Central Projects Pty Ltd v Davidson

Supreme Court of NSW|2018-04-17|Before: Ball J

Introduction

By a summons filed on 26 February 2018, the plaintiff, Central Projects Pty Ltd, seeks judgment against the defendant, Mr Stephen Davidson, in the sum of $1,224,354.06 plus interest and costs in respect of a payment claim served on 5 January 2018 pursuant to s 13(1) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the BCISOP Act).
Mr Davidson did not serve a payment schedule in response to the claim within the 10 business days stipulated in s 14(4) of the BCISOP Act. Central Projects claims that, as a consequence, it is entitled to judgment under s 15 of the BCISOP Act for the amount that it claims.
Mr Davidson resists that claim on the basis that the payment claim served by Central Projects was not accompanied by a supporting statement that met the requirements of s 13(7), (8) and (9) and, therefore, was not validly and effectively served on him in accordance with the BCISOP Act. It is that issue on which this case turns.

Relevant legislation

Before setting out the relevant facts in more detail, it is convenient to set out the relevant legislation.
Section 13 of the BCISOP Act relevantly provides: Payment claims (1) A person referred to in section 8(1) who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment. (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) if the construction contract is connected with an exempt residential construction contract, must state that it is made under this Act. (3) … (4) … (5) A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract. (6) However, subsection (5) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim. (7) A head contractor must not serve a payment claim on the principal unless the claim is accompanied by a supporting statement that indicates that it relates to that payment claim. Maximum penalty: 200 penalty units. (8) A head contractor must not serve a payment claim on the principal accompanied by a supporting statement knowing that the statement is false or misleading in a material particular in the particular circumstances. Maximum penalty: 200 penalty units or 3 month imprisonment, or both. (9) In this section: supporting statement means a statement that is in the form prescribed by the regulations and (without limitation) that includes a declaration to the effect that all subcontractors, if any, have been paid all amounts that have become due and payable in relation to the construction work concerned.

The facts

On or about 24 November 2015, Central Projects entered into a contract with Mr Davidson by which it agreed to undertake demolition, excavation and construction works for the purposes of constructing a mixed commercial and residential development on Curlewis Street, Bondi. It is common ground that the contract is a "construction contract" for the performance of "construction work" and for the supply of "related goods and services" within the meaning of the BCISOP Act.
On 5 January 2018, Central Projects served progress claim 24 purportedly under s 13 of the BCISOP Act. At the time the progress claim was served, work under the contract had been suspended by Mr Davidson and progress claim 23 had not been paid.
Progress claim 24 consisted of an invoice and a number of supporting documents including, as Attachment 8, a "SUPPORTING STATEMENT BY HEAD CONTRACTOR". The first page of that document was relevantly in the following form: This statement must accompany any payment claim served on a principal to a construction contract by a head contractor. For the purposes of this statement, the terms "principal", "head contractor", "subcontractor", and "construction contract" have the meanings given in section 4 of the Building and Construction Industry Security of Payment Act 1999. Head Central Projects Pty Ltd [business name of head contractor] ABN: 99 078 489 291 Contractor:
Has entered into a contract with Stephen D Davidson ABN: 17 979 273 632 [business name of subcontractor] Contract number/identifier: ## Curlewis St BONDI

OR 2. Has entered into a contract with the subcontractors listed in the attachment to this statement. [Delete whichever of the above does not apply] This statement applies for work between: December 2016 and December 2017 Inclusive (the construction work concerned), [start date] [end date] subject of the payment claim dated: 5 January 2018 [date]

I, Dimitri Patete [full name], being the head contractor, a director of the head contractor or a person authorised by the head contractor on whose behalf this declaration is made, hereby declare that I am in a position to know the truth of the matters that are contained in this supporting statement and declare that, to the best of my knowledge and belief, all amounts due and payable to subcontractors, have been paid (not including any amount identified in the attachment as an amount in dispute). Signature: Date: 5 January 2018 Full name: Dimitri Patete Position/Title: Director Mr Patete's signature appeared above his name. He is the sole director of Central Projects.

