Zulin Formwork Pty Ltd v Valeo Construction Pty Ltd
[2019] VCC 936
•16 July 2019
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
| BUILDING CASES LIST |
Case No. CI-19-01869
| ZULIN FORMWORK PTY LTD (ACN 612 919 329) | Plaintiff |
| v | |
| VALEO CONSTRUCTION PTY LTD (ACN 139 755 801) | Defendant |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 May 2019 | |
DATE OF JUDGMENT: | 16 July 2019 | |
CASE MAY BE CITED AS: | Zulin Formwork Pty Ltd v Valeo Construction Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2019] VCC 936 | |
REASONS FOR JUDGMENT
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Subject: BUILDING CONTRACTS
Catchwords: Building and Construction Industry Security of Payment Act 2002 (Vic) –
plaintiff’s application for judgment on payment claim – whether judgment precluded because payment claim wrongfully included “excluded amounts”, being amounts said to represent damages or, alternatively, non-claimable variations
Legislation Cited: Building and Construction Industry Security of Payment Act 2002 (Vic), s16(2)(a)(i)
Cases Cited:Maxstra Constructions Pty Ltd v Joseph Gilbert & Ors [2013] VSC 243; Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd (2010) 30 VR 141; Seabay Properties Pty Ltd v Galvin Construction Pty Ltd [2011] VSC 183; Shape Australia v The Nuance Group [2018] VSC 808; SSC Plenty Road v Construction Engineering (Aust) Pty Ltd [2016] VSCA 119
Judgment:Judgment for the plaintiff.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr K Weston-Scheuber | Level Playing Field Consultants & Lawyers |
| For the Defendant | Mr L J Connolly | HWL Ebsworth Lawyers |
HER HONOUR:
Overview
1 By Originating Motion filed on 24 April 2019, the plaintiff, Zulin Formwork Pty Ltd (“Zulin”), seeks judgment against the defendant, Valeo Construction Pty Ltd (“Valeo”), in the sum of $317,284 (inclusive of GST), together with interest and costs.
2 The application is made under s16(2)(a)(i) of the Building and Construction Industry Security of Payments Act 2002 (Vic) (“the Act”). The Act provides a mandatory regime whereby builders and subcontractors engaged under construction contracts are able to recover progress payments quickly, providing various prescribed steps are followed.[1]
[1]A useful summary of the purpose of the Act is contained in SSC Plenty Road v Construction Engineering (Aust) Pty Ltd [2016] VSCA 119 at paragraphs [49]-[51] and [73]
3 In support of the application, Zulin relies upon the affidavit of Chao Yang affirmed 24 April 2019. For its part, Valeo relies upon the affidavits of Tom Tziouvelis sworn 22 and 23 May 2019.
4 On 21 February 2017, Zulin (as trade contractor) entered into a subcontract with Valeo (the builder) for the construction of residential apartments at 19-21 Poplar Street, Box Hill (“subcontract”) for the sum of $2,270,000 (excluding GST).
5 Zulin served payment claim No 11 (“PC-11”) upon Valeo on 25 July 2018 for a “progress payment” in the sum of $288,840 (excluding GST). If Valeo wished to dispute the payment claim, it could do so by serving a payment schedule within the period of time specified under the Act. It is common ground that Valeo did not serve a payment schedule in response or pay any of the sums claimed in PC-11. In those circumstances, Zulin says it is entitled to enter judgment for the claimed amount as a debt due.
6 Valeo opposes the application. It contends Zulin is not entitled to enter judgment because PC-11 wrongfully included “excluded amounts” in breach of s16(4)(a)(ii) of the Act. The excluded amounts said to be impermissibly included in PC-11 represent claims for damages or amounts deducted as “negative variations”.
7 The key issue for determination is whether PC-11 did include any excluded amounts and, if so, does this prevent Zulin from now entering judgment.
8 For the following reasons, I find PC-11 did not include any excluded amounts, with the result that Zulin is entitled to judgment in the sum claimed.
