Challenge for lack of "good faith"
57 The first proposition raised by the Appellants was that the only person who could make a payment claim pursuant to s 13(1) was the person who "is or who claims to be entitled" to the payment. The Appellants argued that this provision was not intended to provide a mechanism for claims which were known to be hopeless and accordingly required that the person have a bona fide belief in the substance of the claim.
58 Such an approach has an undeniable attraction. However, s 13 should not be read in isolation: rather, consideration must be given to the whole of the procedure envisaged under Part 3 of the Building Payment Act. Thus, a proprietor who seeks to resist a payment claim is entitled (and required) to provide a payment schedule in reply. A claimant who makes a patently unsustainable or untrue claim is thus likely to be met by a payment schedule. If the claimant wishes to pursue the claim in that event, it must be referred to and determined by an adjudicator, who is very likely to disallow so much of the claim as is patently false or unsupportable. Accordingly, as the Respondent argued, the "bona fides" of the claimant should not be treated as a separate criterion of a valid claim: rather, as with any other issue going to the merit of the claim, the scheme of the legislation was to require that an assessment be made by an adjudicator.
59 The intention that, subject to the adjudication procedure, a payment claim should give rise to an enforceable debt, without court proceedings relating to the merit of the respective positions of the proprietor and the builder, is a powerful consideration against the proposition that there is an independent jurisdictional requirement of bona fides on the part of the claimant, without which no debt will arise. On the other hand, the availability of the adjudication procedure is not a complete answer to the Appellants' case. The person liable to make such payments may provide a payment schedule objecting to the claim, have the claim referred to an adjudicator who rules in favour of the claimant, and yet seek to establish by way of defence in court proceedings that the claim which had been served was not a valid payment claim for the purposes of Part 3 of the Act and hence did not give rise to an enforceable debt. ('Validity' in this context is concerned with the essential preconditions to the making of a payment claim, but only to the extent those matters are not within the remit of the adjudicator.) Again, whilst wishing to resist the claim, the proprietor may fail to provide a payment schedule in time, so that the adjudication procedure is not engaged and it becomes liable immediately to payment of the claim, but may yet wish to resist the claim on the basis that there was no valid payment claim under the Act. That is the position which arises in the present case.
60 In answer to the first situation, where a payment schedule is served, it is clear that a debt can arise in circumstances where the proprietor may wish to argue that an adjudicator has made a wrong determination. Generally speaking, no challenge to the merits of the adjudication determination is permitted by way of defence to the liability to pay the payment claim: see Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421; Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229 and Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd [2005] NSWCA 228. Accordingly, it is within the scheme of the Act to allow a judgment debt to arise in circumstances in which later court proceedings may determine that no such liability existed.
61 In relation to the second circumstance, where no payment schedule is provided, it may again be noted that the Building Payment Act envisages that a liability may arise even where the failure to provide a payment schedule was due to no fault on the part of the person allegedly liable to make the payment. A similar situation was referred to in Brodyn at [85]-[88] in relation to a judgment obtained pursuant to s 25, following an adjudication determination. Hodgson JA noted (in a judgment with which Mason P and Giles JA agreed) that where a judgment under the Act might be shown to create injustice, there may be grounds for a stay either of the enforcement of the judgment or of the proceedings in which the judgment is sought. Similar circumstances could arise in relation to a judgment sought under s 15 of the Act.
62 It is not difficult to envisage circumstances, close to the present, in which the rigid requirements of the Act could result in at least potential injustice. Such a case may arise where a builder twice files a payment claim which is resisted with a payment schedule in each case giving the same reason, the reason in each case being accepted by the builder in the sense that no adjudication was sought, and the builder, having taken no further steps to overcome the reason set out in consecutive schedules, then serves a third payment claim. Putting aside possible allegations of fault on the part of the claimant, the proprietor may intend to file a payment schedule on the final business day (only 10 are permitted) but fail to do so through illness, accident or other unforeseeable and unavoidable circumstances. In accordance with the right created by s 15, the builder may then commence proceedings for payment of the claim. On the Appellants' argument, the proprietor could resist a judgment on the basis that the builder can have had no bona fide belief in its entitlement to the money and hence should not be treated as a person making a valid claim for the purposes of s 13(1). On the other hand, in accordance with the dicta in Brodyn, it is arguable that the Court would have the power to stay the proceedings, or stay the enforcement of the judgment in such circumstances.