The attachment, under the heading "Schedule of subcontractors paid all amounts due and payable", listed a substantial number of subcontractors and gave in respect of each of them their ABN, a contract identifier, the period when the works were undertaken and the date of the payment claim. The attachment also gave the same type of information in relation to a number of subcontractors under the heading "Schedule of subcontractors for which an amount is in dispute and has not been paid". It is plain that the attachment has been downloaded from the website of NSW Fair Trading and is substantially in the form set out in Schedule 1 to the Regulation.
Under the heading "1. Has entered into a contract with", the form names Mr Davidson. That is a clear error. It appears that the person who completed the form misread it and thought that the name of the principal was to be inserted as item 1, rather than the name of a single subcontractor if only one subcontractor had performed work covered by the payment claim. No point is taken in relation to that error.
It is common ground that the form does not list as subcontractors the names of a number of entities who supplied goods to Central Projects during the period covered by the progress claim. It is also not disputed that each of those entities had been paid in full at the time Mr Patete signed the declaration that formed part of Attachment 8.
Mr Patete gave evidence that at the time he signed the declaration, he believed that persons who had merely supplied goods and who had not supplied any associated services, such as the installation of those goods, did not fall within the definition of "subcontractor" under the BCISOP Act.
Mr Davidson did not serve a payment schedule in response to progress claim 24 within the 10 business days stipulated in s 14(4)(b)(ii).

The issues

The case raises two issues. The first is whether Attachment 8 to Central Projects' payment claim was a "supporting statement" within the meaning of s13(9) of the BCISOP Act. The second is whether, if it was not, the consequence is that the payment claim was not validly served.
By his list response, Mr Davidson also raised the issue whether Attachment 8 was to Central Projects' knowledge false or misleading in a material particular and, if it was, whether the payment claim was not validly served for that reason. Following cross-examination of Mr Patete, Mr Robertson, who appeared for Mr Davidson, conceded that he could not submit on the basis of the evidence as it stood that Mr Patete and, therefore, Central Projects knew that Attachment 8 was false in a material particular. However, he reserved his position on the ground that I had earlier set aside a notice to produce in so far as it sought copies of all payment claims received by Central Projects before 5 January 2018 from a supplier who had supplied goods only or services only, and all payment schedules issued by Central Projects before that date to such a supplier. If I was wrong to have done so, the production of further documents (and cross-examination on those documents) may, it was submitted, shed additional light on the question of Central Projects' knowledge. For present purposes, however, that issue can be put to one side.

