46 I gave separate considerations to the question of construction in this matter, based on the more detailed submissions that were made (compared to those made in Consolidated Constructions). However, I see no reason to change the opinion that I expressed in Consolidated Constructions."
14 In the present proceedings, Mr Finch relied on what I had said in Consolidated Constructions and in Austruc. Mr Corsaro submitted that the words "forms part of" should be given a wider construction. He said that the words "forms part of" are ordinary English words, and that one contract will form part of another where performance under one affects performance under the other. I repeat what I said, in relation to the equivalent submission, in Austruc at para [48]. The submission does not state the construction of the words "forms part of". It states their application: which is, conceptually, something different.
15 Mr Corsaro submitted that the policy of the Act required that the words "forms part of" be given a wide interpretation. The reason, he said, was that Parliament wished "to avoid a dual system of progress claim entitlements in the case of a principal who depends on loan funds in order to complete a project." He pointed to the circumstance that an adjudication under the Act "is interim and is not intended to affect the rights that the parties otherwise have under the Contract". He submitted further "that Parliament did not envisage that a substantial injustice would occur if the "debtor" did not hold the adjudicated funds until the final resolution of any dispute between the parties".
16 In Consolidated Constructions I said, at [29], that "the purpose of s 7, stated broadly, may be seen to be to ensure that the rights and liabilities created by the Act, and the enforcement mechanisms that it provides, are confined to and operate only between the parties to the construction contract", and "to restrict the operation of the Act so that it does not affect construction contracts in so far as they may deal with financial arrangements". I accept Mr Corsaro's submission that Parliament wanted "to avoid a dual system of progress claim entitlements". It may be viewed as either a different expression, or a consequence, of the purpose as I stated it. However, I do not accept the following steps in his argument. Firstly, an adjudication is intended to affect, or create, rights; although the way in which it does so may be overturned, or addressed, in a final "accounting": see s 32. Secondly, I think, the intention of the legislature was to ensure that the adjudicated funds went to their intended destination, namely the builder; and that they should remain there until any final "accounting", of the kind recognised by s 32, took place.
17 But to state that the legislature wished to avoid a dual system of progress claim entitlements does not resolve the question. The system of progress claim entitlements that the Act creates is a system which gives the entitlement to the builder. Unless s 7(2) applies, that entitlement will exist against the proprietor. Section 7(2) is intended to ensure that the builder does not have concurrent rights, in respect of the one progress claim, against both the proprietor and the financier. It must follow that the prohibition in s 7(2) was not intended to apply unless, in its absence, the builder would have such concurrent rights. In other words, unless the process that is comprehended by the words "forms part of" is such as to give the builder rights, not only against the proprietor (with whom it has the construction contract) but also against the proprietor's financier, the mischief at which s 7(2) is aimed would not exist. So far from supporting the construction for which ACA contends, I think that the assigned legislative purpose tells strongly against it. First, it would suggest that the words "forms part of" should be construed in the way that I have indicated in my earlier decisions. Second, it would suggest that a wide construction, of the kind advocated by ACA, would mean that many cases quite outside the ambit of the legislative intention would, nonetheless, be excluded from the Act by s 7(2).
18 So far, I have assumed that Mr Corsaro's phrase "a dual system of progress claim entitlements" was intended to refer to the position of the builder: ie, to the possibility that (apart from the operation of s 7(2)(a)) the builder might have entitlements against both the principal and the financier for recovery of the same progress claim. It may be, however, that the phrase was intended to refer to the entitlement, on the one hand, of the builder against the principal and, on the other, of the principal against the financier. If the submission were intended in this latter sense then I would not accept it. The fundamental purpose of the Act is to give builders effective rights to progress payments, and a swift and effective way to enforce those rights, subject to a final accounting between the builder and the principal. It would be extraordinary if the legislature intended that the operation of the Act in a particular case should depend on the existence of financial arrangements (to which the builder was not a party, and of whose terms, or even existence, the builder might be ignorant) put in place by the principal to enable it to meet its obligations to the builder. Given that the legislative scheme exists, it is for the principal to ensure that (whether through financial arrangements that it puts in place or otherwise) it will be in a position to meet its obligations to the builder not only under the contract but also, to the extent that they differ, under the Act.