63 It will be necessary to consider further below the scope of the defences which might be raised by a defendant in debt proceedings commenced pursuant to s 15 of the Building Payment Act.
64 On the second day of the hearing of the appeal, the Appellants sought to reactivate a ground of appeal which, in their written submissions, they had previously abandoned. The amended grounds, which were not objected to by the Respondent, read as follows:
"5A The primary judge erred in not holding that it would be an abuse of process for the Respondent to commence proceedings below invoking the summary judgment mechanism of the NSW Act when the Respondent knew at the time it made the relevant payment claim and at the time it commenced those proceedings that it was not entitled to the payment claimed.
5B The primary judge erred in holding, if she did so hold, that the District Court did not have power to control its own processes so as to prevent the abuse of process complained of by the Appellants.
5C The primary judge erred in holding that the appellants' defence based on abuse of process was 'a misconceived basis of defence, not only of this claim, but indeed, insofar as it purports to be a bona fide defence, of any claim'."
65 Although not using the language of the dicta in Brodyn, the substance of the approach, characterised as "abuse of process", is to the same effect. To this extent, the argument presented by the Appellants did not require a conclusion that the Respondent had acted in bad faith; rather it required a finding that the Respondent had relied upon a failure to provide it with a payment schedule, in circumstances where an identical claim had twice been rejected and on a ground which, to the knowledge of Parkline, had not varied. Nor had the Appellants done anything in the interim to suggest that they no longer sought to rely upon the specified ground: indeed, there had been continuing meetings and correspondence in the course of which, at least in relation to the correspondence, it appears that the Appellants had maintained an unequivocal demand for the warranties and "as-built" drawings as a precondition to release of the 50% of the retention moneys claimed. To that extent, it could be seen as opportunistic for Parkline to take proceedings to enforce a statutory debt in circumstances where there had been a technical non-compliance with the Building Payment Act. The Appellants had a further consideration in their favour, namely that the failure to provide the third payment schedule had arisen because of a misleading representation on the facsimile coversheet which accompanied the third payment claim, namely that it had been sent to S & S Quirk, the appointed agent of the Appellants who had dealt with all previous claims.
66 Both parties before this Court cited authority in favour of the proposition which they sought to advance in relation to the question of bona fides as a jurisdictional requirement. Thus, the Respondent sought to draw support from the judgment of Einstein J in Leighton Contractors Pty Ltd v Campbelltown Catholic Club Ltd [2003] NSWSC 1103, a decision relied on by Judge Gibson in the District Court. The defendant club in that case argued that Leighton did not have "a genuine claim to any sum from the Club … as it well knew": see submission set out after [78]. After noting the amendment in 2002 to include reference to a person who not only "is" but who "claims to be" entitled to a progress payment the club's submission continued:
"Nevertheless, the legislation could not contemplate a specious or spurious claim and must be taken to refer to a claim which is genuine or bona fide. The peremptory procedures available under the Act, with their potentially serious consequences for the parties, would otherwise be open to ready abuse. A contractor could serve a purported payment claim, knowing full well that there were no monies owing, in the expectation that (if the requirements for a payment schedule under the Act were overlooked or not appreciated), he might thereby acquire a right to a substantial sum without justification."
67 In response, Einstein J stated at [79]:
"This submission is rejected. The intention of the legislature is clear from the terms of section 13 (1). A person who has undertaken to carry out construction work …, who is or who claims to be entitled to a progress payment under the contract, may serve a payment claim on the person who is or may be liable to make a payment under the contract."
68 This is, in effect, the statement of a conclusion, rather than a process of reasoning. Repetition of the statutory language does not necessarily explain the conclusion reached. The dispute as to the proper construction identifies an ambiguity in the clause "who claims to be" entitled. Indeed, the words encompass a range of meanings across a spectrum from the holding of a certain belief based on reasonable grounds, to a genuine belief which lacks reasonable support, through various degrees of uncertainty as to whether a claim can be upheld, to the case where a person makes a "claim", but in the certain conviction that it is without merit.
