Denham Constructions Pty Ltd v Islamic Republic of Pakistan

[2016] ACTSC 67

BUILDING AND CONSTRUCTION - claim of debt arising under the Building and Construction Industry (Security of Payment) Act 2009 (ACT) from a failure to serve a payment schedule in response to a payment claim - application by plaintiff for summary judgment - arguable defence challenging validity of payment claim identified - application for summary judgment dismissed

Australian Capital Territory (Planning and Land Management) Act 1988 (Cth)

Australian Constitution, s 52

Building and Construction Industry (Security of Payment) Act 2009 (ACT), ss 7, 10(2), 15, 16(4), 17(2)

Court Procedures Rules 2006 (ACT), r 1146

Broadview Windows Pty Ltd v Architectural Project Specialists Pty Ltd [2015] NSWSC 955

Brodyn Pty Ltd v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421

Coordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd [2005] NSWCA 228

Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69; (2009) 74 NSWLR 190

Galovac Pty Limited v Australian Capital Territory [2010] ACTSC 132

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 124

Grid Projects NSW Pty Ltd v Proyalbi Organic Set Plaster Pty Ltd [2012] NSWSC 1571

Lewence Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd [2015] NSWCA 288

Pines Living Pty Ltd v O'Brien and Walton Constructions Pty Ltd [2013] ACTSC 156

Quasar Constructions NSW Pty Ltd v Demtech Pty Ltd [2004] NSWSC 116

Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118

Trustees of the Roman Catholic Church for the diocese of Lismore v TF Woollam & Son Pty Ltd [2012] NSWSC 1559

1. This is an application for summary judgment by a plaintiff which has brought proceedings claiming a debt of $1,027,054.89 arising out of a payment claim made under the Building and Construction Industry (Security of Payment) Act 2009 (ACT) (SOP Act).

2. The application is brought pursuant to r 1146 of the Court Procedures Rules 2006 (ACT). The plaintiff accepts that in order to justify summary judgment it must demonstrate that the defence is "so obviously untenable that it cannot possibly succeed": General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 124, 129; Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118, 131-2 [24].

3. In Galovac Pty Limited v Australian Capital Territory [2010] ACTSC 132 at [5] Jagot J summarised the relevant principles as follows:

(1) The party seeking summary judgment faces a "very high threshold" (Financial Integrity Group Pty Limited v Farmer [2009] ACTSC 143 at 12).

(2) The lack of a cause of action must be "clearly demonstrated" (General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129).

(3) The procedure calls for "exceptional caution" (General Steel at 129).

(4) The necessity for argument, even extensive argument, is no bar. However, as soon as it appears that there is a "real question" to be determined on which relief depends, the summary judgment procedure is not available (General Steel at 130 citing Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 at 91).

(5) Mere implausibility of the claim or improbability of success is insufficient; there must clearly be no real question to be tried in the sense that the claim is bound to fail (Seven Network Ltd v News Ltd (No 4) (2005) 214 ALR 686; [2005] FCA 244 at [14] citing Lonrho Plc v Fayed (No 2) [1992] 1 WLR 1 (Ch D) at 5; [1991] 4 All ER 961 at 965).

(6) The application is to be assessed on the assumption that every fact pleaded by the plaintiff is true (West v State of New South Wales [2007] ACTSC 43 at [9]).

(7) The application must be determined on the substance, not the mere form or expression, of the claim (Financial Integrity Group at [15]).

4. The statement of claim alleges that on 10 April 2013 the plaintiff and the defendant entered into a construction contract. It alleges that under the contract the reference date for the purposes of the SOP Act was the 15th day of the month. It alleges that on 11 September 2015 the plaintiff served a payment claim on the defendant claiming the amount of $1,027,054.89 for works done prior to 15 August 2015. The plaintiff alleges that the defendant failed to provide a payment schedule in response to the payment claim in the 10 business days required by the SOP Act and that by operation of s 16(4) the defendant became liable to pay the claimed amount on the due date for payment. The plaintiff claims that the amount was not paid and that it is a debt due to the plaintiff pursuant to s 17(2)(a)(i).

5. The defence denies that the document was a payment claim under the SOP Act for two reasons.

(a) First the right to claim for a progress payment is limited to claims for the carrying out of construction work and/or the supply of related goods and services. The purported payment claim was in respect of "adjusted time costs" under the contract and that such a claim "was not a claim for the carrying out of construction work or the supply of related goods and services" but a claim for an adjustment to the final price of the contract.