Legislative history

Before dealing directly with the issues in the case, it is necessary to say something about the history of the provisions in question.
Section 13(7), (8) and (9) and s 36 (and a number of sections ancillary to s 36) were introduced by the Building and Construction Industry Security of Payment Amendment Act 2013 (NSW) (the Amending Act), which came into force on 21 April 2014. The relevant amendments gave effect to recommendations made by the Independent Inquiry into Construction Industry Insolvency in NSW chaired by Mr Bruce Collins QC. Prior to the amendments, it was usual for principals to include in construction contracts a term which only permitted the contractor to include in a progress claim amounts paid to subcontractors if those amounts had been paid, and which required the contractor to provide a statutory declaration to the effect that those amounts had been paid.
In considering what recommendations should be made to lower the risk of insolvency of subcontractors by ensuring that they were paid promptly, the Inquiry observed (NSW, Independent Inquiry into Construction Industry Insolvency in NSW, Final Report, (November 2012) at 58): The use of statutory declarations in ensuring subcontractors get paid has been described by witnesses to the Inquiry as "mass dishonesty", "a joke" and that "they appear more comforting than what security they actually provide". The Inquiry further heard that although it is an offence to swear a false statutory declaration for material benefit under section 25A of the Oaths Act 1900, punishable by maximum imprisonment for seven years, one of the reasons why the practice is widespread, is that it is not policed. [Footnote omitted]
To address those concerns, the Inquiry made the following recommendations (at 361-2): Recommendation 21: Legal requirement to provide statutory declarations Contractors should be obliged to swear statutory declarations that subcontractors have been paid what is due and payable to them. An appropriate amendment to SOPA should be made. Commentary This recommendation is designed to address the situation in which there is presently no legal obligation to provide a statutory declaration to that effect. The requirement is presently to be found in contract. Recommendation 22: Power to prosecute for breach of the Oaths Act As prosecutions for a breach of the Oaths Act 1900 (NSW) are at present, essentially in the hands of the police, they should be brought under the umbrella of SOPA so that the NSW Department of Finance and Services which administers that Act, may have the power to prosecute those who commit offences against section[s] 25 and 25A of the Oaths Act. Commentary This will address the issues discussed in the Report relating to the common situation where statutory declarations are ignored, sworn in the knowledge that their contents are false, or the form of the statutory declaration has been brought about by pressure from the contractor.
Sections 13(7), (8) and (9) and 36 of the BCISOP Act were plainly introduced to give effect to those recommendations. In the second reading speech for the relevant Bill (New South Wales Legislative Council, Parliamentary Debates (Hansard), 12 November 2013 at 25,327), The Hon Matthew Mason-Cox on behalf of the Minister stated that the Bill was the first phase of reforms introduced in response to the Final Report of the Inquiry. The speech continued: Proposed section 13 (7) introduces a new requirement for head contractors. A payment claim submitted by a head contractor to a principal must be accompanied by a supporting statement that includes a declaration that all subcontractors and suppliers engaged by the head contractor, if any, have been paid all amounts that have become due and payable in relation to the construction work concerned. This legal requirement will, in effect, replace the standard contractual requirement for a statutory declaration that includes a statement that all subcontractors have been paid what is due and owing to them be provided by the head contractor to the principal with a payment claim. This obligation to provide a supporting statement to a principal will rest only with the head contractor‑that is, the entity that has a contractual relationship with the principal and engages another party or parties to perform part of the work on that project. The provision addresses a key finding of the inquiry that statutory declarations made by head contractors under the Oaths Act for the purpose of securing a progress payment from a client are often false, not enforced and frequently amended to convey the appearance that what was due and owing to a subcontractor was no longer an amount owed by the head contractor. There are practical advantages in establishing a legal requirement under the Act rather than police officers having the primary responsibility of investigating claims of falsely sworn statutory declarations under the Oaths Act. Authorised officers from agencies such as the Department of Finance and Services will have powers to investigate and prosecute breaches of the provisions relating to supporting statements. There will be a maximum penalty of $22,000 for not complying with section 13(7). Proposed section 13(8) creates a separate offence for knowingly providing a supporting statement that is false or misleading. A maximum penalty of $22,000 or three months imprisonment or both will apply.

Was Attachment 8 a "supporting statement" within the meaning of s 13(9) of the BCISOP Act?