69 In contrast to the view held by Einstein J, two members of this Court in Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (In liq) (2005) 64 NSWLR 462 expressed different conclusions, though each appears to be obiter and also without explanation. Thus, at [49] Santow J stated:
"I should note at the outset that there was no suggestion that the payment claim was not made in good faith and in purported compliance with s13(2) of the Act, both minimal requirements of the Act."
70 To similar effect, at [76], Ipp JA stated:
"Provided that a payment claim is made in good faith and purports to comply with s 13(2) of the Act, the merits of that claim, including the question whether the claim complies with s 13(2), is a matter for adjudication under s 17 and not a ground for resisting summary judgment in proceedings under s 15. In particular, if no adjudication is sought summary judgment cannot be resisted on grounds that could have been raised by way of a payment schedule leading to adjudication."
71 This last statement invites closer attention to what is meant by a lack of good faith on the part of the claimant. At the very least it would appear to involve two elements, namely that the claim was without merit and that the claimant knew it. But the merit (or lack of merit) of a claim is, as Ipp JA expressly accepted, a matter for determination by the adjudicator. Similarly, his Honour accepted that the express elements of a valid claim set out in s 13(2) are matters for the adjudicator. As suggested in Coordinated Construction Pty Ltd v Climatech, at [43]-[46] (a passage cited without disagreement by Hodgson JA in Nepean Engineering at [32]-[34]) determination of the existence of essential preconditions to a valid claim are matters for the adjudicator, not for objective determination by a Court. If the express requirements of the Act are to be so treated, it is difficult to see why some unexpressed precondition should have a different status. Even more is that the case when, as has been noted, a key element in the supposed condition of "good faith" is that the claim is without merit, a matter indisputably within the powers of the adjudicator to determine.
72 The Appellants then observe, no doubt correctly, that the question whether the claimant knew or believed that the claim was without merit would be a matter beyond either the special expertise, or the procedural powers of the adjudicator to determine with any degree of reliability. However, unlike the well-known example of civil proceedings in a court, the Building Payment Act contains no requirement that a claimant must verify by affidavit that the claim has reasonable prospects of success. Nor is there any requirement, as appears in some standard forms of building contract, for an affidavit verifying that sub-contractors have been paid amounts claimed in relation to their work: see, eg, FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340.
73 In these circumstances, I would not imply an additional requirement for a valid payment claim, namely that the claimant had an actual bona fide belief in the truth of the facts asserted, or at least did not believe that the claims were entirely meritless.
74 One may add that the language of a "bona fide" claim is slightly curious. Apart from modern requirements as to verification of factual assertions in pleadings, the beliefs or motivations of the plaintiff in proceedings have generally been treated as irrelevant, unless they reach the stage of an improper purpose. Thus, in Williams v Spautz (1992) 174 CLR 509, the High Court held that proceedings would constitute an abuse of process, where brought, not to prosecute them to a conclusion, but to use them as a means of obtaining some advantage extraneous to the legal process: see Williams v Spautz at 526-527. Nor is such a claim of abuse, in bringing proceedings for an improper purpose, dependent upon a finding that the claims were themselves without merit: ibid at 522. However, that was not the form of abuse relied upon in the present case and has no direct bearing on the argument that a claimant should have a bona fide belief in the soundness of the claim.
75 By contrast, there is good reason to suppose that the powers conferred on an adjudicator must be exercised in good faith and for the purposes for which they are conferred. The case law in favour of that proposition is discussed in the decisions of this Court referred to above and with expansive treatment by Brereton J in Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129 at [63]-[117]. It is possible that the language of "good faith" has been imported from this separate situation to that of the essential preconditions to a valid claim. However, and with respect to the views of Santow and Ipp JJA (to the extent that they are to the contrary) there is, in my view, no separate precondition to the making of a valid payment claim under s 13 of the Building Payment Act, requiring, as a precondition to enforcement action under s 15, proof that the claimant has made the claim with a bona fide belief in its entitlement to the moneys claimed.