of the Subcontract, which CGM elected to accept on 19 August 2019.
Accordingly, although he did not consider that he had jurisdiction to determine these rights conclusively, he was satisfied as to the existence of the jurisdictional facts in order for him to make a determination of the matters set out in s 23(1) of the Act.
Statutory scheme
The purpose and object of the Act are set out in ss 1 and 3 and, in summary, are to provide a statutory right for builders to recover progress payments due under a construction contract by establishing a procedure by which disputed claims are referred to an adjudicator for determination.
Section 3 of the Act provides:
(1)The object of this Act is to ensure that any person who undertakes to carry out construction work or who undertakes to supply related goods and services under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services.
(2)The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to that payment in accordance with this Act.
(3)The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves—
(a)the making of a payment claim by the person claiming payment; and
(b)the provision of a payment schedule by the person by whom the payment is payable; and
(c)the referral of any disputed claim to an adjudicator for determination; and
(d)the payment of the amount of the progress payment determined by the adjudicator; and
(e)the recovery of the progress payment in the event of a failure to pay.
(4) It is intended that this Act does not limit—
(a)any other entitlement that a claimant may have under a construction contract; or
(b)any other remedy that a claimant may have for recovering that other entitlement.
The right to progress payments is established by s 9(1) of the Act, which provides:
On and from each reference date under a construction contract, a person—
(a)who has undertaken to carry out construction work under the contract; or
(b)who has undertaken to supply related goods and services under the contract—
is entitled to a progress payment under this Act, calculated by reference to that date.
The reference date referred to in s 9(1) is defined in s 9(2), which provides:
In this section, reference date, in relation to a construction contract, means—
(a)a date determined by or in accordance with the terms of the contract as—
(i)a date on which a claim for a progress payment may be made; or
(ii)a date by reference to which the amount of a progress payment is to be calculated—
in relation to a specific item of construction work carried out or to be carried out or a specific item of related goods and services supplied or to be supplied under the contract; or
(b)subject to paragraphs (c) and (d), if the contract makes no express provision with respect to the matter, the date occurring 20 business days after the previous reference date or (in the case of the first reference date) the date occurring 20 business days after—
(i) construction work was first carried out under the contract; or
(ii)related goods and services were first supplied under the contract; or
(c)in the case of a single or one-off payment, if the contract makes no express provision with respect to the matter, the date immediately following the day that—
(i) construction work was last carried out under the contract; or
(ii)related goods and services were last supplied under the contract; or
(d)in the case of a final payment, if the contract makes no express provision with respect to the matter, the date immediately following—
(i)the expiry of any period provided in the contract for the rectification of defects or omissions in the construction work carried out under the contract or in related goods and services supplied under the contract, unless subparagraph (ii) applies; or
(ii)the issue under the contract of a certificate specifying the final amount payable under the contract a final certificate; or
(iii)if neither subparagraph (i) nor subparagraph (ii) applies, the day that—
(A)construction work was last carried out under the contract; or
(B)related goods and services were last supplied under the contract.
With respect to an adjudicator’s determination, s 23 of the Act provides:
(1) An adjudicator is to determine—
(a)the amount of the progress payment (if any) to be paid by the respondent to the claimant (the adjudicated amount); and
(b) the date on which that amount became or becomes payable; and
(c)the rate of interest payable on that amount in accordance with section 12(2).
(2)In determining an adjudication application, the adjudicator must consider the following matters and those matters only—
(a)the provisions of this Act and any regulations made under this Act;
(b)subject to this Act, the provisions of the construction contract from which the application arose;
(c)the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim;
(d)the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule;
(e)the results of any inspection carried out by the adjudicator of any matter to which the claim relates.
(2A)In determining an adjudication application, the adjudicator must not take into account—
(a) any part of the claimed amount that is an excluded amount; or
(b)any other matter that is prohibited by this Act from being taken into account.
(2B) An adjudicator’s determination is void—
(a)to the extent that it has been made in contravention of subsection (2);
(b)if it takes into account any amount or matter referred to in subsection (2A), to the extent that the determination is based on that amount or matter.
(3) The adjudicator’s determination must be in writing and must include—
(a) the reasons for the determination; and
(b) the basis on which any amount or date has been decided.
(4)If, in determining an adjudication application, an adjudicator has, in accordance with section 11, determined—
(a)the value of any construction work carried out under a construction contract; or
(b)the value of any related goods and services supplied under a construction contract—
the adjudicator (or any other adjudicator) is, in any subsequent adjudication application that involves the determination of the value of that work or of those goods and services, to give the work or the goods and services the same value as that previously determined unless the claimant or respondent satisfies the adjudicator concerned that the value of the work or the goods and services has changed since the previous determination.
Contracting out of the Act is prohibited by s 48 of the Act, which provides:
(1) The provisions of this Act have effect despite any provision to the contrary in any contract.
(2) A provision of any agreement, whether in writing or not—
(a) under which the operation of this Act is, or is purported to be, excluded, modified or restricted, or that has the effect of excluding, modifying or restricting the operation of this Act; or
(b) that may reasonably be construed as an attempt to deter a person from taking action under this Act—
is void.
Watpac’s submissions
Watpac submitted that the Adjudicator did not have jurisdiction to make a determination under s 23 of the Act because there was no reference date referrable to the Payment Claim for the following reasons:
(a) Under cl 38.7, the right to a payment could only arise after a finding of repudiation and there was no such finding made before the service of the Payment Claim.