(b) Second, the purported payment claim was not for additional works but repeated claims for variations previously rejected either in whole or in part by the architect under the contract which decision was not challenged under the SOP Act or otherwise and no further building work was carried out after the date of the previous progress claim. The defendant contends that the purported progress claim was invalid or otherwise an abuse of process.

6. Next the defence asserts that the communication by the defendant's architect was sufficient to constitute a payment schedule under the Act. The email in response to the payment claim said:

Under clause H1 of the contract, time for making a claim to adjust the contract has expired in every instance claimed (20 working days). Therefore your claim to adjust the contract cannot be considered.

7. Finally, the defence contends that the SOP Act did not extend to the land to which the construction contract related, because the land was "national land" within the meaning of the Australian Capital Territory (Planning and Land Management) Act 1988 (Cth) and was within the "seat of government of the Commonwealth" which was subject to the exclusive jurisdiction of the Commonwealth under s 52 of the Constitution and therefore outside the scope of the legislative power of the Australian Capital Territory.

8. For the purposes of this application, if any of the three contentions in the defence is arguable then the application for summary judgment must be dismissed. That is because:

(a) if there was no valid payment claim for the purposes of the Act then there would be no liability which arose under s 16(4) or any entitlement under s 17(2)(a) to recover the amount of the payment claim as a debt due to the plaintiff.

(b) If the email in response to the payment claim was a payment schedule then s 16(4) would not operate to make the defendant liable to pay the claimed amount and s 17(2)(a) would not apply to permit that amount to be recovered as a debt due to the plaintiff (at least to the extent that the payment schedule denied that the amount was due).

(c) If the SOP Act as a whole did not apply to the construction contract because to so apply would be beyond the scope of the powers of the Legislative Assembly then ss 16(4) and 17(2)(a) would not apply and hence those sections would not make any amount a debt due to the plaintiff.

9. I will deal first with the claim that the payment claim was not a valid payment claim for the purposes of the SOP Act.

Is there an arguable defence relating to the validity of the payment claim?

10. The contract was entered into on 10 April 2013.

11. Twenty-five payment claims were made during the course of construction, the last being claim number 25 on 16 June 2015. None of these were subject to an adjudication under the SOP Act.

12. Practical completion was achieved on 25 June 2015.

13. Payment claim number 26 was made on 11 September 2015. The claim had two components. The first component was for a series of what were referred to as variations. I describe them in this tentative way for a reason which will become apparent shortly.

14. Those claims were for variations which had arisen and been claimed in earlier payment claims. The claims had either been refused, allowed in part or allowed in full. However, the evidence about these claims was unclear in two respects.

(a) During the course of oral argument it emerged that there was a factual issue as to whether or not in relation to those variations where a payment had been made:

• (i) the payment reflected the full amount of the payment claim made at that point, the additional amount presently claimed being a greater amount claimed for that variation. If this was the case then the plaintiff was increasing the amount claimed for work after a previous claim had been accepted and paid; or
• (ii) the payment reflected payment of only part of an amount identified in a larger payment claim. If this was the case then the plaintiff was making further claims in relation to the unpaid portion of a previous payment claim.

(b) Upon further examination, these items appear to be within the scope of a provisional sum which is referred to as "Contingency". Although the original claims appear to have been made pursuant to cl J1.2 of the Contract (which relates to variations), they appear to have been claimed in payment claims not as variations but as components of the provisional sum. If that is correct then the relevant part of the contract would be cl K which relates to provisional sums and prime cost items and which incorporated a process by which the architect controlled the costs of such items.

15. Because of these issues it is not possible on the material before me to work out precisely how the claims in progress claim number 26 that were described in argument as variations actually arose. These claims amounted to $146,714.46 (ex GST).

16. The second component involved some new claims which appeared to be time costs variations arising from delays to the work arising from particular issues. These delay costs involved the bulk of the claim, namely $708,880.90 (ex GST).

17. In relation to the adjustment of time variations the defendant claims that these are not claims in relation to construction work.

18. The adjustment of time variation provisions are found in cl L of the contract. Clause L1 permits the contractor to make a claim for an adjustment of the date for practical completion and adjustment of time costs in respect of a delay affecting working days caused by various identified matters which include "an architects instruction": cl L1 .1 (c). An "adjustment of time costs" is defined so that it "includes any loss, expense or damage reasonably incurred by the contractor that results from a delay due to the causes referred to in clause L1".

