All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd

Court of Appeal (NSW)|2017-10-26|Before: White JA, McDougall J

Background

In 2015, the parties entered into a written contract, styled "Subcontract: 5511 & 56034", pursuant to which the applicant undertook to perform mechanical ventilation and air-conditioning work on a residential development at Waitara. The agreed contract sum for the works was some $558,360 exclusive of GST. The contract was based on AS4903-2000, the "General Conditions of Contract for Design and Construct", to which relatively minor amendments had been agreed. Clause 37.1 dealt with progress claims. It was unamended, and provided as follows: "The Subcontractor shall claim payment progressively in accordance with Item 37. An early progress claim shall be deemed to have been made on the date for making that claim. Each progress claim shall be given in writing to the Subcontract Superintendent and shall include details of the value of WUS done and they include details of other monies then due to the Subcontractor pursuant to provisions of the Subcontract."

The operation of the Act

As has been explained in a series of decisions culminating in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd [2016] HCA 52; 91 ALJR 233, the Act creates a parallel regime, separate from the contract, for the prompt making of progress payments under a construction contract, without affecting the parties' rights under that contract. The provisions of the Act have effect despite any provision to the contrary in any contract: s 34. The rights under the statutory scheme will result in determinations being made and payments being made, but not so as to affect any civil proceedings arising under the contract, save for the possibility that allowance must be given for payments made: s 32(2) and (3).
The Act's purpose was stated, by reference to the authorities, in Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd [2017] NSWCA 53 at [10]: "to provide 'a speedy and effective means of ensuring cash flow to builders from the parties with whom they contract'. Further, the Act 'seeks to preserve the cash flow to a builder notwithstanding the risk that the builder might ultimately be required to refund the cash in circumstances where the builder's financial failure, and inability to repay, could be expected to eventuate.' The Act thus 'operates to alter, in a fundamental way, the incidence of the risk of insolvency during the life of a construction contract.'"
The central provisions of the Act for present purposes were ss 8 and 13: "8 Rights to progress payments (1) 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. (2) 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 the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the contract, or (b) if the contract makes no express provision with respect to the matter - the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and the last day of each subsequent named month. 13 Payment claims (1) A person referred to in section 8 (1) who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment. (2) A payment claim: (a) must identify the construction work (or related goods and services) to which the progress payment relates, and (b) must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount), and (c) if the construction contract is connected with an exempt residential construction contract, must state that it is made under this Act. (3) The claimed amount may include any amount: (a) that the respondent is liable to pay the claimant under section 27 (2A), or (b) that is held under the construction contract by the respondent and that the claimant claims is due for release. (4) A payment claim may be served only within: (a) the period determined by or in accordance with the terms of the construction contract, or (b) the period of 12 months after the construction work to which the claim relates was last carried out (or the related goods and services to which the claim relates were last supplied), whichever is the later. (5) A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract. (6) However, subsection (5) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim. ..."
The essential operation of the Act, relevantly for this appeal, and as established by Southern Han, is as follows. First, s 8 gives rise to an entitlement to a progress payment on the part of persons who have undertaken to carry out construction work. The entitlement under s 8 is stated to be "on and from each reference date".
Secondly, s 8(2) defines "reference date" to mean "a date determined by or in accordance with the terms of the contract as the date on which a claim for a progress payment may be made…". If no express provision is made in the contract, the reference date is the last date of the named month in which construction work was first carried out, and the last day of each subsequent named month.
Section 13 permits a person who is entitled under s 8(1) and who is entitled or who claims to be entitled to a progress payment to serve a payment claim. Southern Han confirmed that it is not sufficient for a person to have undertaken to carry out construction work or to supply related goods and services under a construction contract in order to be entitled under s 8(1); it is also necessary to have regard to the temporal aspect of s 8(1), which turns on the reference date. Thus the High Court said at [61]: "The construction of s 13(1) consonant with the structure of the Act is accordingly that advanced by Southern Han. The description in s 13(1) of a person referred to in s 8(1) is of a person whom s 8(1) makes entitled to a progress payment. Section 8(1) makes a person who has undertaken to carry out construction work or supply related goods and services under a construction contract entitled to a progress payment only on and from each reference date under the construction contract. In that way, the existence of a reference date under a construction contract within the meaning of s 8(1) is a precondition to the making of a valid payment claim under s 13(1)." (Emphasis added.)
Thus, both the entitlement under s 8(1) and service of a payment claim under s 13(1) can only occur on or from each reference date.
A payment claim must identify the construction work to which the progress payment relates and the amount of the claim: s 13(2) and must include various other matters.
Section 13(4) then relevantly provides that a payment claim may be served only within the period determined by or in accordance with the terms of the construction contract. That subsection delineates the latest period within which a payment claim may be served.
When s 8(1) and s 13(1) and (4) are read together, it will be seen that s 8(1) identifies the earliest date on which a payment claim may be served ("On and from each reference date ..."), and s 13(4) identifies the latest date on which it may be served (12 months after the work has been carried out or such longer period as determined by the contract).
Those provisions are further complemented by s 13(5), which provides that "a claimant cannot serve more than one payment claim in respect of each reference date under the construction contract". As the High Court noted in Southern Han at [62], that achieves a harmonious operation with s 13(1).
Section 31, on which the applicant relied, in the form it took at the relevant time, makes provision for service as follows: "31 Service of notices (1) Any notice that by or under this Act is authorised or required to be served on a person may be served on the person: (a) by delivering it to the person personally, or (b) by lodging it during normal office hours at the person's ordinary place of business, or (c) by sending it by post addressed to the person's ordinary place of business, or (d) by any other method authorised by the regulations for the service of notices of that kind, or (e) in such other manner as may be provided under the construction contract concerned. (2) Service of a notice that is sent to a person's ordinary place of business, as referred to in subsection (1)(c), is taken to have been effected when the notice is received at that place. (3) The provisions of this section are in addition to, and do not limit or exclude, the provisions of any other law with respect to the service of notices." The Court was told that no regulations had been made for the purposes of s 31(1)(d).
Section 14 authorises a person on whom a payment claim is served to provide a payment schedule within the time required by the contract, or within 10 business days after the payment claim is served, whichever time expires earlier. A payment schedule must, among other things, indicate the amount that is proposed to be paid in response to the payment claim: s 14(2)(b). Where the amount proposed to be paid in the payment schedule is less than the claimed amount, a claimant may apply for adjudication under s 17.
Steps must be taken within a very precise and tight timeframe following the service of a payment claim. For example, if a payment schedule is not provided within 10 business days after the payment claim is served, the "respondent becomes liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates": s 14(4), with the consequences set out in s 15. The same occurs if the respondent fails to pay the amounts specified in its payment schedule: s 16. In either of those cases, the adjudication procedure in s 17 may also be activated, which in turn is subject to a precisely specified and prompt resolution mechanism. It is not necessary to summarise those aspects of the statutory regime.

