Birdon Pty Ltd v Houben Marine Pty Ltd

1. On 31 March 2022, the liquidator notified the plaintiff that the proof of debt had been wholly disallowed. The thrust of the reasons given were that the plaintiff had not provided sufficient documentation to establish that, as at the date of liquidation, there was a valid "statutory debt" as asserted by the plaintiff against the company, and that for a valid statutory debt to exist legal proceedings are required to be commenced against the company prior to the appointment of an administrator. It is appropriate to observe that the second component of his position is plainly wrong.
2. On 13 April 2022, the plaintiff, by way of Originating Process, appealed against the rejection of its proof of debt. This is the appeal.
3. The arguments advanced by the liquidator on this appeal differ significantly from those earlier communicated to the plaintiff as the basis for rejecting the proof of debt. But this is a hearing de novo, [2] one consequence of which is that the liquidator is not limited to the original reasons he relied upon for rejecting the proof of debt. Another is that the Court also considers all relevant evidence before it, not only that which the liquidator had at the time of the rejection.

the sop act

1. Section 3 is entitled Object of Act and 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 such a payment regardless of whether the relevant construction contract makes provision for progress payments. (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 progress payment so determined. (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 any such other entitlement.
2. Section 8 provides: A person who, under a construction contract, has undertaken to carry out construction work or to supply related goods and services is entitled to receive a progress payment.
3. Sections 9 and 10 contain provisions for the determination of how the amount of a progress payment is to be calculated, and for how construction work is to be valued.
4. Section 11 provides that a progress payment to be made under a construction contract is payable in accordance with the applicable terms of the contract.
5. Section 13 provides for a claimant to make a payment claim for a progress payment on the person who, under a construction contract, is or may be liable to make the payment.
6. Section 14 provides that the respondent to a claim may reply by providing a payment schedule, which must indicate the amount of the payment (if any) that the respondent proposes to make.
7. Section 15 provides that, where no payment schedule is served, the claimant may recover the unpaid portion of the claimed amount as a debt due in a court of competent jurisdiction, or make an adjudication application in relation to the claim.
8. Section 17 provides that, where the payment schedule indicates a scheduled amount which the respondent proposes to pay and the respondent does not pay it, the claimant has the same option with respect to the unpaid portion of the scheduled amount. It is not uncommon for a respondent to indicate a nil amount.
9. The adjudication process entails the making of an adjudication application by the claimant and the appointment by an authorised nominating authority of an adjudicator. Section 19 provides: (1) If an authorised nominating authority refers an adjudication application to an adjudicator, the adjudicator may accept the adjudication application by causing notice of the acceptance to be served on the claimant and the respondent. (2) On accepting an adjudication application, the adjudicator is taken to have been appointed to determine the application.
10. The respondent may lodge an adjudication response. Section 20(1) provides that the respondent may lodge with the adjudicator a response at any time within: (a) 5 business days after receiving a copy of the application, or (b) 2 business days after receiving notice of an adjudicator's acceptance of the application, whichever time expires later.
11. Section 21 provides for adjudication procedures, and s 22 provides for the adjudicator to determine the amount of the progress payment (if any) to be paid by the respondent to the claimant.
12. Section 23 provides that the adjudicated amount is payable five business days after the determination is served on the respondent, or a later date if the adjudicator determines one.
13. Section 24(1)(a) provides: (1) If the respondent fails to pay the whole or any part of the adjudicated amount to the claimant in accordance with section 23, the claimant may - (a) request the authorised nominating authority to whom the adjudication application was made to provide an adjudication certificate under this section …
14. Section 25(1) provides: An adjudication certificate may be filed as a judgment for a debt in any court of competent jurisdiction and is enforceable accordingly.
15. Section 31 provides for the service of documents. Section 31(1)(d) provides: Any document that by or under this act is authorised or required to be served on a person may be served on the person: … (d) by email to an email address specified by the person for the service of documents of that kind.
16. In Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1 (Probuild), [3] the High Court, drawing amongst others on what was said during Parliamentary debates, made a number of pertinent observations about the SOP Act, including the following: [4] 1. The SOP Act was designed to ensure that a person who undertakes to carry out construction work under a construction contract is entitled to receive, and is able to recover, progress payments promptly in relation to the carrying out of that work. In particular, it was designed to stamp out the practice of developers and contractors delaying payment to sub-contractors and suppliers, and it achieves that objective by setting up a scheme including a unique form of adjudication of disputes over the amount due for payment. [36] 2. The SOP Act is not concerned with finally and conclusively determining the entitlements of parties to a construction contract. Section 8 confers an entitlement to a progress payment, and the Act creates a distinct procedure for enforcing that statutory entitlement, which includes the making of a payment claim, the provision of a schedule in response, and the determination of a payment claim by an adjudicator (at the option of the claimant). [37] 3. The statutory entitlement to a progress payment and the procedure for recovery of a progress payment are separate from and in addition to a contractor's entitlement under a construction contract to receive payment for completed work. The statutory entitlement is predicated upon the existence of a construction contract, but the entitlement and the means available for its enforcement stand apart from the parties' rights under that contract. [38]