19. The defendant submits that it is a requirement of a payment claim that it be for "construction work". That is said to arise from the terms of s 15(2)(a) of the SOP Act which requires that a payment claim must "identify the construction work or related goods and services to which the progress payment relates". The definition of construction work in s 7 is such that it does not obviously include every payment required to be made under a construction contract but is instead targeted at particular physical activities and "any operation which forms an integral part of, or is preparatory to or is for rendering complete, work mentioned [elsewhere in the definition]": s 7(1)(e). The defendant contends that the adjustment of time variations have not involved any construction work but are instead in the nature of the recovery of damages and hence are not within the scope of what may be claimed in a payment claim under s 15.

20. The defendant recognises that this approach would be contrary to the statements of Hodgson JA (with whom Ipp AJA agreed) and of Basten JA in Coordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd [2005] NSWCA 228 (Hargreaves). However, it points to the single judge decision in Quasar Constructions NSW Pty Ltd v Demtech Pty Ltd [2004] NSWSC 116 at [26]- [34] (Demtech) that predated Hargreaves which had taken a more limited view of what can be claimed under a payment claim (though not so as to invalidate the payment claim itself: see Demtech at [32]). The defendant submitted that a narrower interpretation of the provisions of the ACT legislation was open having regard in particular to the identified exceptions in s 10(2) which permits a progress payment to include final payments, a single or one-off payment or a milestone payment. The defendant contended that this provision, by extending what a progress payment may include, indicated that it was otherwise limited only to "construction work" in a narrower sense. However, I note that although this was said by the defendant to be a matter of distinction between the legislation considered in Hargreaves and the present case, Basten JA appears to have considered and rejected such an argument based on equivalent provisions in the New South Wales Act: see Hargreaves at [60].

21. While there are good reasons for following the decisions of the New South Wales courts when interpreting the SOP Act (see Pines Living Pty Ltd v O'Brien and Walton Constructions Pty Ltd [2013] ACTSC 156 at [18] (Pines)), and the contention that it would invalidate a payment claim appears to go beyond any authority identified by the defendant, there is no decision in the Australian Capital Territory which precludes such an argument. While it appears to me to be a weak argument, in my view it is not so weak as can be disposed of summarily and should be determined when the factual basis for its application is clear.

22. The next argument of the defendant was that under the contract there was a link between the doing of the construction work and the making of a progress claim so that in the period following claim 25 no new reference date arose until the conclusion of the defects liability period when a final claim could be made. The defendant drew attention to cll N3.2 and N5.2 of the contract and submitted that these had an effect similar to that found to exist in the Trustees of the Roman Catholic Church for the diocese of Lismore v TF Woollam & Son Pty Ltd [2012] NSWSC 1559 (Woollam).

23. In Woollam the relevant provision of the contract defined the entitlement to give a progress claim in a manner which referred to the costs of labour and materials provided by the builder and all other items claimed "in respect of the period covered by the statement". It also gave an entitlement to make a final payment claim. McDougall J found that the entitlement to make a final payment claim only arose at the end of the defects liability period. In those circumstances the reference dates fixed by the contract were the dates of the periodic payment claims permitted while work was continuing and a claim at the end of the defects liability period. That was because the terms of the contract had the effect of tying the entitlement to periodic payments to the undertaking of work. Therefore, following the cessation of work, no reference date arose until there was an entitlement to make a final payment claim at the end of the defects liability period.

24. In the present case, the provisions of N3.2 are not nearly as strong indicators as was the case in Woollam. However, the reference in cl N3.2 to the defined term "cost of building work" might provide some support for this contention.

25. Stevenson J in Grid Projects NSW Pty Ltd v Proyalbi Organic Set Plaster Pty Ltd [2012] NSWSC 1571 at [35]- [41] (a decision based on the equivalent of paragraph (b) of the definition of reference date - setting by the Act, rather than paragraph (a) - setting under the contract) appeared, notwithstanding what was said in Brodyn Pty Ltd v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421, 443 [63] to consider that even without such a provision tying a payment claim to particular work, new reference dates would not arise after the completion of building work. That decision was not followed by McDougall J in Broadview Windows Pty Ltd v Architectural Project Specialists Pty Ltd [2015] NSWSC 955 at [31]- [35].