Mr Roberts SC, who appeared for Central Projects, submitted that in order to be a "supporting statement", a document must meet two requirements. First, it must be in the prescribed form. Second, it must contain a declaration of the type set out in s 13(9). Attachment 8 meets both those requirements. It follows the prescribed form and it contains the required declaration signed by Mr Patete, who was a director of Central Projects. In Mr Roberts' submission, there is nothing in s 13(9) which requires the form to list all subcontractors.
That submission is said to be supported by the decision in Kitchen Xchange v Formacon Building Services [2014] NSWSC 1602. In that case, McDougall J held that a payment claim was not validly served unless it was accompanied by a supporting statement. It will be necessary to return to that aspect of the decision shortly. However, in reaching that conclusion, his Honour dealt with an argument that s 13(7) could not be "jurisdictional" because it used the same language as s 13(8) ("A head contactor must not serve a payment claim on the principal …") and s 13(8) could not be jurisdictional because it could not have been intended that an adjudicator would have to consider the question whether a supporting statement was knowingly false in a material particular. In rejecting that argument, his Honour pointed out that the subsections are very different. Subsection (7) continues by stating an exception to the prohibition (where the payment claim is accompanied by a supporting statement), whereas subs (8) continues by defining the circumstances in which the prohibition operates (where the payment claim is accompanied by a supporting statement that is known to be false in a material particular). His Honour then said (at [45]): It is easy to see whether the requirement of subs (7) has been met, because it is easy to see whether the accompanying statement meets the requirements set out in subs (9), incorporating as it does the relevant clause and form set out in the Regulation. It would not be easy to see whether the requirement of subs (7) had been met if implicit in the requirements of subs (7) was the requirement that the information contained in the form was accurate and complete.
Mr Roberts also submitted that if it was implicit in the requirements of subs (7) that the form be accurate and complete, subs (8) would have no work to do, or at least would make little sense. Subsection (8) assumes that a supporting statement may contain false or misleading information and provides a significant penalty where it is served knowing that it does so. But if a document is not a supporting statement for the purposes of subs (7) if it is false or incomplete, it is difficult to see how an offence could ever be committed under subs (8).
Broadly speaking, I accept these submissions.
Mr Robertson, in submitting the opposite, relied on the statement by Meagher JA in Duffy Kennedy Pty Ltd v Lainson Holdings Pty Ltd [2016] NSWSC 371 at [15] that the prescribed form: [R]equires, among other things, that the statement identify the sub-contractor or sub-contractors with whom the head contractor has contracted; and that it do so either separately, if there is only one or, if there are multiple subcontractors, by listing them in a schedule and describing them either as "subcontractors paid all amounts due and payable" or as "subcontractors for which an amount is in dispute and has not been paid". Attachment 8 was not a supporting statement because there were multiple subcontractors and not all of them were listed in the schedule.
That conclusion was said to be supported by s 80 of the Interpretation Act. Attachment 8 was not completed in the manner required by the prescribed form because it did not contain all the information the form required. It was not, therefore, in the form prescribed and, as a result, not a "supporting statement" within s 13(9) of the BCISOP Act. If the position were otherwise, a person could satisfy the requirements of s 13(7) by serving a blank form. That is not what the legislature could have intended. In addition, to require strict compliance with s 13(7) would further the legislative purpose of the provision. The purpose of the provision was to provide a clear incentive for head contractors to pay subcontractors what is due and payable. That is best achieved by requiring head contractors to provide a list of all subcontractors and sufficient detail in relation to them to ensure the accuracy of the information to be investigated either by principals or by authorised officers under s 36 of the BCISOP Act.