Reasons of the primary judge

The primary judge heard argument on three issues, only one of which is pursued on appeal, and delivered judgment, promptly, the following week: Regal Consulting Services Pty Ltd v All Seasons Air Pty Ltd [2017] NSWSC 613. Nothing need be said about the other two issues.
Although the primary focus of the respondent's submissions to the Adjudicator seems to have turned on s 13(5), his Honour accepted that the dispute extended to whether the deeming provision in cl 37 entitled the applicant to enforce its rights under the Act. That aspect of his Honour's reasons is not challenged in this Court and may, once again, be passed over.
The primary judge recognised that the effect of the Act was that two parallel mechanisms for the recovery of payments existed: the parties' contractual rights and the parties' rights under the Act for the making of payments in the short term, without prejudice to the parties' contractual position. After dealing with authorities on the meaning of a "deeming" provision in a contract, his Honour concluded that cl 37.1 had been used to create a contractual fiction, and then, in accordance with what was said in Muller v Dalgety & Co Ltd (1909) 9 CLR 693 at 696; [1909] HCA 67, asked what was the purpose for which that fiction had been introduced. The primary judge considered that cl 37 operated to start the subcontractor's contractual rights to payment on the 20th day of the month, even if a claim had been served earlier, but noted that it said nothing expressly as to the operation of the Act. His Honour then addressed the potential operation of the deeming clause upon the Act, expressing the following conclusions at [44]-[46]: "The important point, and in my view the one that disposes of the first issue, is that the entitlement to a progress payment given by s 8 arises not only because the claimant has undertaken to carry out construction work but, also, because a reference date has arisen. That is the point of the decision in Southern Han. If no reference date has arisen, there is no statutory entitlement to a progress payment. And it is the existence of that statutory entitlement that is the precondition of the operation of s 13, as again the decision in Southern Han makes clear. It is one thing to say, for the purposes of the contract, that a progress claim served ahead of time is deemed to have been served on the contractually required date. That does not alter the date. The required date remains (in this case) the 20th day of the month. It is not some floating or ambulatory date fixed by whim, or by the accident of service. It is quite another thing to say that a progress claim served ahead of time is, nonetheless, served "on and from" the contractually required date, which of course is also the reference date for the purposes of the Security of Payment Act. That proposition, for which Mr Macfarlane contended in his submissions, effectively treats the reference date under the contract as being the 20th each of month or such earlier date as All Seasons might choose to make a progress claim. That does not seem to me to be permissible."
His Honour's conclusion was that the progress claim served on 12 July 2016 was not a payment claim under s 13 of the Act, because the applicant was not "a person referred to in s 8(1) who is … entitled to a progress payment" and thus the Adjudicator lacked jurisdiction to hear and determine the Adjudication Application based on that claim.

