BRP Industries Pty Ltd v Hynash Constructions Pty Ltd

Notice of Motion

1. By a Notice of Motion filed on 18 July 2024 BRP sought summary judgment against Hynash for $234,286.80 pursuant to ss 14 and 15 of the Payment Act. BRP also sought interest and costs.
2. Hynash defended the application for summary judgment, but conceded through its counsel that it did owe a debt to BRP, which was the amount claimed by BRP less the upfront payment which had been made by Hynash.
3. BRP tendered the affidavit of Mr Hoogland dated 18 July 2024, together with the documents behind Tabs 4-29 in a Court Book handed up upon the hearing of the Motion (PX 1).
4. Hynash tendered the affidavit of Mr Drum dated 23 August 2024 (DX 1).
5. Counsel for the plaintiff relied upon Written Submissions (MFI 1) and upon a theoretical calculation of interest upon damages (MFI 3). Counsel for both parties made oral submissions.

The Payment Act

1. Section 3 of the Payment Act sets out the object of the Payment Act as follows: "(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. Counsel for the plaintiff described the philosophy of the Payment Act, in a phrase taken from the cases, as "pay now, argue later". Section 13(1) of the Payment Act provides that a person who is or who claims to be entitled to a progress payment may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment.
3. Section 13(2) of the Payment Act provides as follows: "(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) must state that it is made under this Act."
4. The phrase "claimed amount" in s 13(2)(b) is defined in s 4 of the Payment Act as follows: "Claimed Amount means an amount of a progress payment claimed to be due for construction work carried out, or for related goods and services supplied, as referred to in s 13."
5. There was no dispute that the payment claim made by BRP was valid in form. The payment claim which is the subject of these proceedings is reproduced in PX 1, Tab 28. It is a tax invoice from BRP dated 13 March 2024 directed to Hynash. It claims an amount of $234,286.80. That figure has been calculated by applying a credit, in the third line of the payment claim, for the sum of $12,245.20, described as follows: "10% Draw down on upfront payment ($91,960 plus $19,360* 10% = $11,132) $88,656 remaining."
6. Section 14 of the Payment Act deals with payment schedules. Section 14(1) provides that a person on whom a payment claim is served may reply to the claim by providing a payment schedule to the claimant. The payment schedule must indicate the amount of the payment (if any) that the respondent proposes to make.
7. Section 14(4) of the Payment Act provides as follows: "(4) If - (a) a claimant serves a payment claim on a respondent, and (b) the respondent does not provide a payment schedule to the claimant - (i) within the time required by the relevant construction contract, or (ii) within 10 business days after the payment claim is served, whichever time expires earlier, 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."
8. It was common ground that Hynash, upon receipt of the payment claim, had not served a payment schedule back upon BRP.
9. Section 15 of the Payment Act deals with the consequences of not paying the claimant where no payment schedule is served. Section 15 provides as follows: "Consequences of not paying claimant where no payment schedule (1) This section applies if the respondent - (a) becomes liable to pay the claimed amount to the claimant under section 14(4) as a consequence of having failed to provide a payment schedule to the claimant within the time allowed by that section, and (b) fails to pay the whole or any part of the claimed amount on or before the due date for the progress payment to which the payment claim relates. (2) In those circumstances, the claimant - (a) may - (i) recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction, or (ii) make an adjudication application under section 17(1)(b) in relation to the payment claim, and (b) may serve notice on the respondent of the claimant's intention to suspend carrying out construction work (or to suspend supplying related goods and services) under the construction contract. (3) A notice referred to in subsection (2)(b) must state that it is made under this Act. (4) If the claimant commences proceedings under subsection (2)(a)(i) to recover the unpaid portion of the claimed amount from the respondent as a debt - (a) judgment in favour of the claimant is not to be given unless the court is satisfied of the existence of the circumstances referred to in subsection (1), and (b) the respondent is not, in those proceedings, entitled - (i) to bring any cross-claim against the claimant, or (ii) to raise any defence in relation to matters arising under the construction contract."
10. Counsel for Hynash conceded in oral submissions that s 15(1)(a) of the Payment Act had been satisfied. Hynash had become liable to pay the claimed amount, as a consequence of having failed to provide a payment schedule to BRP within the time allowed under s 14. However, counsel for Hynash disputed that s 15(1)(b) had been satisfied.
11. In oral submissions counsel for Hynash acknowledged that $136,765.20 was owing to BRP. This amount was calculated after taking into account the upfront payment retained by BRP, less the credit given in the payment claim for a drawing against the upfront payment of $12,245.20.
12. The court must be satisfied that both limbs of s 15(1) of the Payment Act have been satisfied before judgment can be given in favour of the claimant - s 15(4)(a). As previously recited, Hynash concedes that BRP has established the first limb in s 15(1)(a) of the Payment Act.
13. Against the argument that BRP has not satisfied the second limb in s 15(1)(b) of the Payment Act, counsel for BRP submitted as follows: 1. The amount which the claimant must establish remains unpaid is not an amount as adjusted between the parties in accordance with their agreement, but is the "claimed amount" as that amount is defined in s 4 of the Payment Act. This simply requires a finding of the amount of the progress payment claimed. 2. In any event, Hynash is precluded from arguing that the amount payable should be reduced by the balance of the upfront payment, because of the operation of s 15(4)(b) of the Payment Act.
14. Hynash has not brought a cross claim against BRP in these proceedings, and thus s 15(4)(b)(i) has no application. Even if such a cross claim were brought, it would not prevent BRP recovering the full amount of the payment claim.
15. Counsel for Hynash submitted that Hynash was entitled to raise a defence of set-off, so as to subtract the balance of the upfront payment from the amount set out in the payment claim. Counsel for BRP submitted that such an argument was really one which raised a defence "in relation to matters arising under the construction contract" - s 15(4)(b)(ii).

