Anderson Street Banksmeadow Pty Ltd v JCM Contracting Pty Ltd

Background facts 4Anderson Street and JCM entered into a construction contract on 10 October 2012 for the performance of excavation work by JCM at a site being developed by Anderson Street at Banksmeadow. No formal written contract for the excavation work was executed by the parties. However, it is not disputed that the terms of the contract are as set out in a document entitled "Scope of Works, Bulk and Detailed Excavation Revision A" (the SOW). 5Clause 2.13 of the SOW relevantly provided: Progress claims will be monthly, submitted on the 15th of each month. Payment terms are 45 days. 6On 15 November 2012, JCM sent two invoices to Anderson Street by email. The first invoice was numbered 1995 and dated 5 November 2012. It was sent at 2.34 pm (the first invoice). The second invoice was numbered 1996 and dated 15 November 2012. It was sent at 2.35 pm (the second invoice). 7It is not entirely clear what happened after 15 November 2012. However, Anderson Street did not pay the second invoice and, on 19 July 2013, JCM served a notice on Anderson Street giving notice of its intention to suspend work under the contract. The notice relevantly said: Our Payment Claim (Tax Invoice No. 00001996) was served on 15 November 2012 pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) ('Act'). The amount of the claim was $6,545.00 (including GST). It is apparent that no payment schedule was provided to us within the time required under the Act nor has payment been received. The due date for payment was 30 days from the date of our payment claim and this date has elapsed. Since the due date for payment has elapsed and we have not yet received payment for the amount due under the Act, we hereby serve notice of our intention to suspend work under the construction contract. 8That notice was clearly given in accordance with s 27(1) of the Act which provides: A claimant may suspend the carrying out of construction work (or the supply of related goods and services) under a construction contract if at least 2 business days have passed since the claimant has caused notice of intention to do so to be given to the respondent under section 15, 16 or 24. Section 15(2) permits a claimant to serve notice of intention to suspend carrying on construction work where a claimant serves a payment claim and the respondent does not provide a payment schedule to the claimant in response to that claim in accordance with the timetable set out in s 14(4) - with the result that the respondent becomes liable under s 14(4) to pay the claimed amount on a due date for the progress payment to which the payment claim relates. 9Anderson Street responded to JCM's suspension notice on 22 July 2013. In that response, it said: The reference date in the subcontract for subcontractors' progress claims is the last day of the month. Which in this case refers to 31 October 2012 as the reference date for the progress claim in question. Using that reference date invoice 1995 was issued by JCM on 5th November 1012. Accordingly invoice 1996 was the second invoice issued in reliance to the reference date and Section 13[5] of the Act, only allows 1 payment claim in respect of a reference date. Accordingly JCM cannot rely upon invoice 1996 to support a suspension notice under the Act. If JCM does suspend the work they will be in beach [sic] of the subcontract, although we note that JCM is already in breach in refusing to return to site to complete their works. 10JCM responded to that letter on 23 July 2013 asking for an explanation of the suggestion in the letter that the reference date was the last day of the month. 11There was then further correspondence between the parties. Anderson Street did not answer JCM's query in relation to the reference date. It asserted that JCM had imported a quantity of excavated material without authorisation onto the site and complained about JCM's continued suspension of work. JCM denied that it had imported material onto the site without authorisation and maintained its entitlement to suspend the works. 12On 31 July 2013, Anderson Street gave notice terminating the contract. The notice relevantly said: In the circumstances of this refusal [that is the refusal to recommence work] and the dumping of imported material onto our site, it is clear that JCM has no intention of completing its works. That behaviour amounts to a repudiation of JCM's contractual obligations and accordingly Anderson Street Banksmeadow Pty Ltd accepts JCM's repudiation and hereby terminates the contract. 13On 23 August 2013, JCM made a payment claim for $79,901.10. The claim had a number of items. 14Anderson Street served its payment schedule on 6 September 2013. 15In these proceedings, Anderson Street submitted that the question whether it was entitled to terminate the contract was relevant to four of the items specified in the payment claim. 