Background
9 Zulin was engaged to supply all the labour, materials, plant and equipment as set out in Schedule 3 of the subcontract, being the scope of works involving concrete structure works. The completion date was 17 July 2017. The time for making payment claims under the subcontract was the 25th day of each month. Payment was to be made within 30 days from the end of the month in which the invoice was received. (Schedule 7)
10 Between February and October 2017, Valeo issued payment schedules in response to payments claims numbered 1 to 9 served by Zulin.
11 Zulin served payment claim No 10 (“PC-10”) on 22 June 2018 (although dated 25 June 2018) in the sum of $488,840 (excluding GST). Valeo did serve a payment schedule in response to PC-10. The payment schedule offset amounts against PC-10 which Valeo claimed in order to recoup the cost of rectification works relating to allegedly defective work undertaken by Zulin. The set-off amounts are described in payment schedule No 10 as variations. They compromise four invoices rendered by other contractors for undertaking rectification works. The contractors were engaged because of the alleged failure of Zulin to carry out rectification works, despite request. The total of the invoices was $410,535 and has since been paid by Valeo. The way in which these amounts are calculated is set out in paragraphs 9 to 24 of Mr Tziouvelis’ first affidavit.
12 No money was paid on PC-10 as the amount claimed by Valeo in the corresponding payment schedule exceeded the amount of the payment claim. The net result of the deductions made by Valeo was that $183,738.50 (including GST), was claimed to be owed to Valeo.
13 Zulin did not apply for an adjudication under s18 of the Act consequent upon the receipt of Valeo’s payment schedule responding to PC-10.
14 Since PC-10, Zulin undertook further work, namely, the completion of a handrail.
15 PC-11 was in the sum of $288,840 excluding GST. Mr Yang deposes this comprised $130,000, being the balance of the contract sum, $113,500 for retention and $45,340 for variation work. Mr Yang deposes to the breakup of the figure claimed for variations totalling $45,340 in paragraphs 41 to 53 of his affidavit dated 24 April 2019. He provides details of the seven variations that were undertaken by Zulin and approved by Valeo. He concludes this section of his affidavit by stating the variations claimed in PC-11 were all “claimable variations” and do not fall within the definition of “excluded amounts” in s10B of the Act. The sum of $45,340 for variations had previously been claimed in PC‑10.
16 The difference between PC-11 and PC-10 is $200,000. A comparison of the two claims reveals the sum of $200,000 was received by Zulin as a progress payment by the time PC-11 was issued.
17 Valeo did not serve a payment schedule in response to PC-11. The due date for payment of PC-11 was 30 August 2018. Valeo has not paid any amounts claimed under PC-11 by the due date or at all.
Relevant provisions of the Act
18 “Variation” is defined in s4 of the Act as:
“variation in relation to a construction contract, means a change in the scope of the construction work to be carried out, or the related goods and services to be supplied, under the contract.”
19 The definition of excluded amounts is set out in s10B of the Act.
“…
(2) The excluded amounts are—
(a) any amount that relates to a variation of the construction contract that is not a claimable variation;
(b) any amount (other than a claimable variation) claimed under the construction contract for compensation due to the happening of an event including any amount relating to—
(i)latent conditions; and
(ii)time-related costs; and
(iii)changes in regulatory requirements;
(c) any amount claimed for damages for breach of the construction contract or for any other claim for damages arising under or in connection with the contract;
(d) any amount in relation to a claim arising at law other than under the construction contract;
(e) any amount of a class prescribed by the regulations as an excluded amount.”
20 Division 1 of Part 3 of the Act deals with the procedure for recovering progress payments. Section 14 provides for the making of progress claims by a claimant who is entitled to a progress payment. By s14(3)(b), the claimed amount must not include any excluded amount. A claimant may include in a payment claim an amount that has been the subject of a previous claim if the amount has not been paid: s14(9).
21 Under s15(4) of the Act, if a claimant serves a payment claim on a respondent and the respondent does not provide a payment schedule within the time required by contract within ten business days after the payment claim is served, the respondent becomes liable to pay the claimed amount.