The Upfront Payment

1. I asked both counsel to explain to me how the upfront payment arose. I was directed to the Subcontract Agreement (PX 1, Tab 10). Clause 4 of the Subcontract dealt with consideration. Hynash agreed to pay BRP a contract fixed lump sum in the form of progress payments as described at Schedule 2. Schedule 2 to the Subcontract was the original quote by BRP dated 8 November 2022 in the amount of $1,006,880 exclusive of GST. That quotation under the heading "Clarifications" provided for progress payments to be made 21 days from the end of each month and also said: "An upfront 10% establishment and mobilisation fee is required once this quote is approved."
2. As previously recited, when the payment claim the subject of these proceedings was served, BRP gave a credit for 10% of the upfront fee. The written Subcontract was silent as to when BRP would be entitled to receive or draw against the upfront payment.
3. Counsel for Hynash drew attention to an email chain which is annexure "E" to the affidavit of Mr Drum (DX 1).
4. On 10 November 2023 Mr Hoogland sent an email to Mr Odon of Hynash (copied to Mr Drum) which said: "Please see attached Claim 2. Claim 2 is for the mobilisation of the drill. I have included the upfront payment which we will draw down on each invoice."
5. Mr Odon responded by an email dated 16 November 2023 sent to Mr Hoogland and copied to Mr Drum. Mr Odon said: "As mentioned to you over phone, can we please clarify this BRP claim number 2? We thought the 10% upfront payment paid previously was for your site establishment and mobilisation fee. So, in line with the recent equipment mobilisation, we think it was covered by the 10% upfront payment. Additionally, based on our previous meeting, our understanding on the upfront payment and succeeding invoices would be like this: The succeeding invoices would be deducted to the upfront payment until such time that the amount of works invoiced have exceeded the upfront payment. You mentioned earlier that during the early stages of the Project, there was a discussion about the draw-down on the upfront payment. However, our current team is not aware of any previous arrangement of this kind. Hope you can give us more clarity on the abovementioned."
6. On 17 November 2023 Mr Hoogland replied by email to Mr Odon, with a copy to Mr Drum. Mr Hoogland said: "Our understanding from agreements between Brad and Abi, were that a % of each claim would draw down on the 10% upfront payment."