(b) Both before the Adjudicator and on this application for judicial review, the burden of proving the jurisdictional fact, being the basis of the termination and the termination itself, was on CGM being the party making those allegations.
(c) On review, the parties have acknowledged that there is insufficient evidence before the Court to establish repudiation. Watpac has shown the Adjudicator’s finding on repudiation to be erroneous, and CGM defends the determination on the basis that the jurisdictional fact of repudiation exists. Consequently, it remains for CGM to file further evidence if it wishes to show that the finding was otherwise correct. If it does not do so, Watpac has discharged its burden of proof and is entitled to the relief it seeks.
(d) CGM has failed to prove that Watpac repudiated the Subcontract.
Watpac submitted that the words ‘is found to have’ in cl 38.7 could not be deleted by operation of s 48 for the following reasons:
(a) Section 48 cannot be applied so as to rewrite a contractual clause and alter the bargain reached between the parties.
(b) Section 48 is clear and unambiguous and its effect is to render the entirety of an offending clause void and not merely voidable.
(c) A reference to ‘provision’ in s 48(2) is a reference to an entire contractual provision. This intention is made clear by comparison to s 23(2B), which provides that the adjudicator’s determination will be void to the extent that it has been made in contravention with s 23(2).
CGM’s submissions
CGM submitted as follows:
(a) On a proper construction the cl 38.7 right arose on the election to terminate for repudiation, not on a finding of repudiation because, on Watpac’s construction, cl 38.7 would violate s 48 of the Act. As a matter of construction, the Court should prefer an interpretation of the clause which preserves its validity.[2]
[2]See Lewison and Hughes, The Interpretation of Contracts in Australia (Lawbook Co, 2012), 320-3 [7.10]; Langley v Foster (1906) 4 CLR 167, 180-1, 187, 193; Hirsch v Zinc Corp Ltd (1917) 24 CLR 34, 60; ASIC v Atlantic 3-Financial (Aust) Pty Ltd [2007] 2 Qd R 399, 418 [66].
(b) If Watpac’s construction is accepted, cl 38.7 contravenes s 48 of the Act because, if the reference date did not arise until the determination or finding of repudiation, it would be delayed for a very long period. Such an inordinate delay would modify the operation of the Act in contravention of s 48.
(c) The contravention of s 48 of the Act does not render cl 38.7 void in its entirety, but is resolved by severing the words ‘is found to have’, so that the relevant part of cl 38.7 would read as follows:
[I]f Watpac repudiated the Subcontract and the Subcontractor elects to treat the Subcontract as at an end, then such termination or election shall be deemed to be termination by Watpac under clause 38.6 …
(d) A provision should be construed to mean a ‘proviso’ or a part of the contract that provides ‘for some particular matter’ and a single clause of a contract may contain multiple provisions.
(e) The Act does not exclude the doctrine of severance. Severance is available if the elimination of the invalid promises changes the extent only and not the kind of the contract. Severing the words ‘is found to have’ does not alter the purpose or nature of cl 38.7.
(f) Further, severance of such words is consistent with cl 46, which provides, in part, as follows:
Any provision of the Subcontract which is illegal, void or unenforceable will be ineffective to the extent only of such illegality, voidness or unenforceability and such illegality, voidness or unenforceability will not invalidate any other provision of the Subcontract.
(g) The question of who bore the burden of proof before the Adjudicator is irrelevant.
(h) The burden of proving that the Take Out Notice was validly issued was on Watpac, regardless of whether the proceeding was by way of judicial review or otherwise.[3] The Adjudicator did have jurisdiction, because Watpac had not discharged its burden of proving that it had not repudiated the Subcontract.
[3]Hometeam Constructions Pty Ltd v McCauley [2005] NSWSCA 303, [165]-[166].
Principles of statutory interpretation
The primary object of statutory construction is to construe the relevant provision so that its legal meaning is consistent with:
(a) the language of the relevant provision, being the text; and
(b) the legislative purpose of the statute.[4]
The legal meaning is ‘the meaning that the legislature is taken to have intended [the provision] to have’.[5] It may or may not be the same as the literal meaning.[6]
[4]Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, 381 [69] (McHugh, Gummow, Kirby and Hayne JJ) (‘Project Blue Sky’).
[5]Ibid 384 [78].
[6]Ibid.
Accordingly, in statutory construction, the focus is on the text and the legislative purpose as follows:
(a) The primacy of the text has been emphasised by the High Court.[7] It has been said that the process of statutory interpretation starts and ends with the text.[8]
[7]See examples cited in Commissioner of State Revenue v EHL Burgess Properties Pty Ltd [2015] VSCA 269, [56]–[63]; see also Di Paolo v Salta Constructions Pty Ltd [2015] VSCA 230, [32]–[48] (Osborn and Kyrou JJA) and Lowe v The Queen (2015) 48 VR 351, 357–9 [12]–[18] (Warren CJ).
[8]FederalCommissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503, 519 [39] (French CJ, Hayne, Crennan, Bell and Gageler JJ). The expression was adopted by the High Court in Thiess v Collector of Customs (2014) 250 CLR 664, 671 [22] (French CJ, Hayne, Kiefel, Gageler and Keane JJ) and also by the Court of Appeal in DPP v Walters (2015) 49 VR 356, 358 [2] (Maxwell P, Redlich, Tate and Priest JJA).