22 By s16(1) of the Act, if a respondent fails to pay the amount claimed under s15(4), the claimant can recover the unpaid portion of the claimed amount as a debt due to the claimant in any court of competent jurisdiction: s16(2). By reason of s16(4), the Court, before giving judgment, must be satisfied of:
“(a) …
(i) of the existence of the circumstances referred to in subsection (1); and
(ii) that the claimed amount does not include any excluded amount; and
(b) the respondent is not, in those proceedings, entitled—
(i) to bring any cross-claim against the claimant; or
(ii) to raise any defence in relation to matters arising under the construction contract.”
23 Section 18 deals with the statutory right to apply for an adjudication. Section 18(1)(a) provides as follows:
“(1)A claimant may apply for adjudication of a payment claim (an adjudication application) if—
(a) the respondent provides a payment schedule under Division 1 but—
(i) the scheduled amount indicated in the payment schedule is less than the claimed amount indicated in the payment claim; or
(ii) the respondent fails to pay the whole or any part of the scheduled amount to the claimant by the due date for payment of the amount … .”
Contentions of Valeo
24 Valeo argues Zulin is not entitled to judgment because PC-11 included “excluded amounts”, being the subject of deductions and/or set-offs made by Valeo in payment schedule No 10.
25 For the purposes of its argument, Valeo relies upon:
(i) the definition of excluded amounts in s10B(2)(a), being amounts relating to a variation of the construction contract that is not a claimable variation; and
(ii) s10B(2)(c), being any amount claimed for damages for breach of the construction contract or for any other claim for damages arising under or in connection with the contract
26 In payment schedule No 10, Valeo deducted certain amounts from Zulin’s payment entitlements in respect of amounts listed as “Variations”, being the costs of rectification works incurred by Valeo relating to allegedly defective and/or incomplete work performed by Zulin. Valeo claims these amounts represent either damages or negative variations. That being so, the amounts constituted “excluded amounts” pursuant to s10B(2)(c) and s10B(2)(a) of the Act respectively.
27 Zulin could have challenged the deductions made by Valeo in payment schedule No 10 by applying for an adjudication pursuant to s18 of the Act but did not do so. It is submitted the decision of Zulin not to challenge those amounts, when it possessed a statutory right to do so, is fatal to the relief now being sought. Valeo contends Zulin’s belated attempts to challenge the deductions by issuing PC-11 is too late and misconceived.
28 When serving PC-11, Zulin made no allowance for the deductions claimed by Valeo in payment schedule No 10. The relevant excluded amounts totalled $410,535 which significantly exceeded the quantum of the claimant’s claim, with the result that Zulin’s claim must fail.
29 Valeo relied upon a decision of Digby J in Shape Australia Pty Ltd v The Nuance Group[2] in support of its argument that the amounts in question take on the character of “excluded amounts”.
[2][2018] VSC 808 at paragraphs [76]-[99]
30 In Shape, Digby J had to consider whether a claimant could seek to recoup an amount that had been deducted by the respondent previously. The amount deducted in that case was also an excluded amount pursuant to s10B(2) of the Act. The relevant excluded amount deducted was for liquidated damages, whereas here, the excluded amount relates to amounts claimed for damages for breach of the subcontract and/or negative variations. Valeo argues the distinction in the description of the amount in question is immaterial: the key point being that the amounts deducted in the previous period were “excluded amounts”. Valeo referred to the following passage from his Honour’s judgment:[3]
“Section 10B(1) of the SOP Act provides in effect that all excluded amounts are to be ignored in relation to calculating the amount of progress payment to which a person is entitled under the construction Contract. The statutory reference therein to the concept of undertaking the calculation of a progress payment entitlement is in my view very broad and sufficiently broad to take into account the application of any excluded amount which is relevant including by way of set off or allowance in respect of a progress payment.
I consider that s 10B(2) of the SOP Act extends to cover claims for compensation due to the happening of an event and extends further to include any amount relating to a claim for time related costs. A claim for compensation for an event including an event giving rise to an asserted entitlement to time related costs in the nature of liquidated damages triggers the operation of that section.