19 Mr Corsaro submitted further that "it could not have been the legislature's intention to create a [situation] which would be productive of uncertainty … ". I have no difficulty in accepting this submission. However, again, I think that it tells against the wide construction for which ACA contends. Take the example of a building contract made between B as builder and P as principal. Unknown to B, P has arranged finance, by means of a loan agreement with a financier F, to enable it to meet its obligations to B. Yet, if the construction advanced for ACA were correct, B would lose its rights under the Act - because of the existence of a loan agreement of which it had no knowledge. The consequence is the promotion, not the reduction, of uncertainty.
20 The effect of the construction for which ACA contends would be to render the application of the Act dependent upon circumstances that might not be within the knowledge of at least one of the parties to the construction contract. I accept that the legislature must have intended that, in some circumstances (because the construction contract forms part of a loan agreement of the relevant kind) a builder would lose the protection of the Act. Presumably, the legislature thought that, in those circumstances, the builder was obtaining something worthwhile in exchange: namely, the rights (if any), conferred on the builder under the composite construction contract/loan agreement. If the construction of the words "forms part of" is as I have suggested in Consolidated Constructions and Austruc, then the builder would know that it would lose, or was likely to lose, the protection of the Act. The builder could then make an informed decision whether or not to proceed: the builder could weigh for itself the alternative that was offered. However, on the construction for which ACA contends, the builder might not know that it was contracting without the protection of the Act. It might have no opportunity to make any, let alone an informed, choice. I cannot accept that this is what the legislature intended by its use of the words "forms part of".
21 Mr Corsaro submitted further that the words "forms part of" should not be construed in the manner indicated in Consolidated Constructions and Austruc because to do so would be to render s 7(3)(c) otiose. That, he said, followed from the definition of "construction contract" in s 4 of the Act:
"A contract or other arrangement under which one party undertakes to carry out construction work … for another party".
22 If the construction contract were incorporated into, so as to form part of, the loan agreement then, he said, the loan agreement would itself become a construction contract. It followed, he submitted, that any agreement caught by s 7(2)(a) would also have been caught by s 7(3)(c).
23 I do not think that this submission is correct. There is a significant difference between sub ss (2) and (3). Under the former, the Act does not apply at all if the construction contract is caught. Under the latter, the Act does not apply to the extent to which the construction contract is caught.
24 More fundamentally, I do not think that the intermediate steps in the chain of reasoning stand up. The Act does not apply at all to loan agreements (unless, of course, they include provisions whereby, relevantly, one party undertakes to carry out construction work for another). If s 7(2)(a) applies, the Act will not apply to the construction contract. I do not understand how the Act can apply to two agreements, because one forms part of the other, when in law it would apply to neither of them separately. If, as Mr Corsaro submitted, the question is to be judged by the touchstone of commonsense, the commonsense answer is that such a conclusion cannot be right.
25 Accordingly, I adhere to the view that I expressed in Consolidated Constructions and Austruc. As a refinement, or development, of that view, I add that the effect of the process of incorporation would be that, apart from the operation of s 7(2), the builder might have alternative and concurrent rights, against both the proprietor and the financier, in respect of any one progress claim.
Section 7(2)(a): the facts
26 The question is then whether, on the facts, the builder's side deed has the effect that the contract (between ACA and Austruc) forms part of the loan agreement (between ACA and Westpac).
27 In my judgment in Austruc at [54], I said that it was arguable that the builder's side deed did have that effect. I referred to the following aspects of the side deed:
"(1) It shows that ACA charged (among other things) its interest under the contract to Westpac; and it records Austruc's consent to that charge.