(b) To ascertain the legislative purpose, the Court first considers the text of the relevant provision in its context.[9] The context means:
[9]This approach ‘needs no ambiguity or inconsistency; it allows a court to consider the purposes of an Act in determining whether there is more than one possible construction’: Mills v Meeking (1990) 169 CLR 214, 235 (Dawson J).
(i) the whole of the Act or other instrument;
(ii) the existing state of the law;
(iii) the mischief that the statute was intended to remedy;[10] and
(iv) the history of the legislative scheme.[11]
[10]For this purpose, courts may have regard to reports of law reform bodies: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, 408 (Brennan CJ, Dawson, Toohey and Gummow JJ).
[11]Ibid; Federal Commissioner of Taxation v Consolidated Media Holdings (2012) 250 CLR 503, 519 [39] (French CJ, Hayne, Crennan, Bell and Gageler JJ); Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (Cth) (1981) 147 CLR 297, 305-6 (Gibbs CJ), 324, 334 (Aickin J).
If the literal meaning of the text is consistent with the identified legislative purpose, the literal meaning will be accepted as the legal meaning.
However, if the literal meaning conflicts with the identified legislative purpose, a departure from the literal meaning may be justified. The resultant tension was described by Francis Bennion in Statutory Interpretation:
Consideration of the enactment in its context may raise factors that pull in different ways. For example, the desirability of applying the clear literal meaning may conflict with the fact that this does not remedy the mischief that Parliament intended to deal with.[12]
[12]Francis Bennion, Statutory Interpretation: A Code (Butterworths, 3rd ed, 1997) 344; referred to with approval in Project Blue Sky (1998) 194 CLR 355, 384 [78] (McHugh, Gummow, Kirby and Hayne JJ).
Examples of conflicts between the literal meaning and the identified legislative purpose, which have justified departure from the literal meaning, included where:
(a) The literal meaning would conflict with other provisions of the statute;
(b) The literal meaning is inconsistent with the purpose of the statute;
(c) The literal meaning is incapable of practical application; or
(d) Adoption of the literal meaning would lead to a result that is absurd, unreasonable or anomalous.[13]
[13]Colonial Range Pty Ltd v CES-Queen (Vic) Pty Ltd [2016] VSCA 328, [53] (Warren CJ, Whelan JA and Riordan AJA) (citations omitted).
If it is determined that such a conflict exists, the approach to reconciliation of the conflict is as follows:
(a) First, if an alternative construction is to be adopted as the legal meaning, it is necessary that the alternative construction is ‘reasonably open’[14] and ‘consistent with the language in fact used by the legislature’.[15] This is necessary because ‘the task remains the construction of the words the legislature has enacted’.[16] ‘The purpose of legislation must be derived from what the legislation says, and not from any assumption about the desired or desirable reach or operation of the relevant provisions’.[17]
[14]CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, 408 (Brennan CJ, Dawson, Toohey and Gummow JJ).
[15]Taylor v The Owners—Strata Plan No 11564 (2014) 253 CLR 531, 549 [39] (French CJ, Crennan and Bell JJ). Although the Court was here referring to a modified meaning as one which added or omitted words, a fortiori, it must also be a requirement whenever a court is to infer that the legal meaning is other than a literal or grammatical meaning.
[16]Ibid.
[17]Certain Lloyd’s Underwriters Subscribing to Contract No IH00AAQS v Cross (2012) 248 CLR 378, 390 [26] (French CJ and Hayne J).
(b) Section 35(a) of the Interpretation of Legislation Act 1984 (Vic) provides that ‘a construction that would promote the purpose of object underlying the Act … shall be preferred to a construction that would not promote that purpose or object’. The choice is only between a purpose that will promote the purpose and one that will not. The section is not directed to the choice ‘as to the construction which “will best achieve” the object of the Act’.[18]
[18]Chugg v Pacific Dunlop Ltd (1990) 170 CLR 249, 262 (Dawson, Toohey and Gaudron JJ).
(c) If the inconsistency between the literal meaning and the legislative purpose is the result of ‘simple, grammatical, drafting errors which if uncorrected would defeat the object of the provision’, an alternative construction, which is consistent with the legislative purpose, may be more ‘readily’ adopted.[19]
[19]Taylor v The Owners—Strata Plan No 11564 (2014) 253 CLR 531, 548 [38] (French CJ, Crennan and Bell JJ). The unique nature of the power to correct drafting errors was recognised in Inco Europe Ltd v First Choice Distribution (a firm) [2000] 2 All ER 109, [115] (Lord Nicholls): ‘It has long been established that the role of the courts in construing legislation is not confined to resolving ambiguities in statutory language. The court must be able to correct obvious drafting errors. In suitable cases, in discharging its interpretative function the court will add words, or omit words or substitute words. … This power is confined to plain cases of drafting mistakes.’
(d) After the identification of an alternative construction, the legal meaning will be determined by balancing:
(v) the strength of the literal meaning as against the alternative construction; and
(vi) the extent to which these meanings are consistent with the promotion of the legislative purpose.
This balancing exercise has been explained by the High Court as follows:
(a) ‘If the choice is between two strongly competing interpretations, as we have said, the advantage may lie with that which produces the fairer and more convenient operation so long as it conforms to the legislative intention. If, however, one interpretation has a powerful advantage in ordinary meaning and grammatical sense, it will only be displaced if its operation is perceived to be unintended.’[20]
(b) ‘[I]nconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which … is reasonably open and more closely conforms to the legislative intent’.[21]
[20]Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (Cth) (1981) 147 CLR 297, 321 (Mason and Wilson JJ).