For the above reasons, the Adjudicator was, in my view, correct to consider that the Seabay decision supported his findings and was correct to exclude the entirety of PC-14 as an amount calculated to recover earlier Superintendent effected adjustments to the Contract Sum on the basis of Shape’s liability to pay or allow liquidated damages.”
[3](ibid) at paragraphs [95]-[97]
31 Valeo argues the principles enunciated by his Honour in Shape are equally applicable to this case. As the amounts in question are damages for breach of the subcontract and/or negative variations, Zulin is not entitled to recoup those monies.
32 The rectification works listed in the payment schedule responding to PC-10 were said to be negative variations, as those works were no longer within the scope of Zulin’s works. If work is not done or done properly and another contractor is engaged to do those works, then Valeo argued this amounted to a negative variation. Such a variation is thus an excluded amount, because it is not a permissible “claimable variation” within the meaning of the Act.
33 It was noted the Act is no longer a means of determining whether Zulin is entitled to recover the amounts claimed in PC-11, whilst accepting Zulin still retains whatever contractual rights it has available to pursue its claim, as recognised by s47 of the Act.
Contentions of Zulin
34 Zulin takes issue with the submission put that PC-11 contained excluded amounts. The basis for this is as follows:
(i)the amounts claimed in PC-11 were for monies owing pursuant to contract, not claims for damages or variations, whereas in Shape, the claim was found to be one to recoup liquidated damages. The argument put by Valeo is contrary to the decision of Vickery J in Maxstra Constructions Pty Ltd v Joseph Gilbert & Ors;[4]
(ii)Shape is distinguishable on the basis that the excluded amounts referred to in that decision related to amounts that had been the subject of a set-off for liquidated damages, having been claimed in a previous valid payment claim; and
(iii)in the alternative, the reasoning on the point of “excluded amounts” in Shape was given in obiter and is not binding upon this Court, although it is accepted it would be persuasive.
[4][2013] VSC 243
35 Zulin submits the amounts deducted in response to PC-10 were not “variations” within the meaning of the Act. The amounts relied upon by Valeo, namely, the set-off claim of $410,535, did not represent changes in the scope of the construction work to be carried out under the subcontract. They represent amounts purportedly paid to other contractors or set-off for alleged defective or incomplete work by Zulin. Accordingly, they are properly classified as set-offs for defective or incomplete work, not variations.
36 Nor can it be said the amount claimed as a set-off falls within the purview of s10B(2)(c) as a claim for damages.
37 The position put forward by Valeo is clearly contradictory to the decision in Maxstra. In that case, an adjudicator had characterised set-off amounts for cost of rectification as “excluded amounts” that could not be taken into consideration. His Honour disagreed with the approach taken by the adjudicator and at paragraphs 63 to 64, his Honour said:
“… if a construction was given to s 10B(2)(c) and s 11(2)(b)(iv) of the Act which involved treating claims for damages as including claims for the rectification of defects, and these were treated as ‘excluded amounts’ and therefore not taken into account in assessing a progress payment, with the result that the decision-maker was also precluded from estimating the cost of rectifying the defect and taking this into account in the valuation exercise contemplated by s 11, then s 11(2)(b)(iv) would in this circumstance have no work to do and would be reduced to superfluity.
The same would follow if the matter was to be considered by taking s 11(2)(b)(iv) as the starting point. If the estimated cost of rectifying a defect under the sub-section was to be regarded as damages for the purpose of s 10B(2)(c), it would become an ‘excluded amount’ under s 10 and as such could not be taken into account, thereby defeating the clear words and intention of the valuation regime set up under s 11 which does quite the opposite.”
38 The effect of this decision, Zulin submits, is that costs of rectification of defective works are excluded from the scope of damages within the meaning of s10B(2)(c).