Submissions on appeal

There are four proposed grounds of appeal, which overlap. The first and second grounds were the principal grounds. They were framed a little loosely in the draft notice of appeal, in terms of a progress claim being made, rather than being served, although the imprecision was corrected in oral submissions. In substance, the applicant contended that its progress claim made on 12 July 2016 should be taken by reason of cl 37.1 to have been served on 20 July 2016 (on which date s 13(1) was satisfied), and therefore engaged the Act. It submitted that that was the effect of s 8(2)(a) and s 13(1) of the Act when read together. It submitted that the question when a claim may be served is specifically addressed by s 13(4), and that s 13(1) says nothing as to when a claim may be served.
Thus the applicant submitted: "It is not correct to say that the progress claim was served ahead of time. It was provided or served in accordance with the Contract such that it was made on a reference date."
That is to say, the applicant submitted that rather than cl 37 having the impermissible effect of treating the reference date to be a date earlier in time, instead cl 37 has the effect of deeming the service of an early progress claim to be later in time, when the reference date has been reached.
The applicant candidly confronted the consequences of its submissions. These included that although the invoice dated and received on 12 July 2016 said on its face that it was a payment claim, it was not in fact a payment claim such as to engage the provisions of the Act until 20 July 2016 arrived. Thus the ten business days within which a payment schedule was required by the Act to be provided did not commence on 12 July 2016, but on 20 July 2016. (In the present case, the respondent prudently provided a payment schedule on 26 July 2016, which is ten business days after the date it received the invoice, so that these difficulties did not arise.) It is clear that the applicant's construction necessarily involves a change in the status, for the purposes of the Act, of the document by reason merely of the effluxion of time.
The applicant further relied on the facultative provisions in s 31(1)(e). It also submitted that the effect of Southern Han was confined to the existence of a reference date being a precondition to the making of a valid claim, and did not preclude its submissions based on service.
Finally, in its written submissions the applicant relied on passages from this Court's decision in Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113, delivered shortly after the reasons of the primary judge were published, although before orders were made. Both Basten JA and Meagher JA referred to cl 37.1 in the contract in that case and said that it had the effect that a particular payment claim which was made on 25 November 2016, was taken to have been made on 28 November 2016: see at [50] and [69]. However, in oral submissions, Mr Macfarlane, who appeared for the applicant at first instance and in this Court, acknowledged that the point had not been argued in Abergeldie, which accordingly was not authority for the construction for which he contended, although it was consistent with that construction.