[21]CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, 408 (Brennan CJ, Dawson, Toohey and Gummow JJ).
Principles of construction in commercial contracts
To construe the terms of a commercial contract, the Court asks ‘what a reasonable businessperson would have understood those terms to mean’.[22] To answer that question, ‘the reasonable businessperson [is] placed in the position of the parties’,[23] and the Court applies the following principles:
[22]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656-7 [35] (French CJ, Hayne, Crennan, and Kiefel JJ) (‘Woodside’); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [47] (French CJ, Nettle and Gordon JJ) (‘Mount Bruce’).
[23]Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, 551 [16] (Kiefel, Bell and Gordon JJ) (‘Ecosse’).
(a) The terms are construed objectively and the subjective intentions of the parties are irrelevant.[24]
[24]Ibid.
(b) The objective approach requires reference to the text and its ordinary meaning, together with:
(vii) the context, being the entire text of the contract including matters referred to in the text; and
(viii) the purpose.
These matters will ordinarily be identified by reference to the contract alone,[25] but evidence of mutually known objective background circumstances relevant to the purpose is admissible ‘no matter how clear the “ordinary meaning” of the words’.[26] Identification of purpose may allow admission of evidence of the genesis of the transaction, the background, the context and the market in which the parties are operating.[27]
[25]Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95, [45]-[47] (Santamaria, Ferguson and McLeish JJA); Mount Bruce (2015) 256 CLR 104, 116 [46]-[48] (French CJ, Nettle and Gordon JJ); Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd (2012) 45 WAR 29, 50 [76] (McLure P, with whom Newnes JA and Le Miere J agreed) (‘Hancock’).
[26]Lopes v Taranto [2018] VSCA 288, [66]-[72] (Kyrou, McLeish and Hargrave JJA), quoted with approval in Canale v G W & R Mould Pty Ltd [2018] VSCA 346, [45] (Whelan and McLeish JJA with whom Tate JA agreed). Cf Hancock (2012) 45 WAR 29, 50 [76] where the Western Australian Court of Appeal took the contrary view.
[27]Mount Bruce (2015) 256 CLR 104, 116-7 [46], [49] (French CJ, Nettle and Gordon JJ).
(c) Unless a contrary intention appears in the contract, the court is entitled to approach the task of interpretation on the assumption that the parties intended to produce a commercial result, and should construe it so as to avoid a commercial nonsense.[28] However, the court does not weigh the commerciality of the agreement, and business commonsense is a topic on which reasonable minds may differ.[29]
[28]Woodside (2014) 251 CLR 640, 656-7 [35] (French CJ, Hayne, Crennan, and Kiefel JJ).
[29]Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181, 198 [43] (Gleeson CJ, Gummow and Hayne JJ) (‘Maggbury’).
(d) If, after completion of this process, the language used in the contract ‘is ambiguous or susceptible of more than one meaning’, then evidence of surrounding circumstances external to the contract (‘surrounding circumstances’) is admissible to assist with interpretation of the contract.[30]
[30]Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 352 (Mason J) (‘Codelfa’). See, Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45, 62-3 [39] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ); Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604, 605 [2]-[5] (Gummow, Heydon and Bell JJ); Mount Bruce (2015) 256 CLR 104, 116-7 [46]-[49], [52] (French CJ, Nettle and Gordon JJ).
(e) Surrounding circumstances are:
events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating.[31]
(f) However, ‘evidence of the parties’ statements and actions reflecting their actual intentions and expectations’ is inadmissible.[32] Although evidence of prior negotiations is admissible to establish objective background facts known to both parties and the subject matter of the contract, evidence of negotiations reflective of actual intentions and expectations is not receivable.[33]
(g) Post contractual conduct is inadmissible to construe the terms of the contract.[34] However, the parties’ subsequent communications may be relevant to determine whether the parties intended to enter into a binding contract.[35]
[31]Mount Bruce (2015) 256 CLR 104, 117 [50] (French CJ, Nettle and Gordon JJ).
[32]Ibid.
[33]Codelfa (1982) 149 CLR 337, 352 (Mason J); Golf Australia Holdings Ltd v Buxton Construction Pty Ltd [2007] VSCA 200, [28] (Nettle and Redlich JJA, with whom Neave JA agreed). As Gordon J said in Construction Forestry Mining Energy Union v Bovis Land Lease Pty Ltd [2008] FCA 1669, [15]: ‘the back-and-forth of the parties in concluding the transaction’ is not considered in construing the document.
[34]FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, 350.
[35]Queensland Phosphate Pty Ltd v Korda [2017] VSCA 269, [37] (Tate, Beach JJA and Sifris AJA).
Conclusion
To resolve the issues finally raised in this proceeding, I have answered the following questions as follows:
(a) Should the Court set aside the Adjudicator’s finding that Watpac repudiated the Subcontract?
Answer: No.
(b) On a proper construction of cl 38.7, does CGM’s entitlement to make a deemed termination for convenience claim arise only after ‘Watpac is found to have repudiated the Subcontract and the Subcontractor elects to treat the Subcontract as at an end’?
Answer: Yes.
(c) Does cl 38.7 of the Subcontract contravene s 48 of the Act?
Answer: Yes.
(d) Does s 48 of the Act void cl 38.7 of the Subcontract in its entirety?
Answer: No.
Should the Court set aside the Adjudicator’s finding that Watpac repudiated the Subcontract?