39 As a sub-set of its argument that Valeo was not entitled to argue the rectification works were damages, Zulin said that the applicable defects period had not yet commenced. Valeo had referred to Clause 9 of the subcontract in support of its claim for a set-off of $410,535.[5] Valeo relied upon a part of Clause 9, which stated:
“The trade contractor found to be responsible for any such omission or defect, shall also be held accountable for any additional costs incurred, including but not limited to, exploratory works, resulting damage, repairs and any economic loss situations that may arise.”[6]
[5]See email dated 25 June 2018, exhibit TT-4 to the affidavit of Tom Tziouvelis dated 22 May 2019
[6]Affidavit of Tom Tziouvelis, exhibit TT-4
40 Clause 9 of the subcontract provides for Valeo to direct Zulin during the defects liability period to rectify promptly any omission or defect in the work. Reference by Valeo in its email to such omission or defect is therefore a reference to omissions or defects arising during the defects liability period.
41 Schedule 5 of the subcontract defines the defects liability period as twelve months from the date of practical completion. This term is in turn defined in the definitions section as the date on which the defendant, Valeo, is issued with a certificate of practical completion.
42 Zulin notes that at the time PC-11 was issued, there had been no certificate of practical completion issued. There was no evidence from Valeo that one has been issued. Consequently, the basis upon which Valeo seeks to rely for the plaintiff having claimed excluded amounts was not capable of arising at or before the time of PC-11. It was not open at the time the payment schedule to PC-10 was issued to rely upon Clause 9.
43 As the Certificate of Practical Completion is issued pursuant to another arrangement/contract (not the subcontract), Clause 9 is a “pay when paid” provision. The effect therefore is that it makes the defendant’s liability to pay contingent upon work to be directed during a period operating by reference to another contract. It is said then that Clause 9 therefore has no operation in relation to PC-11. Any defects the subject of a set-off claim are directly related to the value of the construction work carried out by the plaintiff – they are not a claim for “damages”.
44 In reply, Valeo argued that Clause 9 related to claims relating to unfinished or defective works that were in breach of contract and therefore fell within the definition of damages for the purposes of s10B. Valeo had asked for sums which were certain as opposed to estimates. In Maxstra, Vickery J had distinguished between estimated amounts which were not excluded amounts and damages for breach which were.[7] Here, it was put by Valeo that as the sums claimed were certain, they were therefore crystallised damages. In answer to that, Zulin noted that figures are required to be put in payment schedules under s15(3) of the Act. The fact that a figure is listed does not turn that sum into a crystallised sum or convert costs of rectification works into damages.
[7]Maxstra (ibid) at paragraphs [58]-[62]
45 Zulin further submitted Valeo’s position was inconsistent with the purpose of the Act. The object of the Act is to ensure that payment is made promptly and that any person who undertakes to carry out construction work is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work. It was put that Valeo is seeking to circumvent s16(4)(b) by having the definition of excluded amounts expanded beyond the traditional interpretation of that definition to include amounts set off by way of rectifying defective or incomplete works. As that sub-section provides, a respondent is not entitled to bring any cross claim or raise any defence under the construction contract in proceedings brought under s16(2)(a)(i).
46 Zulin argues the only way its claim could be characterised as one for damages is if the original set-off in the payment schedule No 10 was itself a claim for “damages”. Pursuant to Seabay Properties Pty Ltd v Galvin Construction Pty Ltd,[8] a payment schedule cannot set off an “excluded amount”.[9] Inclusion of an excluded amount in a previous payment schedule does not convert the plaintiff’s claim to one for “excluded amount”.
[8][2011] VSC 183
[9](ibid) at paragraphs [124]-[125]
Excluded amounts not the subject of a previous valid payment claim
47 As a fall-back position, Zulin argues that even if the Court were to find the sum of $410,535 set-off comprised damages or negative variations that were excluded amounts, Shape does not apply, because they were not previously set-off against a valid payment claim. PC-10 was issued on 22 June 2018 prior to the reference date of 25 June 2018, with the result that PC-10 was invalid.
48 There having been no prior set-off of damages for the purposes of the Act against a valid payment claim, Zulin cannot be said to be claiming damages in PC-11.
49 In response to that argument, Valeo contended the payment claim could be served by 25 June 2018, and referred to Clause 12 of the subcontract. It also referred to the decision of Vickery J in Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd[10] whereby it was held that a premature payment claim was not invalid.