16The first item was a claim for $3,121.36 in respect of "Basecourse". According to the payment schedule, no work had been commenced on that item. However, Anderson Street claimed that as a matter of goodwill it had previously allowed JCM 5 per cent of the total price for that work. The payment schedule stated that "This concession for payment is withdrawn ...". Consequently, Anderson Street claimed a refund of $3,121.36. Although the payment schedule does not specifically say so, it might be inferred that the concession was withdrawn because it was alleged that JCM had wrongfully repudiated the contract. 17The second item relates to a contract amount for "Preliminaries and Supervision" totalling $5,238.58. In relation to this item, Anderson Street maintained that 25 per cent of the contract works remained outstanding, that the item for Preliminaries and Supervision related to the entire contract works and that consequently it was "more than reasonable" for Anderson Street to withhold 15 per cent in respect of that item. Again, although Anderson Street does not specifically say so, it might be inferred that that was reasonable because it was alleged JCM had wrongfully repudiated the contract. 18The third item related to the "Retention Allowance on the contract value" totalling $26,902.12. Anderson Street maintained that, since the contract had not reached practical completion and JCM had abandoned completion of the works, it was entitled to retain 10 per cent of the contract sum (including variations) and that the amount retained was only $28,763.11, which was less than 10 per cent. 19The last item related to a claim for the excavation of Pile Caps. Anderson Street conceded that the relevant work had been done but claimed that it was defective. 20On 10 September 2013, JCM made an adjudication application to the Authority in accordance with s 17(1)(a)(i) of the Act. The application was served on Anderson Street on 11 September 2013. 21In its submissions in support of the application, JCM complained that Anderson Street "did not administer the agreement in accordance with the terms of the SoW". It gave a number of examples. One of them was expressed in the following terms: 1. Reference Date - In various correspondence (see example at Annexure D.3) the Respondent has relied on the reference date as being 'the last day of the month'. The SoW provides a reference date of the 15th of each month (item 2.13). Annexure D.3 is Anderson Street's letter dated 22 July 2013. 22In relation to the first item (Basecourse), JCM made the following submission: The Claimant has completed preparation of the entire site for the Basecourse to be laid and this would equate to at least 5% of the total Basecourse works allowance in the contract sum. The Respondent had previously assessed and paid this and it is unreasonable to now attempt to claw back this item from amounts properly due. Given the Respondent has terminated the contract the Claimant will not have the opportunity to complete the remaining Basecourse works and therefore will be unable to recover the value of the works completed to date (being the 5% previously assessed and paid) should the adjudicator find in favour of the Respondent. 23In relation to the second item (Preliminaries and Supervision), JCM made the following submissions: 7.7 The Claimant disputes the Respondents reason for withholding payment. The Claimant believes that the delays experienced in completing the Project warrant an entitlement to claim 100% of the Preliminaries allowance. The Claimant commenced on site in October 2012 and was expected to complete the contract works in December 2012. Due to delays with the Respondent's works and other subcontractors, the Claimant was forced to demobilise and leave the site in February 2013. The Claimant has since been incurring costs for both its on-site and off-site overheads against which it is entitled to claim for payment. Since leaving the site the Claimant has had to spend significant monies and management time in chasing payments from the Respondent, attending meetings with the Respondent, engaging professional advisors and the like, as well as funding retention amounts behind held by the Respondent and providing environmental protection equipment to the site which is ongoing. All of these costs are directly related to the Respondent's failure to manage the Project and its other subcontractors which has delayed completion of the works, and the Claimant is entitled to recover these costs from the Preliminaries portion of the contract sum. 7.8 The Respondent issued the Claimant with a notice on 31 July 2013 terminating the contract. Given that the Claimant will not be returning to site to complete the contract works it is apparent that there will be no future opportunity for this Preliminaries amount to be recovered should the adjudicator find in favour of the Respondent. The Claimant request that the adjudicator find in its favour for the amount of $4,726.35 ex GST. 24In relation to the third item (the Retention Amount), JCM made the following submissions: 7.11 By way of background, the Respondent's reason for termination was that the Claimant had suspended the work (see correspondence from the Respondent dated 31 July 2013 at Annexure D.7). The Claimant had validly issued a suspension notice pursuant to section 27 of the Act (Annexure D.2) against Invoice number 1996 dated 15 November 2012 (Annexure D.2A). In circumstances where the Respondent refused to address overdue payments, it was unreasonable to expect the Claimant to return to site and carry out further works. 