In the proceeding before him, the Adjudicator had to satisfy himself that he had jurisdiction to adjudicate CGM’s claim under cl 38.6 of the Subcontract as if there had been a termination for convenience (‘the deemed termination for convenience claim’).[36] Accordingly, for jurisdiction to be conferred, it was necessary to find as a jurisdictional fact that Watpac had repudiated the Subcontract and CGM had elected to treat the Subcontract as being at an end under cl 38.7. Neither Watpac nor CGM bore any onus in respect of satisfying the Adjudicator of that jurisdictional fact.[37]
[36]Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd (2010) 30 VR 141, 156 [65] (Vickery J).
[37]Ibid.
In his reasons for the Purported Determination, the Adjudicator identified that he needed to satisfy himself as to the existence of the jurisdictional fact in order for him to be able to make a determination of the matters set out in s 23(1) of the Act. He determined that:
(a) the grounds articulated in the Take Out Notice were not acts of default under cl 38.4; and therefore
(b) the Take Out Notice constituted a repudiation of the Subcontract, which CGM elected to accept on 19 August 2019.
When this Court exercises its supervisory jurisdiction under order 56 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), it must decide for itself whether the decision of the inferior court or tribunal was within jurisdiction. If the question of jurisdiction is a matter of law, the question of law is decided by the Court like any other question of law.[38] However, if jurisdiction depends on a matter of fact, the Court applies the following principles:
[38]R v Blakeley; Ex parte Association of Architects, Engineers, Surveyors and Draughtsmen of Australia (1950) 82 CLR 54, 92 (Fullagar J).
(a) The Court determines the question of fact for itself on the evidence placed before it.[39]
(b) The burden of establishing the facts which show an absence of jurisdiction always rests on the party applying for relief.[40]
(c) The standard of proof is high, requiring ‘clear proof leading unmistakably to [the] conclusion’ that there was an excess of jurisdiction.[41] The Court will hesitate before interfering if the tribunal has investigated the facts upon which the jurisdiction depends and the finding is not manifestly wrong.[42]
[39]R v Marshall; Ex parte Baranor Nominees Pty Ltd [1986] VR 19, 32-3 (Brooking J).
[40]Ibid; R v Foster; Ex parte Commonwealth Life (Amalgamated) Assurances Ltd (1952) 85 CLR 138, 153 (Dixon, Fullagar and Kitto JJ).
[41]R v Marshall; Ex parte Baranor Nominees Pty Ltd [1986] VR 19, 32-3 (Brooking J).
[42]R v Yaldwyn (1899) 9 QLJ 242, 244 (Griffiths CJ) quoted with approval in R v Blakeley; Ex parte Association of Architects, Engineers, Surveyors and Draughtsmen of Australia (1950) 82 CLR 54, 92 (Fullagar J).
In R v Marshall; Ex parte Baranor Nominees Pty Ltd, Brooking J relevantly summarised the proper approach as follows:
[T]he Court is to determine the question of fact for itself on the evidence placed before it, it being for the applicant to establish excess of jurisdiction by clear proof leading unmistakably to that conclusion, and the Court giving weight in an appropriate case to the special experience of the [inferior court or tribunal].[43]
[43][1986] VR 19, 32-3.
In Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd, Vickery J applied these principles in exercising the Court’s supervisory function over the decision of an adjudicator appointed under the Act.[44]
[44](2010) 30 VR 141, 157 [68]-[70].
In the proceeding before me, neither party contended that there was sufficient evidence before the Court to enable me to form a conclusion about whether CGM had committed any of the acts of default described in the Take Out Notice. In the circumstances, the Court should not set aside the Adjudicator’s finding that Watpac repudiated the Subcontract.
I do further observe that for the Court to determine that there was ‘clear proof leading unmistakably to [the] conclusion’[45] that there had been no act of repudiation, it would have been necessary to adopt the ordinary procedure for determining such questions, being the exchange of pleadings, full evidence in admissible form and cross‑examination.[46]
[45]R v Marshall; Ex parte Baranor Nominees Pty Ltd [1986] VR 19, 32-3 (Brooking J).
[46]Castle Constructions Pty Ltd v N & R Younis Plumbing Pty Ltd [2019] NSWSC 225, [89] (Parker J).
The adoption of such a process ‘would drive a horse and cart (or perhaps a B-double) through the legislative scheme’,[47] and neither party sought to do so. If a party does apply to conduct a fully blown trial in a future application under this Act, it may be necessary for the Court to consider whether, in exercising its residuary discretion in a judicial review proceeding, it should refuse such an application.[48]
[47]Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113, [47] (Basten JA, with whom Beazley ACJ and Meagher JA agreed) with reference to the prospect of the Court being required to consider when practical completion had been achieved, rather than when an appropriate certificate had been issued.
[48]An invalid administrative decision may be treated as valid if a court refuses to set it aside for a discretionary reason: Leung v Minister for Immigration and Multicultural Affairs (1997) 79 FCR 400, 413. The prospect of a court refusing relief on discretionary grounds in a valid claim against a decision of an adjudicator was noted but not further considered by Basten JA in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393, 417 [104].
Counsel for Watpac initially contended that the Adjudicator had erred in finding that it was necessary for the Take Out Notice to refer to material breaches.[49] However, it was agreed that the editors of Hudson’s Building and Engineering Contracts correctly state the law with respect to construing termination for default clauses as follows:
Termination clauses occasionally allow termination on the ground of ‘any breach’ or ‘any default’. Although in principle, parties may agree whatever they wish, the courts will generally be reluctant to read such wording literally. ‘Default’ will be read as meaning a default relevant to the contract, and the courts will treat matters which are not a breach of the contract as excluded from the meaning of default. ‘Any breach’ will be held to refer only to important breaches, to exclude minor breaches, and to include only such breaches as are of substantial importance.[50]
[49]See, for example, Adjudication [47] and [49].
