Ceerose Pty Ltd v Building Products Australia Pty Ltd

Background

1. The following facts were either not in dispute or the subject of findings by the presiding magistrate.
2. In or around August 2013 Ceerose as builder was engaged by ZVI Construction Co LLC ("ZVI") as principal to construct student accommodation at 43 Australia Street, Camperdown ("the site").
3. On or about 14 November 2013 Cemac was engaged by Ceerose to supply and install doors at the site for the fixed price of $216,000 exclusive of GST.
4. On or about 3 April 2014 ZVI terminated its contract with Ceerose. Around that time Ceerose then terminated its contract with Cemac. In its statement of claim Ceerose admitted that by that time it had neglected or refused to pay various invoices issued by Cemac. In particular, by that stage Ceerose had paid $62,411.80 inclusive of GST in respect of progress claims 1 and 2 issued by Cemac, but had yet to pay $97,646 plus GST with respect to progress claims 3, 4 and 5 issued by Cemac.
5. At or around the time that ZVI terminated its contract with Ceerose, ZVI entered into a contract directly with Cemac. The precise scope of that contract was in dispute, but it certainly included the completion of the installation of the doors on the site. It was admitted on the pleadings that the contract price was $153,262 plus GST and that ultimately Cemac received a total of $185,088.20 inclusive of GST under its contract with ZVI. Further, it was accepted that an amount of approximately $160,000 under that contract had been paid by ZVI by the end of May 2014.
6. At some point Cemac applied for and obtained two adjudication certificates issued under s 24 of the Security of Payment Act in respect of progress claims 3, 4 and 5.
7. At a time after it received payment from ZVI, Cemac applied for judgment debts based on those certificates pursuant to s 25 of the Security of Payment Act. In the end result on 12 July 2014 a judgment for $65,453.46 was entered in the Local Court against Ceerose and on 5 December 2014 another judgment debt, this one for $34,528.15, was entered against Ceerose. Ceerose paid those amounts on 5 December 2014 and 24 April 2015 respectively.