7.12 Through various correspondence the Respondent asserted that the Claimant's suspension was in breach of the agreement and invalid on the basis of Reference Dates. It is evident from Annexures D.2 and D.2A that the Claimant validly suspended works against its claim (Invoice 1996) dated 15 November 2012 which was the only claim issued against the Reference Date of 15 November 2012. ... 7.13 The Claimant's primary position is that the retention provisions contained at item 2.13 of the SoW no longer apply because the Respondent has issued a termination notice. Therefore the Claimant has incorrectly allowed retention at a rate of 2.5% in its payment claim when in fact it should have allowed Nil. .... 25In relation to the fourth item (Pile Caps), JCM denied that the work it had done was defective and gave an explanation for that denial. 26On 16 September 2013, the Authority referred JCM's adjudication application to the Adjudicator in accordance with s 17(6) of the Act. 27On 18 September 2013, Anderson Street provided a response to the adjudication application, as permitted under s 20 of the Act. 28In commenting generally on the adjudication application, Anderson Street made the following submission: It is true that the Claimant issued a notice on 19 July 2013 purporting to suspend under Section 27 of the Act in reliance on Invoice 1996. As is so often the case with the Claimant the notice was ill conceived in that it was based on a payment claim that was the second payment claim made in respect of a reference date and therefore had no standing under the Act (see Section 13). Invoice 1996 was issued by the Claimant as a separate invoice at 2.35pm on 15 November 2012. Unfortunately for the Claimant, it issued invoice 1995 which although dated 5 November 2012 was in fact only issued as a separate invoice to the Respondent at 2.34pm the same day. While it may only be a minute the fact remains that invoice 1996 was the second separate claim made under the Act in respect of the reference date of 15 November 2012. (See Annexure B) and therefore no entitlement to suspend can follow. The response went on to assert that the reference in Anderson Street's letter dated 22 July 2013 to invoice 1995 being issued on 5 November was a typographical error and should have been a reference to 15 November. 29In relation to Basecourse, Anderson Street made the following submission: On the Claimant's own submissions the highest its position can be put is that it "has completed preparation of the site for the basecourse" (paragraph 7.6). In the circumstances where the Claimant now makes its claim for everything it could hope for it is not unreasonable for the Respondent to look at its prior position and to take an [sic] hard line removing the ex gratia payment of 5% that it had previously made. What is good for the claimant must similarly be allowed to the Respondent. ... The termination was lawful and resulted from the repudiation by the Claimant of the contract because it had chosen to suspend and not return when the unlawfulness of the suspension was pointed out to it. The Claimant effectively abandoned the contract and repudiated. The Respondent accepted the repudiation and terminated. ... 30In relation to Preliminaries and Supervision, Anderson Street made the following submissions: The Respondent repeats its position put in the payment schedule. The Respondent says further that the termination was lawful and the fact that more than 25% of the contract works remain incomplete means that its valuation of this head of claim is generous. It is the acts of the Claimant in abandoning the works that have brought about the termination. There is no accrued right in the Claimant to recover the preliminaries, quite to the contrary, it has been overpaid. 31In relation to the Retention Amount, Anderson Street asserted that it had lawfully terminated the contract, that termination of the contract did not require the release of the security and that it was entitled to use that security to engage others to complete the work. 32In relation to Pile Caps, Anderson Street maintained that the work was defective and said: The Respondent is entitled, where the contract has been terminated as a result of repudiation to rectify the defective work. That right accrued prior to termination and remains. 33The Adjudicator issued a determination in favour of JCM on 23 September 2013. 34The Adjudicator dealt with the parties' submissions concerning the reference date. He pointed out that Anderson Street now agreed that the reference date was the 15th day of each month. He continued: ● With respect to the Respondent's adjudication response submission that both invoices (Nos. 00001995 and 00001996) were served on the same date, I note the following:

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