[10](2010) 30 VR 141
Consideration
50 By s16(4)(a) of the Act, judgment in favour of a claimant is not to be given unless the court is satisfied of the matters referred to in ss(1) and that the claimed amount does not include any excluded amount.
51 The matters which need to be established under s16(1) are twofold. The first is that a payment schedule has not been provided within time and, secondly, that payment has not been made on or before the due date.
52 It is not in dispute that Zulin served PC-11 on Valeo.[11] Section 15(4)(b) sets out the prescribed time limits for the service of any payment schedule in answer to a payment claim. Valeo did not serve a payment schedule to PC-11.[12]
[11]Affidavit of Chao Yang at paragraph 35
[12]Affidavit of Mr Yang at paragraph 38
53 Under s12(1)(a) of the Act, the due date for payment of PC-11 was 30 August 2018. Again, there is no dispute that Valeo has not paid the claimed amount by the due date or at all.[13] Therefore, Valeo is prima facie liable to pay PC-11, because it has not provided a payment schedule within the time permitted and has failed to pay the whole or any part of the claimed amount on or before the due date. Accordingly, the prescribed circumstances in s16(1) have been met. That being so, the remaining issue is whether the Court can be satisfied the claimed amount does not include any excluded amount, being the requirement set out in s16(4)(a)(ii).
[13]Affidavit of Mr Yang at paragraph 39
54 It is clear that PC-11 on its face does not expressly refer to any excluded amount. The amount claimed is broken up into the balance of the contract sum, a retention sum, and a further claim for variations which are said to be claimable variations by Mr Yang. Valeo’s case is that the sums claimed should not be allowed, because the deductions made by it in payment schedule No 10 have not been taken into account.
Does PC-11 include amounts for non-claimable variations?
55 Valeo argues the rectification works performed by other contractors should be construed as “negative variations”, because these were works which were no longer to be performed by Zulin. As can be seen from the definition in the Act, variation relates to a change in the scope of the construction work to be carried out or the related goods and services to be supplied under the contract.
56 In my view, the fact that a respondent engages other parties to undertake rectification works for allegedly defective work carried out by a sub-contractor, does not equate to a variation as that term is defined in s4. Construction work was not removed from Zulin’s scope of works by Valeo, rather the work Zulin had already done had to be rectified by other contractors. I accept that rectification work undertaken by other parties does not fall within a “change in the scope of the construction work” in relation to a construction contract. Accordingly, I reject Valeo’s submission that the amounts claimed in PC-11 can be construed as “negative variations” and thus fall within the prohibition set out in s10B(2)(a).
Does PC-11 include claims for damages?
57 The next matter to consider then is the argument put forward by Valeo that the amounts in PC-11 constitute a claim for damages, which are treated as excluded amounts pursuant to s10B(2)(c). For the purposes of this argument, Valeo relies upon the decision of Digby J in Shape. In that case, the claimant had included in its payment claim amounts for liquidated damages which had been previously deducted from earlier claims by the respondent. Shape sought to recoup these amounts in the payment claim which it put forward. The case was also different, in that the matter had twice been referred to an adjudicator and determinations given. Shape had not previously sought to challenge the deduction of liquidated damages via the adjudication process. Digby J was of the view that the claim made was impermissible, because it sought to include excluded amounts, being amounts which had been previously deducted for liquidated damages by the respondent. This aspect was referred to as ground 2 in the judgment. As his Honour makes clear, this ground was not dispositive of the appeal and he only considered it because of a possible remitter. He found for Nuance on ground 1 which was the adjudicator in the second adjudication was correct to hold that the relevant payment claim was invalid because there was no reference date available. Accordingly, it can be accepted that his Honour’s remarks on ground 2 were obiter dicta.