Consideration

The ultimate question is whether the 12 July 2016 claim engaged the statutory regime in Part 2 of the Act on 20 July 2016, it being accepted that it could not do so before that time. Section 8(1) is clear. It is authoritatively determined by Southern Han that the entitlement of a person to a progress payment only arises "on and from each reference date". At the time that the applicant's 12 July 2016 claim was sent to the respondent, it had no entitlement to a progress payment.
We would accept the applicant's submission that, as between the parties, its claim dated 12 July 2016 was "deemed" to have been made on 20 July 2016. We note that cl 37 does not refer in terms to service; it refers instead to making a claim. However, we proceed on the basis, favourably to the applicant, that nothing turns on this.
But the counterfactual position agreed to by the parties and binding as between themselves as a matter of contract does not mean that the 12 July 2016 payment claim was taken to have been served on 20 July 2016 for the purposes of the Act. The difficulty faced by the applicant is that the service of a payment claim under s 13(1) is an essential precondition to taking subsequent steps in the procedure set out in Pt 3 of the Act. In Southern Han Breakfast Point at [44] the High Court said: "There is no dispute between the parties that service of a payment claim under s 13(1) of the Act is an essential precondition to taking subsequent steps in the procedure set out in Pt 3 of the Act. There is accordingly no dispute that, unless a payment claim answering that description is served, there can be no adjudication application and hence no adjudication within the jurisdiction conferred by s 22 of the Act. That shared understanding of the relationship between s 13(1) and s 22 is undoubtedly correct."
We appreciate that the point was not argued in Southern Han. However, we consider it to be plainly correct. A series of important consequences follow upon the service of a payment claim, many of which are measured, directly or indirectly, by the number of business days following service of a payment claim. As it was put orally by Mr Robertson, "the timeframes are fixed and important and need to be complied with strictly".
That is to say, the legislative regime turns upon two things: the reference date, only "on and from" which date a person may have an entitlement to a progress payment, and the service of a payment claim by a person so entitled.
It is true that in some respects the Act picks up the mechanisms chosen by the parties in their contract. As the applicant points out, this has occurred in s 13(4) and in s 31(1)(e). But neither provision assists the applicant. 1. Section 13(4) specifies the time within which a payment claim may be served, which is either 12 months or such longer period as is determined by or in accordance with the terms of the construction contract. That subsection is directed to the time after which a progress claim may not be served so as to engage the Act in respect of a particular reference date. It has nothing to say, and still less does it validate, the early service of a purported payment claim which has been made at a time prior to the entitlement to a progress payment arising. 2. Similarly, s 31(1)(e) specifies the manner in which a notice, including a payment claim, may be served, and confirms that the parties may agree to that occurring as provided under the construction contract. Each of paragraphs (a)-(d) in s 31(1) identifies a manner of service, and s 31(1)(e) refers to that genus by the words "in such other manner" and makes applicable any other manner to which the parties have agreed in their contract. None of those paragraphs says anything about the time at which service is to be effected. Indeed, confirmatory of this is s 31(2), which makes separate provision for time where service is effected by post. (Arguably there are further difficulties confronting the construction of cl 37.1 for which the applicant contends, and cases where s 31(2) applies, because on one view the construction would exclude, modify or restrict s 31(2) where a payment claim has been served by post and therefore be void under s 34(2). However, it is not necessary to express a concluded view on this point, which was far from fully explored in the parties' submissions.) It suffices to say that nothing in s 31(1), including s 31(1)(e), is addressed to altering the time, as opposed to the manner, of service.
Thus the provisions to which the applicant refers are directed to extending the last date in which a payment claim may be served, and the ways in which it may be served, rather than altering the basal notion of service of a payment claim by a person entitled on and from each reference date. If anything, the fact that the Act expressly picks up the parties' agreement as to the last day on which a payment claim may be served, and as to the manner by which it may be served, but says nothing about the consequences of agreement as to the early service of a purported payment claim, tells against the applicant's construction.
Further, the applicant's construction sits awkwardly in light of s 13(5). Subsection 13(5) imposes a prohibition upon the service of more than one payment claim in respect of each reference date. On 12 July 2016, the applicant had already served a payment claim in respect of 20 June 2016, and it was not entitled to a progress payment in respect of the 20 July 2016 reference date. Prima facie, it was in contravention of s 13(5). The applicant seeks to escape that consequence by relying on the deeming provision, such that its purported payment claim of 12 July 2016 is taken to have been served on 20 July 2016. But just as we doubt that the proper construction of the Act permits a deemed service which did not occur in fact to engage s 13(1), so too we doubt that the contravention of s 13(5) by the actual service of a purported payment claim can be avoided by a deeming provision.
The applicant's answer to this is, as noted above, to submit that the 12 July 2016 claim was not a payment claim when it was received, but became a payment claim on 20 July 2016.
Further, we do not think that the applicant's construction promotes the purpose of the Act. There is sound reason, given the consequences for both parties of engaging the regime established by the Act, for there to be certainty as to precisely when a payment claim has been served. It is easy to see the scope for confusion that could arise if the applicant's construction were accepted. The Act requires people dealing with a builder's accounts to be very concerned to respond to "payment claims" within 10 business days. On the applicant's construction, it would be necessary to have regard not merely to when a document styled a "payment claim" is received, but also the terms of the particular contract. That is not enhanced by a construction which may give rise to debate as to the effect of a deeming provision on a notice which, at the time it was sent, could not have been an actual payment claim. Not lightly would we conclude that the time-critical regime established by the Act involving as it does a series of exchanges of claims and responses is engaged by the deemed or notional service of a document, rather than actual service.
The applicant repeatedly invoked in support of its construction the legislative purpose, which was to benefit subcontractors in its position. But Gleeson CJ observed in Carr v Western Australia (2007) 232 CLR 138; [2007] HCA 47 at [6] that: "[T]he underlying purpose of an Income Tax Assessment Act is to raise revenue for government. No one would seriously suggest that s 15AA of the Acts Interpretation Act has the result that all federal income tax legislation is to be construed so as to advance that purpose."
In Construction Forestry Mining & Energy Union v Mammoet Australia Pty Ltd (2013) 248 CLR 619; [2013] HCA 36 at [40] it was said, by reference to Carr, that: "Legislation rarely pursues a single purpose at all costs. Where the problem is one of doubt about the extent to which the legislation pursues a purpose, stating the purpose is unlikely to solve the problem."
The beneficial purpose of the legislation does not assist the applicant to overcome the jurisdictional obstacles created by the Act before its provisions are engaged.
Finally, it is true that there are passages in Abergeldie which state that a payment claim made before a reference date was taken to have been made on the reference date. It is plain that no argument was directed in that appeal to the present point, which itself is highly technical, and arises only because the applicant (a) sought to accelerate its claim and (b) chose not to resubmit the claim after the point was taken against it. In Felton v Mulligan (1971) 124 CLR 367 at 413; [1971] HCA 39, Walsh J observed that "in those cases the question now under consideration was not raised and they cannot be treated as authorities against the conclusion which I have reached". Cases are only authority for what they decide: Coleman v Power (2004) 220 CLR 1; [2004] HCA 39 at [79], and see Lazarus v Independent Commission Against Corruption [2017] NSWCA 37; 341 ALR 483 at [87]. The statements in Abergeldie are not authority for the proposition on which this appeal turns. The applicant was correct when it advised that it did not rely on them.