I do not accept those submissions. In my opinion, s 80 is concerned with the form of a prescribed form. It is not concerned with the accuracy of its contents. Consistently with what McDougall J said in Kitchen Xchange, in determining whether a document meets the requirements of a prescribed form, it ought to be possible to compare the document with the prescribed form and ask whether it contains the prescribed information and is substantially in the form prescribed. If it does and is, that is sufficient. It is not necessary to investigate whether each fact stated in the form is accurate. The relevant regulations and Act will normally deal with the consequences of providing false or misleading information in a form, as is the case here. Forms are prescribed for a wide range of purposes and it would be unreasonable to expect those who rely on or receive forms to check the accuracy of the information they contain before being entitled to proceed on the basis that the form was duly completed. I do not understand Meagher JA to be saying anything different in Duffy Kennedy. In that case, his Honour was simply setting out the requirements of the form.
It is apparent that the prescribed form contemplates that the supporting statement will list all subcontractors, including (in a separate section of the attachment) those who have not been paid as a result of a dispute. It is also apparent that the declaration that forms part of the form is a declaration in respect of all subcontractors, not just those listed in the supporting statement, since that is what the definition of "supporting statement" in s 13(9) of the BCISOP Act requires. Consequently, a supporting statement will be false or misleading in a material particular if it omits one or more subcontractors from the list of subcontractors and that omission is material. It will also be false or misleading in a material particular if, contrary to the declaration, not all subcontractors have been paid (apart from those in respect of whom a dispute exists) and the amount owed to an unpaid subcontractor is material. In either case, if a head contractor knows that the supporting statement is false or misleading, the head contractor will commit an offence by serving the statement. In those circumstances, the concern identified by Mr Robertson is more apparent than real. It would be difficult for a head contractor who had engaged a number of subcontractors to provide a supporting statement that named none of them to serve the supporting statement without breaching s 13(8).
Nor do I accept that the policy of the BCISOP Act would be better advanced by the interpretation contended for by Mr Robertson. The policy behind the amendment that includes ss 13(7), (8) and (9) and 36 is to increase the likelihood that subcontractors are paid promptly. The policy of the Act is also to provide a mechanism by which head contractors are paid promptly. The likelihood is that a payment claim made by the head contractor will identify the subcontractor invoices covered by the payment claim as part of the claim itself. That is in fact what happened in this case. In this case, each of the subcontractors who were omitted from the supporting statement was included in the PC Allowance Register that was also served as part of progress claim 24. Consequently, the fact that the supporting statement in this case did not list all subcontractors did not prevent the principal from investigating the accuracy of the information that was provided; and nor in the normal case would it prevent a principal or authorised officer under s 36 of the BCISOP Act from investigating the accuracy of information contained in other supporting statements. On the other hand, if Mr Robertson is correct, an inadvertent failure to identify all subcontractors in the supporting statement would deprive a head contractor of the benefits of the Act. It should not be inferred that that is what the legislature intended when the alternative interpretation does not deprive the provisions of their effectiveness in protecting subcontractors.
It follows that Attachment 8 was a supporting statement for the purposes of s 13(9) of the Act, notwithstanding that it did not list all subcontractors in respect of whom the payment claim was made, with the result that the payment claim was validly served.