[50]Nicholas Dennys, Mark Raeside and Robert Clay, Hudson’s Building and Engineering Contracts (Sweet & Maxwell, 12th ed, 2010) 1123 [8-056] quoted with approval in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC), [319], [323](d) (Akenhead J).
Counsel for Watpac was unable to describe how the test of materiality applied by the Adjudicator could be distinguished in substance from the above test set out in Hudson’s. Further, it was not contended that, on the admissible evidence before me, I could decide to the necessary standard whether there had been even a trivial breach of the Subcontract by CGM, as alleged in the Take Out Notice.
On a proper construction of cl 38.7, does CGM’s entitlement to make a deemed termination for convenience claim arise only after ‘Watpac is found to have repudiated the Subcontract and the Subcontractor elects to treat the Subcontract as at an end’?
If a finding of repudiation is necessary before CGM’s deemed rights can arise, then CGM’s Payment Claim would be invalid for the following reasons:
(a) CGM had no right to a progress payment as at the date the Payment Claim was made, being 19 November 2019, because the Adjudicator had not made any finding of repudiation until 10 January 2020;
(b) under s 9(1) of the Act, a person is only entitled to a progress payment on and from each reference date; and
(c) on this construction, the reference date does not arise under cl 38.6 until, at the earliest, the date of the Purported Determination, being 10 January 2020.[51]
[51]Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340, 360-1 [61] (Kiefel, Bell, Gageler, Keane and Gordon JJ).
Counsel for CGM submitted that cl 38.7 should be construed so that the deemed termination for convenience claim arises in substitution for what would otherwise be a claim for damages on CGM’s election to accept Watpac’s repudiation. CGM contends that it would be nonsense for a prior finding by a court or a tribunal to be required because otherwise, for a deemed termination for convenience claim to arise, the subcontractor confronted with what it considers to be a repudiation, would need to:
(a) file a proceeding seeking a finding to the relevant effect; then
(b) await the finding; then
(c) elect to terminate; and then
(d) make a payment claim.
In my opinion, there would be merit in this submission if those steps were required before a deemed termination for convenience claim arose, because it would be likely that the right to elect to accept a repudiatory breach may well be lost before it could be exercised.
However, it is not necessary to read cl 38.7 as requiring the election to postdate the relevant finding. In my opinion, a reasonable businessperson would read the clause as contemplating, as in this case, that a subcontractor could elect to accept the repudiation and, when the fact of the wrongful repudiation was subsequently found by a court or tribunal, the subcontractor would be entitled to the deemed termination for convenience claim. This construction is consistent with the even clearer requirement in the first limb of cl 38.7, that the deemed termination for convenience claim only arises if a court or other relevant tribunal determines that a purported termination by Watpac was wrongful.
Were it not for the necessity of a reference date under the Act, there may be little significance to the parties in the requirement under cl 38.7 for a determination or finding. However, CGM’s construction gives no meaning to the clear requirement in the clause for a ‘determination’ or ‘finding’, and counsel was unable to refer to any authority where a court had been prepared to disregard such words in construing the clause.
Does cl 38.7 of the Subcontract have the effect of excluding, modifying or restricting the operation of the Act, within the meaning of s 48 of the Act?
For the reasons set out in paragraph 47 above, on Watpac’s construction (which I have accepted), cl 38.7 requires a ‘finding’ or ‘determination’ before an entitlement to a progress payment to CGM would arise under s 9 of the Act. Accordingly, in practice, the effect of cl 38.7 would be to require a contractor to either:
(a) file a proceeding seeking a declaration of wrongful termination or repudiation; or
(b) incorporate a claim for such a declaration in a construction dispute after the completion of a project;
prior to making a payment claim under s 14 of the Act. This would drive the proverbial ‘B-double through the legislative scheme.’[52]
[52]Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113, [47] (Basten JA).
There is some latitude provided by the Act in determining when a reference date arises and the parties can fix a date or provide a mechanism for fixing dates other than provided by s 9(2) of the Act.[53] However, the limits of that contractual freedom are restricted by s 48 of the Act.
[53]Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd [2016] 1 Qd R 30, 39-40 [35] (‘Lean Field Developments’).
In Castle Constructions Pty Ltd v Ghossayn Group Pty Ltd, Stevenson J noted that the s 48 equivalent in the New South Wales Act would or may invalidate any provision which goes beyond fixing a reference date and which:
(a) imposes conditions on the occurrence of a reference date;
(b) modifies or restricts the circumstances in which a contractor is entitled to a progress claim;
(c) inordinately delays or effectively prevents a reference date from arising;
(d) unjustifiably impeaches the making of a payment claim or renders the statutory entitlement practically illusory;
(e) imposes onerous conditions which make a reference date more of a theoretical possibility than an actuality; or
(f) does not facilitate a statutory entitlement to a progress payment.[54]
[54][2017] NSWSC 1317, [51], citing J Hutchinson Pty Ltd v Glavcom Pty Ltd [2016] NSWSC 126, [26] and Lean Field Developments [2016] 1 Qd R 30, 44 [55], 47 [68], 48 [73]-[74].