Section 32 of the Security of Payment Act

1. In light of the manner in which the proceedings proceeded before the Local Court it is appropriate to describe the scope of s 32 of the Security of Payment Act. The scope and purpose of the Security of Payment Act was described by McDougall J in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190; 78 NSWLR 393 ("Chase Oyster") at [110] as follows: "The Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act) seeks to ensure, among other things, that those who perform construction work pursuant to construction contracts have enforceable rights to progress payments. The statutory mechanisms for achieving that aim include a number of elements. There is a statutory right to progress payments despite any contractual provision to the contrary. In the event of disagreement, there is a statutory mechanism, called adjudication, for the interim determination of entitlements to progress payments."
2. The relevant statutory provisions, their interactions with each other and their effect on the parties' rights are described in the judgment of McDougall J in Chase Oyster at [184]-[198] and [207]-[210], which I will not repeat. One issue in the Local Court concerned the scope of s 32 of the Security of Payment Act which McDougall J described as providing that, apart from s 34, "the Security of Payment Act has no effect on rights under the contract, or on any civil proceedings arising under the contract" (Chase Oyster at [198]). Section 32 provides: "32 Effect of Part on civil proceedings (1) Subject to section 34, nothing in this Part affects any right that a party to a construction contract: (a) may have under the contract, or (b) may have under Part 2 in respect of the contract, or (c) may have apart from this Act in respect of anything done or omitted to be done under the contract. (2) Nothing done under or for the purposes of this Part affects any civil proceedings arising under a construction contract, whether under this Part or otherwise, except as provided by subsection (3). (3) In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal: (a) must allow for any amount paid to a party to the contract under or for the purposes of this Part in any order or award it makes in those proceedings, and (b) may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings."
3. In John Holland Pty Ltd v Roads and Traffic Authority of New South Wales [2006] NSWSC 874; 66 NSWLR 624 ("John Holland") at [33] McDougall J described the role of s 32 as follows: "I do not think that it is correct to speak of s 32 as creating a restitutionary right. Its place in the scheme of the Act is to reinforce the interim nature of adjudication determinations, and to provide that parties' legal rights (as decided by a court or tribunal) are given full effect notwithstanding what may have been determined by an adjudicator and what may have been done in pursuance of, or obedience to, that determination."
4. This description of the scope of s 32 was accepted and expanded upon by the Court of Appeal in John Holland Pty Ltd v Roads and Traffic Authority of New South Wales [2007] NSWCA 140 at [45]-[46] as follows: "[45] The respondent cannot oppose a payment claim, or if there is a judgment upon filing an adjudication certificate cannot seek to impugn the judgment, in reliance on matters arising under the contract, so rights under the contract are preserved and can be otherwise asserted. The statutory liability established by an adjudicator's determination can be challenged only on limited grounds: Brodyn Pty Ltd v Davenport (2004). So it is open to the respondent (or the claimant - an adjudicator's determination may be adverse to a claimant) to contend in a final working out of the contractual mechanisms or in other proceedings for a result different from that determined by the adjudicator. Statutory liability otherwise than that established by an adjudicator's determination is also not final, and either party may in the course of a final determination contend for a different result, see s 32(1) and (2). Section 32(3)(a) then states the obvious, that there must be allowance in any other proceedings for an amount which has been paid. Section 32(3)(b) may be unnecessary, because an order in the other proceedings that the claimant pay money to the respondent will have the effect of restitution; however, it does enable an order for restitutionary interest and, if there has been a judgment upon filing an adjudication certificate, an order contrary to the judgment: as was said by Handley JA in Falgat Construction Pty Ltd v Equity Australia Corporation Pty Ltd (2005) 62 NSWLR 385 at [21] - 'Finally, s 3(b) makes a judgment entered under s 25 on an adjudication certificate provisional only, both in what it grants and in what it refuses. A builder can pursue a claim in the courts although it was rejected by the adjudicator and the proprietor may challenge the builder's right to the amount awarded by the adjudicator and obtain restitution of any amount it has overpaid.' [46] Thus the RTA (and John Holland) remained entitled to assert and enforce their rights under the contract. That included, in the RTA's case, to contend as to the Spoil monies that John Holland was to be paid for the excavation work in Cut 4 under Pay Item R 42P15.1, or was not to be paid for it at all; as to the Latent Condition monies that there was not a latent condition; and as to the Detonator Dump monies that the Superintendent's certification of the claim had been correct. The contractual mechanisms for working out the parties' rights under the contract still operated, and had to be followed - the adjudicated claims were only part of the contractual tapestry. In giving effect to the contractual mechanisms there would have to be allowance for the amounts paid, quite apart from s 32(3)(a). If it came to proceedings (including arbitration under the 'arbitration process' in the contract), the parties' rights under the contract would again be worked out with allowance as recognised in s 32(3)(a), and perhaps orders as contemplated by s 32(3)(b) although there could be an order that John Holland pay money to the RTA without the necessity to call it an order for restitution of money paid under or for the purposes of the Act.
5. Thus s 32(3)(b) does not confer or grant jurisdiction on a court to hear a claim that it is otherwise not empowered to. However the provision confirms that, a court having determined such a claim, then the existence of either an adjudication certificate or a judgment based on such a certificate does not represent an impediment to that court granting relief that reflects the final rights of the parties that it has determined. This can be of particular importance in the case of inferior courts. Thus, for example, in hearing a proceeding that involves or constitutes a matter "arising under a construction contract", s 32(3)(b) confirms that the Local Court is not impeded from ordering the repayment of funds previously paid under, say, a judgment of the District Court obtained as a consequence of the registration of an adjudication certificate as a judgment debt under s 25 of the Security of Payment Act.