Assuming Attachment 8 was not a supporting statement, what consequences follow?

Having regard to the conclusions I have reached, it is not strictly necessary to answer this question. However, I should say something about the issue in the event that I am wrong about the answer to the first question.
Had there been no authority on the point, I would have concluded that the failure to serve a supporting statement did not render the payment claim invalid. The opposite conclusion was reached by McDougall J in Kitchen Xchange v Formacon Building Services [2014] NSWSC 1602. That conclusion was followed by Meagher JA in Kyle Bay Removals Pty Ltd v Dynabuild Project Services Pty Ltd [2016] NSWSC 334 and Duffy Kennedy Pty Ltd v Lainson Holdings Pty Ltd [2016] NSWSC 371, who adopted the reasoning of McDougall J.
McDougall J thought that the language of s 13(7) was clear. It states that a head contractor must not serve a payment claim on the principal unless it is accompanied by a supporting statement. The term "must not" is plainly mandatory. His Honour also explained (paraphrasing language he used in The Trustees of the Roman Catholic Church for the Diocese of Lismore v T F Woollam and Son [2012] NSWSC 1559 at [49] in relation to the prohibition in s 13(5)) "to hold that s 13(7) did not intend to invalidate service of a payment claim unaccompanied by the requisite statement would set at nought the prohibition" (at [47]). Lastly, his Honour thought that the interpretation he preferred was supported by the passage from the Second Reading Speech quoted earlier.
With the greatest respect, I cannot agree with those conclusions. I accept that the language of s 13(7) is mandatory. The section contains a clear prohibition on serving a payment claim without a supporting statement. But the subsection provides its own remedy for a breach of the prohibition. It creates an offence with a maximum penalty of 200 penalty units. The question, therefore, is not whether the prohibition would be set at nought but whether the legislature implicitly intended breach of the prohibition to have other consequences. In my opinion, there are several reasons for thinking that it did not.
First, the language of s 13 does not readily accommodate an additional consequence. Section 13(2) sets out what is required of a payment claim. Subsection (7) takes as a starting point something that meets those requirements, since it says that a head contractor must not serve "a payment claim" and it provides for a consequence if something is done with that payment claim (that is, if it is served without a supporting statement). Section 31 sets out how documents may be served under the BCISOP Act and there is no question that the payment claim was served in accordance with that section. In order for subs (7) to have an additional consequence, it is necessary either to treat a document that meets the requirements of a payment claim and is referred to in the subsection as a payment claim as not being one or to treat it as not having been served when, on the face of things, it was.
Second, subs (7) is to be contrasted with subs (5). The latter states that a claimant cannot serve more than one payment claim in respect of a reference date. The language of the subsection is entirely consistent with the notion that any subsequent document purporting to be a payment claim cannot be one because only one can be served. And the subsection provides for no other consequence. In those circumstances, it is natural to read the subsection as treating any subsequent document purporting to be a payment claim as not being one.
Third, in my opinion, it is consistent with the relevant extrinsic material not to interpret subs (7) as rendering invalid service of a payment claim unaccompanied by a supporting statement. As I have explained, ss 13(7), (8) and (9) and 36 of the BCISOP Act were introduced to give effect to recommendations made by the Independent Inquiry into Construction Industry Insolvency. The Inquiry considered that the then current practice of principals requiring head contractors to provide a statutory declaration to the effect that all subcontractors had been paid provided some protection to subcontractors. However, two problems with the practice were brought to the Inquiry's attention. One was that it depended on a contractual obligation imposed by the principal. The recommendation made by the Inquiry to deal with that issue was that the obligation should be imposed by law. That recommendation is reflected in subs (7). The second problem was that there was evidence of a practice of head contractors swearing false statutory declarations knowing that there was little real prospect of the police bringing a prosecution under the Oaths Act 1900 (NSW). The recommendation made by the Inquiry to deal with that issue was that "prosecutions … should be brought under the umbrella of [the BCISOP Act] so that the NSW Department of Finance and Services which administers that Act, may have the power to prosecute those who commit offences against section[s] 25 and 25A of the Oaths Act". That recommendation is reflected in subs (8) and s 36.
The consequence that a payment claim is not validly served is a significant one, since it deprives an adjudicator of jurisdiction to determine disputes where a payment claim served by a head contractor is accompanied by an incomplete supporting statement. It is to be expected that if that were an intended consequence of the amendments, there would have been some reference to it in the Inquiry's Final Report or in the Second Reading Speech. However, there is none.
Had I reached a different conclusion in relation to the first issue raised by this case, it would have been necessary to decide whether, in light of the views that I have expressed, I should nonetheless follow the decisions of McDougall J and Meagher JA. However, in view of the conclusions I have reached, it is not necessary to form a view on that question.

Orders

Central Projects is entitled to judgment in the sum of $1,224,354.06 together with interest on that amount from 29 January 2018 (that is, 10 business days after progress claim 24 was served) until the date of judgment at the rate of $228.71 per day, making a total of $20,812.61.
There is no apparent reason why Central Projects should not have its costs of the proceedings. At the time the case was heard, Mr Roberts asked for the opportunity to address the Court separately on the question of costs. Having regard to the conclusions I have reached, it appears that the most efficient way forward is to make an order for costs in Central Projects' favour but give either party liberty to apply on 14 days' notice to vary that order.
The orders of the court therefore are: 1. Judgment for the plaintiff in the sum of $1,245,166.67; 2. The defendant pay the plaintiff's costs of the proceedings; 3. Liberty to apply on 14 days' notice to vary order (2). Such liberty may be exercised by contacting the Associate of Ball J to relist the matter at a time convenient to the parties.

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: 30 April 2018

Building and Construction Industry Security of Payment Amendment Act 2013(NSW)

Building and Construction Industry Security of Payment Regulation 2008(NSW)

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