As the Act seeks to strike a balance between contractual freedom and protection of the statutory right to progress payments,[55] whether a provision contravenes s 48 of the Act needs to be determined on its own facts and circumstances.
[55]Minister for Commerce v Contrax Plumbing Pty Ltd [2004] NSWSC 823, [40] (McDougall J).
However, in Minister for Commerce v Contrax Plumbing Pty Ltd, McDougall J found that a contractual regime, under which the reference date could be delayed by a dispute resolution process for a period of 200 days, constituted an exclusion, modification or restriction within the meaning of the s 48 equivalent in the New South Wales Act.[56]
[56]Ibid [10], [42]-[43].
In my opinion, to effectively delay a right to a progress payment until a decision is made by a court or tribunal on a substantial issue such as repudiation is directly inconsistent with the purposes of the Act and, if applied in its terms, would have the effect of excluding, modifying or restricting the operation of the Act, within the meaning of s 48 of the Act.
Does s 48 of the Act void cl 38.7 of the Subcontract in its entirety?
Clause 38.7 relevantly imposes two prerequisites to CGM’s entitlement to be paid as a deemed termination for convenience under cl 38.6 being:
(a) CGM elects to treat the Subcontract as at an end after a repudiation by Watpac; and
(b) Watpac is found to have repudiated the Subcontract.
It is the latter of those prerequisites which I find engages s 48 of the Act. However, I reject Watpac’s submission that the effect of s 48 is to invalidate cl 38.7 in its entirety, for the following reasons.
A provision of a contract is not to be equated with a numbered clause or subclause of a contract. In Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd,[57] the High Court considered whether s 45(1) of the Insurance Contracts Act 1984 (Cth) invalidated a clause which purported to exclude indemnity whether or not the insured was a party to the other insurance. Section 45(1) provided:
Where a provision included in a contract of general insurance has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance, not being a contract required to be effected by or under a law, including a law of a State or Territory, the provision is void.
[57](2009) 240 CLR 391 (French CJ, Gummow, Hayne, Heydon and Crennan JJ).
French CJ, Gummow and Crennan JJ considered whether s 45(1) had the effect of rendering the entirety of the offending provision void. They opined:
This question requires attention to be given to the meaning of ‘provision’ in s 45(1). The word ‘provision’ has been described rightly as ‘a word of diverse meanings which slide easily into each other’. As Lord Simonds, who made that comment, observed:
‘It may mean a clause or proviso, a defined part of a written instrument. Or it may mean the result ensuing from, that which is provided by, a written instrument or part of it.’
It is clear enough that ‘provision’ in s 45(1) is used in the former sense. The relevant definition in the Oxford English Dictionary is:
‘Each of the clauses or divisions of a legal or formal statement, or such a statement itself, providing for some particular matter; also, a clause in such a statement which makes an express stipulation or condition; a proviso.’
The important element of that definition is that a provision provides ‘for some particular matter’. The fact that there may be more than one provision for a particular matter in one numbered clause of a contract is an accident of drafting. The inclusion in one clause of two statements of rights or liabilities in the form ‘if X, then Z’ and ‘if Y, then Z’ has the same effect as the inclusion of those statements in two separate numbered clauses. Each statement is a provision of the contract.[58]
[58]Ibid 405-6 [31], citing Berkeley v Berkeley [1946] AC 555, 580 and Oxford English Dictionary (2nd ed, 1989) ‘provision’.
Accordingly, they concluded that s 45(1) only operated to render void that part of the offending clause which related to double insurance to which the insured was a party.[59]
[59]Ibid.
Similarly, Hayne and Heydon JJ concluded that no question of severance arose and explained:
The extent of the avoidance worked by s 45(1) does not depend upon the way in which the particular insurance contract is drafted. What s 45(1) makes void is a provision included in a contract of general insurance where it has the effect described in the sub-section. The Act’s reference to a provision having a particular effect is not to be read as reference to a discrete collocation of words. Section 45(1) directs attention to a particular operation which the contract would have according to its terms. It renders that operation of the contract void.
It follows that no question of severance arises. However the insurance contract may be drafted, the contract cannot be given an operation of the kind that is identified in s 45(1). That operation of the contract, which is to say, the provision made by the contract to that effect, is void. But no other operation of the contract is avoided.[60]
[60]Ibid 407-8 [41]-[42].
Similarly, in my opinion, in this case there is no need to rely on the principles of severance or the application of the blue pencil. Section 48(1) specifically extends to agreement not in writing, in which case there could be no resort to drafting.[61]
[61]Visy Paper Pty Ltd v ACCC (2003) 216 CLR 1, 12 [32] (Gleeson CJ, McHugh, Gummow and Hayne JJ).
In Ruaro v Ferrari,[62] Emmett J considered whether s 68(1) of the Trade Practices Act 1974 (Cth) invalidated an exclusion clause in its entirety. The relevant facts were that the owner of a boat made a claim against a marina operator for damage caused to a boat which was damaged while moored in a marina alleging:
[62][2007] FCA 2022.
(a) breach of warranties implied by s 74 of the Trade Practices Act 1974 (Cth); and
(b) breach of duties of care.
The marina operator relied a clause in the licence agreement which excluded liability generally for damage to the boat.
It was accepted that the exclusion clause did not exclude liability for breach of warranties implied by s 74, because s 68(1) of the Trade Practices Act 1974 (Cth), provided:
Any term of a contract … that purports to exclude, restrict or modify or has the effect of excluding, restricting or modifying:
(a) the application of all or any of the provisions of this Division;
(b) the exercise of a right conferred by such a provision;
(c)any liability of the corporation for breach of a condition or warranty implied by such a provision; or
(d) the application of section 75A;
is void.