The question

1. The dispositive question to be answered is: Had the circumstances giving rise to the debt or claim the subject of the proof of debt arisen before 22 November 2019?
2. To answer the question, it is necessary to identify the substantive obligation which the debt or claim represents, and to determine whether the circumstances reveal the existence of a basal fact necessary to bring that substantive obligation into being: Larkden Pty Limited v Lloyd Energy Systems Pty Limited [2011] NSWSC 1567.
3. The proof of debt discloses (and nothing different was put by the plaintiff in submissions) that the debt relied upon is that created by the determination dated 4 December 2019.

The parties' positions

1. Both sides provided written submissions in advance of the hearing, from which they substantially departed in oral submissions because, it seems, both sides had operated under the misapprehension that the relevant date referred to in s 553(1) of the Corporations Act was the date the company was wound up (24 February 2020), rather than the date of the voluntary administration. The critical difference is that, by the date of the winding up, the plaintiff had the adjudication determination.
2. The plaintiff's initial primary submission was that the determination read with s 23(1) gave rise to the statutory debt.
3. The liquidator's initial primary submissions were that as the date of liquidation there was no debt because the determination was not final and binding, and that he was entitled to "go behind" the determination and challenge it by litigating the underlying contractual issues.
4. At the hearing, each side changed position given that at the relevant date there was no adjudication determination.
5. The plaintiff identifies the debt payable by the company as the statutory one to which s 8 of the SOP Act gives rise. It identifies as the circumstances giving rise to that debt the entry into the construction contract. It puts that the machinery of the SOP Act, culminating in the determination, quantifies the debt. As a fallback position, it puts that additional circumstances giving rise to the debt are its payment claim, its adjudication application, and the appointment of the adjudicator.
6. The liquidator argues that as at the relevant date the plaintiff had no statutory debt, such that the only circumstance giving rise to a debt under the SOP Act is an adjudication determination.
7. At the hearing, the liquidator took the additional late, and in my view unmeritorious, point that transmission on 20 November 2019 by the Authorised Nominating Authority of the adjudicator's acceptance of the role to the email address ncriniti@live.com was not effective service because that email address was not one specified by the company for the service of documents of that kind.
8. The liquidator initially, and in my view inappropriately especially given that he is an officer of the Court, without having investigated whether the email was received but undoubtedly having the means to do so, put the sending and receiving of the email in issue.
9. Ultimately, he did not put in issue that it had been sent and received but maintained the ineffective service point. He argued that the only way an adjudicator can accept the appointment is by causing notice of the acceptance to be served on the claimant and the respondent as provided by s 19, so there had accordingly not been a valid appointment of an adjudicator because the necessary notice had not been served on the company. Additionally, he asserted that the times specified in s 20(1) for lodging an adjudication response had not commenced. He argued that the adjudicator did not have jurisdiction and that the determination is void.