26. I am satisfied that there is a factual issue to be determined as to whether or not further work was carried out after progress claim 25. There is clearly an inference available from the terms of progress claim 25 and the issue of the certificate of practical completion on 25 June 2015 that some work remained unfinished as at 16 June 2015. However, the evidence did not clearly establish that fact.

27. I am also satisfied that there is at least an argument (that is, it is not unarguable) that if no such work was carried out after 16 June 2016 then, because of the terms of the contract, the situation was relevantly analogous to that in Woollam and no new reference date arose after that date and as a consequence there was no entitlement to issue the payment claim. Having regard to the manner in which this argument was put, with an emphasis on the decision in Woollam and s 15(5), I do not consider that it is rendered unarguable by the decision of the New South Wales Court of Appeal in Lewence Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd [2015] NSWCA 288.

28. In relation to the claim for variations the defendant submitted that the plaintiff is not entitled to re-agitate claims in respect of the same construction work in respect of earlier reference dates. It submitted that the plaintiff had previously accepted the decisions of the architect and included in its previous payment claims only the variations that had been approved and claimed payment for an amount of a variation as approved by the architect. It submitted that progress claim 26 includes claims for variations in respect of the same construction work the subject of previous claims. It submitted that the position is relevantly similar to Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69; (2009) 74 NSWLR 190 (Dualcorp) with the effect that the payment claim is invalid or constituted an abuse of process.

29. The position in Dualcorp to which Allsop P's remarks were directed was the attempt to generate new reference dates by serving previously served claims. It was the purported generation of new reference dates that was seen as objectionable given that the provision equivalent to s 15(6) expressly permitted including previously claimed amounts in subsequent payment claims. That was the manner in which those remarks were applied in Grid Projects. Therefore the relevance of those decisions is dependent upon the defendant's arguments that no new reference date arose which is dealt with above.

30. The other aspect of the defendant's argument based on Dualcorp was the contention that the submission of the variation claims amounted, in the circumstances, to an abuse of process. In Woollam, McDougall J (at [55]) declined to deal with an abuse of process argument having regard to the other conclusions that he had reached. He noted that abuse of process had been considered previously in a factual context that included prior adjudication on and determination of the repeated claim. That was not the case in Woollam and is not the case here.

31. Depending on the factual question that I have identified at [14] above, the position might be that the plaintiff is seeking to alter the claim that it made in relation to previously claimed and completed construction work. It would not simply be the inclusion of an amount the subject of a previous claim which is expressly made permissible by s 15(6), but instead involve making a new and different claim for work which has already been claimed and paid for. I was not directed to any authority which dealt with such a situation. The contention that this amounted to an abuse of process would not be inconsistent with what I said in Pines at [42]-[43]. In my view, the defendant's contention that, having regard to the regime provided for in the Act, such a situation would amount to an abuse of process cannot be said to be unarguable.

32. The arguments put forward by the defendant do not appear to be strong ones, however, they are arguments which should be considered upon full argument in the light of findings of fact relating to the circumstances of claim number 26.

33. As a result of the conclusion that the defendant has an arguable defence in so far as it raises the entitlement of the plaintiff to have given the payment claim dated 11 September 2015, it is unnecessary to address either of the alternative bases upon which summary judgment might be refused. In particular, it is not necessary to express any view on the merits of the contention that the Embassy of the Islamic Republic of Pakistan was actually a part of the seat of government of the Commonwealth of Australia within the meaning of s 52(i) of the Constitution and that by reason of that fact or, alternatively, the Commonwealth legislation relating to the management of "national land" (within the meaning of the Australian Capital Territory (Planning and Land Management) Act 1988 (Cth)) immune from the operation of most statutes enacted by the Legislative Assembly of the Australian Capital Territory. These propositions might, if correct, come as a surprise to the citizens of the Commonwealth and the Territory. However, popular surprise is not any indication of the legal merit of the arguments.

34. I will order that the application in proceedings dated 8 February 2016 be dismissed. I will permit the parties to be heard in relation to costs and in relation to the directions necessary to prepare the matter for a final hearing. The order of the Court is:

1. The application in proceedings dated 8 February 2016 is dismissed.

I certify that the preceding thirty-four [34] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Associate Justice Mossop.