Termination and the Subcontract

1. Clause 10 of the Subcontract dealt with termination of the agreement. There was no dispute that BRP had validly terminated the agreement with Hynash. Clause 10.4 of the Subcontract provided, inter alia: "Upon termination the Company [Hynash] will be entitled to reimbursement of the following costs: 1. Company Property that is not returned in good working order immediately on termination of this Agreement; and 2. any overpayment or other monetary benefits. The Company may recover these amounts by setting-off against any amount owed to the Contractor [BRP] by the Company."
2. Counsel for Hynash conceded in oral submissions that Hynash could not rely upon an apparent contractual right to have any overpayment returned to it, as such a claim was one arising under the construction contract. By force of s 15(4)(b)(ii) of the Payment Act, Hynash was not entitled to raise "any defence in relation to matters arising under the construction contract".
3. This prohibition on raising a defence based upon a matter arising under the construction contract is one example of the "pay now, argue later" philosophy of the Payment Act. If Hynash has a right under cl 10.4 of the Subcontract to a refund of the undrawn portion of the upfront payment (if that can be regarded as an "overpayment"), then it is free to bring proceedings to recover that amount. Even if this court finds that BRP is presently entitled to retain the entire amount the subject of the payment claim, Hynash can, by its own proceedings, later argue that it is entitled to a refund of the undrawn upfront payment. As previously recited, s 3(4) of the Payment Act states that it is intended that the Payment Act does not limit any other entitlement that a claimant may have under a construction contract, or any other remedy that a claimant may have for recovering any such other entitlement. In this context, Hynash would be the "claimant", which was asserting a right to recover an overpayment.

Does the Set-Off Arise under the Construction Contract?

1. As previously recited, Hynash submits that it should be given a credit for that part of the overpayment against which BRP had not drawn at the time of the termination. There was a real disconnect between the way the parties acted in relation to dealing with drawings against the upfront payment, and the positions taken in this litigation. As disclosed in the email chain between Mr Hoogland and Mr Odon, Hynash was asserting that BRP should draw against the entire upfront payment in discharge of the initially rendered invoices. By contrast, BRP was saying that it could not draw against the entire upfront payment but could only draw a percentage of each claim as invoices were submitted. Mr Hoogland did not state what percentage could be drawn from time to time. Mr Hoogland referred to an agreement "between Brad and Abi", but neither person has provided any evidence in these proceedings, and there are no documents from those persons to establish what, if anything, was agreed between them about how the upfront payment would be treated and drawn.
2. In spite of those matters, it must be recognised that the Subcontract provided in writing for the making of the upfront payment and, if it could have been characterised as an overpayment at any time, provided for Hynash to recover such overpayment. In Written Submissions (MFI 1, par 13) counsel for BRP said that "the entire purpose of the upfront payment… was to cover the large upfront establishment and mobilisation costs which BRP incurred to mobilise and establish the site". There was no evidence to support that submission, either by words in the Subcontract or evidence from surrounding documents or conversations. Counsel further submitted that "those costs were incurred by BRP and stand outside of the work claimed in the payment claim". That may be so, but again, there was no evidence to establish that this was the case.