The judgment below

1. Ceerose's statement of claim pleaded a claim in restitution in the form of moneys had and received against Cemac claiming in effect that Cemac had received double payment for the work it had contracted to perform for Ceerose to the extent that it recovered from Ceerose an amount for progress payments 3, 4, and 5. The statement of claim sought a consequential order for the recovery of those amounts. At some point during the proceedings in the Local Court it was contended on behalf of Ceerose, in the alternative, that even if its claim for restitution failed s 32(1)(b) of the Security of Payment Act authorised an order being made in its favour.
2. Otherwise before the presiding magistrate the parties debated whether the contractual payments made by ZVI to Cemac were intended to, or had the effect of, satisfying or otherwise making up for the amounts owed by Ceerose to Cemac sufficient for Ceerose to succeed in its claim for moneys had and received.
3. In his judgment, and after setting out the background to this matter, the presiding magistrate made a series of findings relevant to that factual question, the effect of which was debated on the appeal. The relevant findings were as follows: "I agree with [counsel for Ceerose's] submissions, and the reasons he advances for them, that Cemac and ZVI plainly intended to provide a price to Cemac which would pick up the amounts still owed by Ceerose (and which it shortly afterwards got from Ceerose through the adjudications) and the remaining value of the original contract. I find accordingly in that regard. The submission for Ceerose is that Cemac was paid twice, and thereby obtained a windfall. It seeks to recover what it had paid to Cemac. In part, it relies on the fact that the scope of works in the new contract Cemac had with ZVI was expressed in identical language to the scope of works in the subject contract. Cemac, however, insisted that its contract with ZVI was a separate contract which, for particular reasons, had been negotiated from a position of strength and was quite genuine, and it defended the claim on the basis that it had done work for Ceerose the quality of which was not in issue, and that it had been paid. It submitted that the Act did not permit recovery by Ceerose. … The major difficulty for Ceerose's claim is that Cemac had negotiated a fresh contract with [ZVI]. ZVI was not agreeing to pay the invoices issued by Cemac to Ceerose. It was rather agreeing as a matter of separate contract to pay Cemac an amount that would put it in the same position it would have been in if Ceerose had itself paid those invoices. … [Counsel for Ceerose] submits that once the adjudication moneys were received by Cemac they bore the character of a windfall. Because (on his submission) ZVI had already paid Cemac just before those moneys came in, the ZVI payments extinguished the Ceerose debt and he submits restitution should follow to Ceerose because the payments it made on the adjudications were for a debt that in that fashion had already been paid by ZVI. In my view [counsel for Ceerose's] submission would be correct if the ZVI moneys had indeed paid the Ceerose debt. However, I find they did not. They certainly related in the larger part to work which had already been done before ZVI entered into its contract with Cemac, but they were payments due under that contract; they were not due under the Ceerose contract because that company was not a party to the contract with ZVI, and it is immaterial that the parties (ZVI and Cemac) considered (as I find they must have done) that they should be in an amount equal to the debt for the unpaid work. Roughly equal to the debt for the unpaid work they certainly were, but they were not payment for such work. In that regard do I not accept [counsel for Ceerose's] submission that I should find on the balance of probabilities that they were payment for such work. He submits that the evidence really only admits of one interpretation - that they were payment for Cemac's invoices to Ceerose for that work. I find for all the reasons set out herein that they were independently negotiated with ZVI. … The scope of works undoubtedly did remain the same, but that fact does not make it more likely that ZVI was agreeing to pay for work already done and certainly not that it was, expressly or impliedly, agreeing to pay on the invoices issued by Cemac for that work. I find that it was agreeing a fresh contract which sought no more than not to leave Cemac out of pocket compared with its terminated contract with Ceerose." (emphasis added)
4. Later in his Honour's reasons his Honour also found as follows: "If Ceerose were to succeed it could only be based on Cemac having obtained such a windfall by reason of the fresh contract entered into by it having related substantially to the same work - which as to materials I find was 90% completed at the time the parties fell out and as to services also substantially completed." … "As I have said, because of such matters Cemac was entitled to bargain and was in a good position to do so, and it is in my view not to the point at all that in the process it was able to secure from ZVI a price greater than the value of the remaining work. Similarly, the payments to be made by ZVI were not payments for the existing work but rather were payments due under the fresh contract with ZVI." … "It obtained the two payments (that from Ceerose and that from ZVI) pursuant to the separate contracts with each, and it is immaterial that some of the work was common to both." (emphasis added)
5. Having made these findings his Honour then addressed whether s 32 enabled the court to make an order of the kind sought by Ceerose. His Honour found as follows: "Having found, as I do, that Cemac negotiated a quite separate contract with ZVI, one that did not involve ZVI agreeing to pay the Ceerose debt or the obligations arising under the adjudications on that debt, the question then becomes whether s 32 is wide enough to permit an order for restitution. The section has been interpreted in a restrictive way, and the restitution provided for in it is not the wider traditional claim for restitution for unjust enrichment".
6. Ultimately his Honour found in relation to the scope of s 32, "in my view, the machinery provisions of section 32 exist to provide the mechanism by which the rights and obligations of the parties under their own contract can be given effect". Having construed s 32 in this manner his Honour rejected Ceerose's claim stating that "because [Cemac's] contract with ZVI was a separate and legitimate contract of which it was entitled to retain the benefit I find that Cemac was not unjustly enriched".