58 Unlike Shape (at paragraph [78]), where the claims for liquidated damages had been previously levied over time and deducted by earlier superintendent effected adjustments, the rectification costs paid by Valeo were not the subject of any prior adjustment. Valeo argues Zulin is prohibited from claiming these amounts in PC-11 in circumstances where Valeo had served a payment schedule to PC-10 but Zulin did not seek an adjudication. Section 18 provides that a claimant may apply for adjudication of a payment claim (emphasis added). As Zulin was under no compulsion under s18 to apply for an adjudication, the argument put that it cannot now claim the amounts in PC-11 because it did not seek an adjudication is hollow. The decision not to seek adjudication does not cause a flow on effect that the amounts listed in a payment schedule are then automatically adjusted in favour of a respondent. Additionally, Zulin is not prevented under s14(9) of the Act from including in PC‑11 amounts that were the subject of a previous claim, if the amount has not been paid.
59 I am not persuaded that by issuing PC-11, Zulin is wrongfully seeking to recoup amounts when the amounts in question have not been previously adjusted in Valeo’s favour. There has been no prior determination made which is adverse to Zulin on the quantum of the rectification costs which Zulin is attempting to circumvent, unlike the position in Shape. All that has occurred is Valeo identified those costs in its answering schedule to PC-10.
60 The other point raised by Zulin is that the amounts claimed relate to rectification costs. As noted in Seabay,[14] there is a distinction drawn between these types of costs and costs which can be properly regarded as damages. In determining amounts payable in respect of an adjudication, an adjudicator is required to determine the amounts for costs of rectifying work. As Vickery J noted in Maxstra, this is a causatively different exercise to an award of damages being amounts which are excluded for the purposes of making payment claims.
[14]At paragraphs [63]-[64]
61 The deductions which Valeo seeks to set off represent rectification costs paid to other contractors. Applying Maxstra, such costs are not the equivalent of damages. Vickery J held that rectification costs were not claims for damages for the purpose of s10B(2)(c). Consequently, I am of the view that the same applies here, in that the rectification costs referred to in the schedule to PC-10 are not damages in the sense identified by Vickery J. That being so, the amounts claimed are not “excluded amounts” under s10B(2)(c).
62 Further, if, contrary to my findings, the rectification costs should be treated as damages on Valeo’s case, then it follows that these amounts were excluded amounts when it served its payment schedule to PC-10. Neither a claimant nor respondent are entitled to claim excluded amounts in payment claims or schedules. The prohibition applies equally to both parties according to Seabay.[15] That being so, it follows the amounts were not properly included in the schedule to PC-10, with the result that there was nothing available to “recoup” in PC-11, because the payment schedule to PC-10 impermissibly included a damages claim.
[15]At paragraphs [122]-[124]
63 Self-evidently, had Valeo wished to challenge PC-11, it could have served a payment schedule in response. Having not served a payment schedule and not paid the amounts in question, then the provisions of Part 3 of the Act come into play.
64 By seeking to off-set costs spent on rectification works, which are not excluded amounts, I consider Valeo is seeking to bring a cross claim or raise a defence in this proceeding which is prohibited under s16(4)(b) as a means of resisting payment of PC-11.
65 By reason of the foregoing, I am not persuaded by Valeo’s submission that PC‑11 included “excluded amounts”, with the result that Zulin is not entitled to enter judgment. I find that PC-11 did not contain any excluded amount, whether it be by way of so called “negative variations” and/or damages.
66 Given my rejection of Valeo’s case that PC-11 included “excluded amounts”, it is unnecessary to determine the alternative arguments put forward by Zulin that Valeo could not rely upon clause 9 of the subcontract or that PC-10 was invalid because it was premature.
Conclusion
67 For the above reasons, I am satisfied there should be judgment in favour of Zulin in the sum of $317,284.00 (Three Hundred and Seventeen Thousand Two Hundred and Eighty Four dollars) (inclusive of GST), together with interest to be calculated under the Act.
68 Subject to hearing from the parties, I propose ordering Valeo pay Zulin’s costs of the proceeding to be taxed on a standard basis in default of agreement. I will direct the parties to file minutes of orders to reflect these reasons.
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Certificate
I certify that these 17 pages are a true copy of the Reasons for Judgment of her Honour Judge A Ryan delivered on 16 July 2019.
Dated: 16 July 2019
Associate to her Honour Judge A Ryan
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