Consideration

1. I have come to the conclusion that the set-off or credit asserted by Hynash cannot be raised to reduce the amount in the payment claim, because it relates to a matter "arising under the construction contract" ie the Subcontract. In Grave v Blazevic Holdings Pty Ltd [2010] NSWCA 324; (2010) 79 NSWLR 132, the Court of Appeal considered the extent of the words "arising under the construction contract" in s 15 of the Payment Act. Delivering the leading judgment, McDougall J, said at [30] that "in some contexts, those words have been considered to be equivalent to the words 'arising out of'". The width to be given to the phrase "under the construction contract" depends upon the context. His Honour said at [31] and [32] that sometimes the phrase "arising under" an agreement may be of more limited application than a reference to a dispute "arising out of" an agreement. Other cases tended to construe the phrase widely. The ultimate conclusion of McDougall J was expressed at [33] as follows: "In this case, however, the words 'arising under the construction contract' must be construed having regard to their statutory context and the object of the legislation in which they appear… The context of s 13 makes it clear that the liability that is enforced through the mechanism of judgment, is one of which the starting point is, again, 'arising under a construction contract'."
2. In considering the statutory context and the object of the legislation, Hammerschlag J said in Ampcontrol SWG Pty Ltd v Gujarat NRE Wonga Pty Ltd [2013] NSWSC 707 at [25]: "It would be inimical to this philosophy and out of step with the express wording of s 13 for the Court to be required at this stage to become enmeshed in a determination of the contractual efficacy of the plaintiff's claim (or the defendant's response to it)."
3. There are competing submissions as to whether BRP was entitled to retain all of the upfront payment, or whether it had not "earned" all of the upfront payment but instead could only retain a portion of it. Somewhat ironically, the parties in this litigation were both advancing the position taken by the other side during the currency of the Subcontract. It would be inappropriate to determine this question in these proceedings which concern a cause of action under the Payment Act, primarily because the court should not become "enmeshed" in such an issue. In any event, there was no adequate evidence on the issue.
4. I conclude that Hynash seeks to raise a defence by way of set-off in relation to a matter arising under the construction contract. An examination of the set-off pleaded in the Defence demonstrates why that is so. The relevant portion of the Defence pleads: "7. The Defendant paid a total amount of $110,756.80 to the Plaintiff on 5 January 2023 in consideration of Plaintiff's Invoice 5702, representing the agreed 10% establishment and mobilisation fee referenced in Schedule 2 of the Subcontract ('upfront payment'). The Parties agreed that a percentage of each payment claim would draw-down from the upfront payment. Particulars Invoice 5702 issued by BRP to Hynash Constructions on 22 November 2022 ('Invoice 5702'). Remittance Advice of Hynash Constructions evidencing payment amount of $110,756.80 to BRP on 5 January 2023. Email from Carl Hoogland of BRP to Marvin Odon of Hynash Constructions, dated 17 November 2023. 8. Clause 10.4 of the General Conditions of the Subcontract provides that, upon termination of the Agreement, the Defendant is entitled to reimbursement of any overpayment of other monetary benefits and may recover these amounts by setting­off against any amount owed to the Plaintiff. 9. The Plaintiff has failed to set-off the total amount of $110,756.80 paid by the Defendant from the debt amount and the Defendant thereby rejects that the debt amount totals $234,286.80."
5. In the present case the obligation to make the upfront payment is one which arose under Schedule 2 of the construction contract. Whether or not the parties agreed upon a mechanism for a drawdown of the upfront payment, or a mechanism for ascertaining instalments of the upfront payment, is not the subject of any evidence. However, the right to recover any overpayment of any kind, after termination of the contract, is one specifically provided in the Subcontract and is therefore a matter arising under the construction contract.
6. This is not a case like Kennedy Civil Contracting Pty Ltd (subject to Deed of Company Arrangement) v Linx Constructions Pty Ltd [2024] NSWSC 366, where there was unequivocal evidence, recited in the judgment at [36], that the parties had agreed that a payment to a third party should not be included in the amount owing to the party which delivered a payment claim. In that case the set-off of the payment to the third party did not arise under the construction contract but came about because of a separate agreement.
7. Section 15(4)(b)(ii) of the Payment Act means that if proceedings are commenced to recover any unpaid portion of a payment claim, then the respondent to that claim is not entitled to raise any defence in relation to matters arising under the construction contract.

Conclusion and Orders

1. For those reasons I find that BRP is entitled to summary judgment for the full amount claimed of $234,286.80 plus interest which has been agreed on a theoretical basis at $9,505.48, giving a total judgment of $243,792.28.
2. BRP is also entitled to an order for costs against Hynash, including the costs of the Notice of Motion.
3. By force of the Payment Act, Hynash is obliged to pay now, but can argue later about whether or not it is entitled to recover the balance of the upfront payment from BRP.
4. The orders of the court are: 1. Judgment for the plaintiff against the defendant for $243,792.28. 2. Order the defendant to pay the plaintiff's costs of the proceedings, including the costs of and incidental to the Notice of Motion filed on 18 July 2024.

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: 02 September 2024