The appeal

1. It follows from the above that the presiding magistrate construed s 32 in a manner consistent with what I consider to be the correct analysis based on John Holland. The presiding magistrate dismissed the proceedings because his Honour considered that Ceerose's claim of "unjust enrichment" or restitution could not succeed because it was ultimately based on Cemac having received the alleged double payment via a "legitimate contract" with a third party, namely ZVI.
2. Neither before the Presiding Magistrate nor in this Court was it contended that the Local Court did not have jurisdiction to determine a claim for restitution of the kind made by Ceerose, or that such a claim was not a "matter arising under a construction contract" as referred to in s 32(3). In relation to the latter, in John Holland McDougall J appeared to have accepted a claim for moneys had and received in respect of an alleged total failure of consideration under a construction contract was a matter arising under a construction contract (see John Holland at [32]). In relation to the former, I addressed the jurisdiction of the Local Court to hear and determine restitution claims in Albanis v Eleftheriou [2014] NSWSC 416 ("Albanis").
3. I am content to proceed on the basis that Ceerose's claim constitutes a "money claim" as defined in s 29A of the Local Court Act 2007 (Albanis at [23]) and is otherwise a "matter arising under a construction contract", namely the contract between Ceerose and Cemac. It follows that, if that claim can be established, the Local Court had power under s 32(3)(b) of the Security of Payment Act to order the repayment of the moneys paid in respect of progress payments 3 to 5 pursuant to the two judgment debts.
4. Grounds 1 to 6 of the appeal all concern Ceerose's claim for restitution. It is not necessary to recite those grounds as they resolve to the single contention that, as a matter of law, the presiding magistrate's findings of fact required his Honour to uphold Ceerose's restitutionary claim and then compelled the making of an order under s 32(3)(b). Ground 7 of the appeal concerned an alleged failure on the part of the presiding magistrate to set aside the judgments based on the adjudication certificates on the basis that they were an abuse of process. Given that no such contention was expressly raised before the presiding magistrate it is not necessary to consider that contention further.
5. Counsel for Ceerose on the appeal, Mr Vincent, contended that the presiding magistrate's findings demonstrated that what occurred in this case was an example of so called "double satisfaction" as explained by the following passage from the judgment of Gummow and Hayne JJ, in Baxter v Obacelo Pty Ltd [2001] HCA 66; 205 CLR 635 at [57]-[58] "[57] In Haines v Bendall [(1991) 172 CLR 60 at 63], in the joint judgment of four members of this Court, reference was made to what was identified as the 'universal' rule that a plaintiff cannot recover more than he or she has lost. Their Honours referred to a statement to that effect by Lord Reid in Parry v Cleaver [[1970] AC 1 at [13]]. The principles respecting 'double satisfaction' may be seen as a particular application of that rule. That particular application involves the unconscientious exercise of legal rights. [58] The subject is best illustrated with reference to the treatment by Viscount Simon LC in United Australia Ltd v Barclays Bank Ltd [[1941] AC 1] of the decision of the Court of King's Bench in Morris v Robinson [(1824) 3 B&C 196; [107] ER 706]]. The Lord Chancellor said of that case [United Australia, Limited v Barclays Bank, Limited [1941] AC 1 at 20]: 'There, cargo belonging to the plaintiffs had been improperly sold during the course of a voyage. There were thus two lines of remedy which the plaintiffs could pursue. They first brought an action against the shipowners for breach of their duty as carriers, with a count in trover. They recovered a verdict, but they did not enter up judgment and there had been no actual satisfaction of their claim. Instead, they brought another action against different defendants - namely, an action for conversion against the purchasers who had bought the cargo. It was held by the Court of King's Bench that the former action was no bar, and that the defendants in the second action were liable for their act in purchasing the plaintiff's goods. Bayley J, in giving judgment, observed [Morris v Robinson (1824) 3 B&C 196 at 205-206 [107 ER 706 at 710]]: 'If concurrent actions had been brought, that against the owners could not have barred the other; why then should it have that effect because they have been brought at different times? If indeed the plaintiffs were to recover the full value of the goods in each action, a Court of Equity would interfere to prevent them from having a double satisfaction, but there is nothing in the former action which can, in a Court of Law, prevent the recovery in this.'"
6. Three matters should be noted about this passage. First, in the passages of Baxter that immediately follow the above their Honours discussed the judgments in Castellan v Electric Power Transmission Pty Ltd (1967) 69 SR (NSW) 159 ("Castellan") which alluded to the differences between common law and equity so far as giving effect to the rule against "double satisfaction" is concerned (see Baxter at [60] to [62]). This distinction is of no real significance to this Court's original jurisdiction since the passage of the Supreme Court Act 1970, but it is of potential significance to proceedings in the Local Court given the limits on that court's jurisdiction. However, it is of no present relevance. The discussion of equity's role by Walsh JA in Castellan at 176 (cited in Baxter at [61]) concerned the power to restrain further enforcement action seeking double satisfaction or double compensation. However in this case, according to the plaintiff, double compensation had in fact been paid, so that an action for moneys had and received being a common law count is available (see Albanis at [26]ff).