Orders

The respondent opposed the grant of leave, because the amount at stake was small, and more importantly because that amount in issue was merely a temporary entitlement, and was without prejudice to the parties' contractual rights which were preserved by s 32 of the Act. However, the submissions advanced by the respondent were primarily directed to the merits of the question of construction, which is of general application. We propose therefore that there be a grant of leave, although for the reasons already given, the appeal must be dismissed.
We propose the following orders:
Grant leave to appeal.
The applicant to file a notice of appeal in the form of the draft in the White Folder, and otherwise dispense with the requirements of service.
Appeal dismissed with costs.
WHITE JA: I have had the advantage of reading in draft the reasons of Leeming and Payne JJA. I agree with their Honours' reasons and proposed orders.
Two matters are worthy of comment. First, at all times both before the primary judge and on appeal the applicant accepted that the reference date was 20 July 2016. Notwithstanding that part of its progress claim was for the release of a retention amount payable on practical completion, it did not argue that it was entitled to a one-off payment for having (as it claimed) reached practical completion. It did not contend that the date for practical completion was a reference date that had arisen by the time it made its claim (cp Southern Han at [65]).
Secondly, as the argument was advanced before the primary judge and on appeal, it was common ground that in s 8(1) the phrase "on and from each reference date" was to be understood as "on and after each reference date" and not "on and with effect from each reference date". As s 8(1) provides for a contractor's entitlement to a progress payment to arise "on and from each reference date under a construction contract", it would be arguable that the phrase "on and from each reference date" is to be understood as meaning "on and with effect from each reference date", rather than "on and after each reference date". The applicant did not advance this construction.
As presently advised, such a construction would not appear to me to be inconsistent with the High Court's decision in Southern Han. In Southern Han there was no reference date. The sentence in para [61] of the High Court's decision in Southern Han that is emphasised in Leeming and Payne JJAs' judgment at [13] is a paraphrase of s 8(1). I do not understand the High Court in that sentence to have expressed any view as to whether a claim for a progress payment could be made only on and after a reference date or whether it could be made by a contractor claiming to be entitled to a progress payment on and with effect from a reference date; whether the claim is made before or after the reference date. That question did not arise in Southern Han. Although raised from the Bench in the course of the respondent's oral submissions, it was not raised in the applicant's argument.
I agree with Leeming and Payne JJA that the observations of Basten JA and Meagher JA in Abergeldie (at [50] and [69] respectively) to the effect that a payment claim made before a reference date was taken to have been made on the reference date were matters of assumption and not authoritative decision. By the same token, the decision on this appeal is confined to the issues argued.

Amendments 16 November 2017 - [24] "20th day of month" replaced by "20th day of the month"

[45] alphabetical list reordered such that "the applicant" precedes "(a)" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 November 2017

Building and Construction Security of Payment Act 1999(NSW)

Solicitors: One Group Legal (Applicant) Colin Biggers and Paisley Lawyers (First Respondent) King Lawyers Australia (Second Respondent) File Number(s): 2017/180343 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2017] NSWSC 613 Date of Decision: 19 May 2017 Before: McDougall J File Number(s): 2017/32925

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