However, the boat owner contended that, under s 68(1), the exclusion clause was void for all purposes and therefore could not be relied on by the marina owner in defence to the claim for breach of duties of care.
Emmett J identified that this contention raised the question of whether the effect of s 68 was to:
(a) render a term of a contract void only to the extent that it purports to or has the effect of excluding, restricting or modifying the relevant operation of the Trade Practices Act 1974 (Cth); or
(b) render such a term void for all purposes.[63]
He concluded:
I do not consider that s 68 of the Trade Practices Act operates to render [the exclusion clause] void. I consider that the effect of s 68 is to render a term of a contract void only to the extent that it modifies the operation of, relevantly, s 74. Section 68 is not designed to strike down valid contractual arrangements except in so far as the arrangements are designed to exclude the benefits intended to be conferred by provisions such as s 74.[64]
[63]Ibid [52].
[64]Ibid [85].
Similar conclusions were reached in Renehan v Leeuwin Ocean Adventure Foundation Ltd[65] and Qantas Airways Ltd v Aravco Ltd.[66] As Gleeson JA noted in Motorcycling Events Group Australia Pty Ltd v Kelly, ‘[t]hese authorities were referred to by the High Court, without disapproval, in Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd’.[67]
[65](2006) 17 NTLR 83, 99 [81].
[66](1996) 185 CLR 43 (Brennan CJ, Gaudron, McHugh, Gummow and Kirby JJ).
[67](2013) 86 NSWLR 55, 82 [118] (with whom Basten and Meagher JJA agreed), citing Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd (2009) 240 CLR 391, 405 [30].
The contrary view was expressed by Beech-Jones J in Nair-Smith v Perisher Blue Pty Ltd,[68] where he cited only GQ Taperell, RB Vermeesch and DJ Harland, Trade Practices and Consumer Protection: A Commentary on the Trade Practices Act 1974, where the learned authors reasoned:
It would also follow that where a term grants some positive benefit to a consumer, for example, a promise to provide free servicing of an appliance for a stated period of time, but also attempts to limit liability in a manner that is not permissible, such as by excluding liability for consequential loss, the term would be void in toto. It will often be a matter of chance whether such a provision is expressed in a comprehensive term, or in a series of grammatically separate terms, and the·courts may therefore possibly be prepared to sever a composite clause so as to strike down the clause only to the extent that it comes in conflict with s 68.[69]
[68][2013] NSWSC 727, [93], citing GQ Taperell, RB Vermeesch and DJ Harland, Trade Practices and Consumer Protection: A Commentary on the Trade Practices Act 1974 (Butterworths, 3rd ed, 1983) 842 [1745], reversed Perisher Blue Pty Ltd v Nair-Smith (2015) 90 NSWLR 1, 43-4 [197] (Barrett and Gleeson JJA and Tobias AJA) where the Court proceeded on the agreed basis that the validity of the relevant exclusion was determined by the construction of s 68B of the Trade Practices Act 1974 (Cth).
[69]GQ Taperell, RB Vermeesch and DJ Harland, Trade Practices and Consumer Protection (Butterworths, 3rd ed, 1983) 842 [1745].
With respect to the learned authors, it is difficult to see how this reasoning could survive the subsequent decision in Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd, referred to in paragraph 61 above, where the High Court rejected the proposition that the effect of the voiding section would depend on ‘an accident of drafting’. [70]
[70](2009) 240 CLR 391, 405-6 [31] (French CJ, Gummow and Crennan JJ).
I consider that s 48 of the Act only operates to void cl 38.7 to the extent that it has the effect of excluding, modifying or restricting the operation of the Act, being relevantly the requirement that there be a ‘finding’ on the issue of repudiation.
To the extent that it might be necessary to rely on principles of severance, in the context of the Act and its interstate equivalents, it has not been suggested that the legislation excludes the common law doctrine of severance. The purposes of the Act require the Court to apply a flexible approach and avoid unnecessary technicality.[71]
[71]Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106, [115] (Vickery J).
In Minister for Commerce v Contrax Plumbing Pty Ltd,[72] McDougall J found that two subclauses of the construction contract, which regulated the payment and valuing of progress payments, contravened s 34 of the New South Wales Act, being the equivalent to s 48 of the Act. His Honour found that the adjudicator was correct to disregard only ‘the precise provisions’, being two sentences in the subclauses that offended the section.[73] The appeal against this decision was dismissed in Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd.[74] Although there was discussion about whether the relevant sentences were invalidated by s 34 of the New South Wales Act, no issue was raised about the approach of McDougall J in severing the particular sentences.[75]
[72][2004] NSWSC 823.
[73]Ibid [47]-[48].
[74][2005] NSWCA 142 (Hodgson and Bryson JJA and Brownie AJA).
[75]Ibid [51]-[54] (Hodgson JA), [58] (Bryson JA), [61] (Brownie AJA).
Accordingly, if it was necessary, the words ‘is found to have’ could be severed from cl 38.7 in the manner submitted by CGM, which would change the extent only and not the kind of contract.[76]
[76]McFarlane v Daniell (1938) 38 SR (NSW) 337, 345 (Jordan CJ); MacKinlay v Derry Dew Pty Ltd [2014] WASCA 24, [121] (Buss JA).
Orders
I propose to dismiss the plaintiff’s claim and will hear the parties on consequential orders.
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