7. Second, the above passage from Baxter, including the reference to Morris v Robinson, concerns the circumstances in which the party seeking recovery from one party has already recovered "damages" or compensation from another party who it also asserts is legally liable for that loss. That is not the circumstance here. As emphasised by the presiding magistrate, the relevant payments made by ZVI were paid under a "legitimate contract" because no doubt ZVI wanted the work completed. Nevertheless, the distinction in this circumstance between the payment from a party who is asserted to be legally liable and one who does so under a "legitimate contract" is irrelevant for present purposes. In Law Society of New South Wales v Glenorcy Pty Ltd [2006] NSWCA 250; 67 NSWLR 169 at [75] Mason P stated as follows: "The rule against double compensation does not involve being captive to the payer's intent or the juridical reason for the payment. Thus, money recoverable under one cause of action from one defendant may be reduced because a third party owing a different legal duty (or none at all) has paid money that is viewed by the law as covering the loss for which compensation is claimed."
8. Third, given that Ceerose was pursuing a moneys had and received count it seems that the various defences available to a defendant in respect of that count would have been available to Cemac, e.g. change of position. However it is unnecessary to consider this further as no such defence was sought to be relied on.
9. Ultimately the argument on the appeal resolved to considering whether his Honour's findings were sufficient to support Ceerose's restitutionary claim. Mr Vincent pointed to the finding by his Honour that Cemac and ZVI "intended to provide a price to Cemac which would pick up the amounts still owed by Ceerose" and contended that this amounted to a finding that the payments made to Cemac by ZVI under their contract had that effect. Counsel for Cemac, Ms Wright, submitted that this was only a finding of intention and not as to effect. Mr Vincent also pointed to the finding concerning the scope of the work and in particular that Cemac and ZVI's contract was "expressed in identical language to the scope of the works in the original contract". Ms Wright took the Court to the actual contracts which clarified that the scope of the works in the Cemac and ZVI contract were restricted to only finalising the work that was originally contemplated by the Cemac and Ceerose contract. However, this only makes Ceerose's position that much stronger in that it suggests that the consideration being paid under the Cemac and ZVI contract was not for the work done under that contract but also for the work done previously. In that regard his Honour found that the payments "related in the larger part to work which had already been done before ZVI entered into the contract with Cemac".
10. It is not necessary to take that further because, regardless of whether the scope of the work under the ZVI and Cemac contract was exactly the same as the Cemac and Ceerose contract or simply involved the finalisation of the work under the latter, the finding that Cemac was to be paid "an amount that would put it in the same position it would have been in if Ceerose had itself paid" progress payments 3, 4 and 5 was sufficient to engage the principles of double satisfaction or double compensation. In the end result Cemac received sums from ZVI that placed it in the same position as it would have been had its contract with Ceerose been performed. Ultimately, by recovering from Ceerose, Cemac was being paid for the same work twice.
11. Ms Wright pointed to the findings of the presiding magistrate that "ZVI was agreeing to pay for work already done" but not "agreeing to pay on the invoices issued by Cemac to Ceerose for that work", and that the payments "were not payments for the existing work but rather were payments due under the fresh contract with ZVI". Ms Wright contended these findings took the matter outside the principles apposite to double compensation.
12. However, with respect to the presiding magistrate, all of the passages relied on by Ms Wright were affected by two related legal errors on the part of the presiding magistrate.
13. The first error was to assume that it was necessary for Ceerose to demonstrate that the payments made by ZVI either were intended to or had the effect of discharging its indebtedness to Cemac. The second error was to assume that there was some necessary inconsistency between Ceerose being able to recover for double satisfaction or double compensation on the one hand and the fact that one limb of the alleged double compensation was payable under a bona fide contract with a third party on the other. It follows from the above passage in Law Society v Glenorcy that it was not necessary for Ceerose to demonstrate either matter. Provided that the payments covered "the loss for which compensation is claimed" that was sufficient. The presiding magistrate's findings of fact meant that the payments made by ZVI to Cemac had that character.
14. It follows that Ceerose's appeal must succeed and there will be a verdict in its favour. The findings of fact are sufficient to support the claim it sought to make and there was no basis upon which the Local Court could decline to order restitution. I will now hear the parties on the form of the order. [Discussion between the parties about form of orders.]
15. Having heard the parties, the orders that will be made and which follow from my judgment are as follows: 1. The appeal be allowed. 2. Set aside the judgment entered in the Local Court in proceedings 267990 of 2014 on 20 July 2015 in favour of the defendant. 3. In lieu thereof order: 1. that there be judgment for the plaintiff against the defendant in the sum of $99,981.71 together with interest; 2. the defendant pay the plaintiff's costs of proceedings 267990 of 2014. 1. The defendant to pay the plaintiff's costs of the proceedings in this court.

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