Consideration

1. For the reasons which follow, I have concluded that the appeal must be dismissed.
2. At the outset, it is apt to observe that the words of s 553(1) of the Corporations Act indicate an intention to define provable claims widely and to capture all the debts and liabilities of the insolvent, and in the case of a company to deal with all the claims against it so that its affairs can be fully wound up or so that it can resume trading: Sons of Gwalia v Margaretic (2007) 231 CLR 160 at [172] per Hayne J; Re Walker (2007) 215 FLR 428 at 430 per Barrett J (as his Honour then was).
3. Section 3 of the SOP Act records that the means by which it ensures its object for a person to be able to recover a progress payment is by establishing a procedure that involves the making of a payment claim, the provision of a payment schedule, the referral of any disputed claim to an adjudicator, and, in my view critically, the payment of the progress payment so determined.
4. The statutory entitlement in s 8 of the SOP Act cannot be enforced dehors the machinery of the Act. Where there is a payment schedule, the amount in dispute must be the subject of an adjudication determination to give rise to an enforceable debt. This requires the intrusion of an adjudicator who must exercise the powers conferred upon her or him under the SOP Act and issue a written determination which includes reasons.
5. In Birdon Pty Ltd v Houben Marine Pty Ltd [2011] FCAFC 126 at [63], Keane CJ (as his Honour then was) said: … The provisions of the Security of Payment Act establish the content of a new statutory right created by that Act, including the quantification of the entitlement (ss 9 and 17 - 25), the incidents of the right (s 23), and the enforcement of the right (ss 25 and 32). That is, they define the incidents of the novel right. Critically, the existence and quantum of the new statutory right depends not on the true state of underlying facts as regulated by the charter agreement, but on the assessment of the adjudicator who is not required or authorised to make any findings about those facts…
6. The service of a payment claim and a payment schedule and the making of an adjudication application are pre-conditions to the making of an adjudication determination, but they are not, in my opinion, circumstances which give rise to the statutory debt. That is created by the adjudicator's assessment only. An adjudicator may reject the claim or award less than the amount claimed for any number of reasons. The determination itself is the source of the debt. As to the position with respect to costs orders, which is not dissimilar: see Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; Larkden Pty Limited v Lloyd Energy Systems Pty Limited [2011] NSWSC 1567.
7. As the High Court pointed out in Probuild, the SOP Act creates a distinct procedure for enforcing the statutory entitlement for which it provides, including the determination of a payment claim by an adjudicator. The statutory entitlement and the means available under the SOP Act to enforce it stand apart from the parties' rights under their construction contract.
8. It is significant that the plaintiff's rights, if any, under the construction contract with the company are preserved. Those claims are undoubtedly covered by s 553(1) and there is nothing to inhibit the plaintiff from proving them in the winding up. For this reason, the outcome in this case is not inconsistent with the philosophy behind the section to deal comprehensively with all of the claims against the company.
9. My conclusion renders it strictly unnecessary to deal with the non-service point, but I would not uphold it.
10. Section 31 of the SOP Act is facultative. Apart from the methods of service specified, service can be effected by bringing the document to the actual attention of the intended recipient.
11. Unchallenged evidence was given by a director of the plaintiff, Mr Carmine Strangis, that he was introduced to Mr Nicholas Criniti, the sole director, secretary and shareholder of the company by a third person, Mr Gasparre, to facilitate the plaintiff tendering for the project, by way of an email which was copied to Mr Criniti at ncriniti@live.com. Mr Criniti responded from that address requesting the plaintiff to forward a company profile. Mr Strangis says that all of his email correspondence with Mr Criniti throughout his dealings on the project were through that address. From time to time, Mr Strangis has discussions with Mr Criniti about emails he had sent to or received from the address. On one occasion, he received a text message from Mr Criniti concerning the appointment of a quantity surveyor which contained a screenshot of an email copied to the address. Mr Strangis received various other emails from Mr Criniti from the address. On 2 November 2019, Mr Criniti emailed an employee of the plaintiff about the project from the address. In addition, Mr Strangis produced multiple emails from Mr Criniti's finance broker which used the address.
12. Mr Criniti did not give evidence. I infer that his evidence would not have assisted the company.
13. I consider that the address can fairly be regarded as one specified by the company as one for service of documents of the kind which the notice of acceptance is. But, if it is not, I consider it safe to infer that the notice came to the actual attention of Mr Criniti on behalf of the company at or about the time it was sent to the email address: Falgat Constructions v Equity Australia Corporation [2006] NSWCA 259.
14. It is to be observed that the company has brought no proceedings to challenge the validity of the determination.
15. It is not necessary to consider whether 19(1) of the SOP Act has the effect that the only way the adjudicator may accept the application is by causing notice of the acceptance to be served on the contestants or, if acceptance can take place in some different way and, if that is possible, how the time periods in s 24 of the SOP Act would work.

conclusion

1. The appeal is dismissed. If the parties do not agree costs, each is within seven days after the date of this judgment to notify the other and my Associate in writing of the costs orders sought, stating briefly the basis for their position. I will deal with costs on the papers unless I consider that a further hearing is necessary and appropriate.

Endnotes

1. Form 535.
2. It is brought under par 90-15 of the Insolvency Practice Schedule (Corporations) which is Schedule 2 to the Corporations Act, which has force by reason of s 600K.
3. Kiefel CJ, Bell, Keane, Nettle and Gordon JJ.
4. Citations omitted.

Amendments 01 September 2022 - amend dated para 31 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: 01 September 2022