Duffy Kennedy Pty Ltd v Lainson Holdings Pty Ltd

Lainson's position in relation to the summary judgment application

1. On 21 March 2016, Hammerschlag J gave DK leave to file its application and listed it for hearing on 30 March 2016. In doing so, his Honour recorded the following admission by Lainson: I note that the defendant admits that the circumstances in subs (1) of s 15 of the Building and Construction Industry Security of Payment Act 1999, ("the Act") exist in relation to the plaintiff's claim for $760,943.41.
2. Prior to the hearing, the parties exchanged written submissions. Lainson described the three grounds on which it resisted summary judgment as follows: (a) It has an arguable defence that the Plaintiff was not entitled to progress claims by reason of its non-compliance with the terms of the Tripartite Deed by which the Plaintiff was to be paid by the National Australia Bank; (b) It has a defence of equitable-set off for the amount claimed by the Plaintiff for constructions works actually done by the Defendant, which set-off is sufficient for the Court not to award summary judgment until the balance between the parties is worked out; and, (c) If both of these arguments fail because they are proscribed by the terms of the Act, the Defendant seeks a stay on the grounds of the equitable set-off, such a ground not being proscribed in respect of a stay application.
3. Lainson also filed a motion for a stay of execution of any judgment, pending the determination of its proposed cross-claim.
4. The reference in paragraph (b) above to construction works undertaken by Lainson requires explanation. Before the building contract was signed, it was agreed that Lainson would as a sub-contractor carry out and complete shoring and earthworks that it had already commenced on the building site. There was no formal agreement executed to record the terms of that sub-contract. Lainson alleges that as at 30 November 2015 it was owed $633,194 for those works. Of that amount, $379,832 is said to relate to works which are the subject of the first or both of the payment claims made by DK.
5. The Tripartite Deed referred to in paragraph (a) is between DK, Lainson and its lender, National Australia Bank Limited (NAB). Clauses 8.3 and 8.4 address DK's contractual entitlement to progress payments: 8.3 Builder's Statutory Declarations With each claim for payment under the Building Contract, the Builder agrees to give a statutory declaration (declared on the date of the relevant claim) to the Bank and the Borrower in the form set out in schedule 1 (Form of Statutory Declaration). 8.4 Builder's Entitlement to Payment The Builder is not entitled to any progress payment under the Building Contract or otherwise, and the Bank is not obliged to make any payment to the Borrower or the Builder in respect of any progress payment claimed by the Builder under the Building Contract or otherwise, until a proper statutory declaration is provided pursuant to cl 8.3 (Builder's statutory declarations) of this deed.
6. At the commencement of the hearing Lainson abandoned the argument in paragraph (a) above, accepting that s 34 of the Act prevented it from relying on cl 8.4 as disentitling DK from claiming progress payments alleged to be due under the Act.
7. The statutory declaration in Sch 1 to the Tripartite Deed is not in the form necessary for it to constitute a "supporting statement" as defined in s 13(9) of the Act (see [14]-[15] below).

The relevant provisions of the Act

1. It is common ground that s 15(4) applies to DK's proceedings seeking to recover the claimed amounts. That subsection provides: (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.
2. Lainson contends that the set-off defences on which it relies are not raised in relation to matters arising under the construction contract.
3. The circumstances referred to in s 15(1) are that the respondent to such a claim: (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.
4. The reference to "claimed amount" is to the amount of the progress payment claimed to be due in accordance with the entitlement said to arise under s 8: s 13(2)(b). The claimant becomes liable to pay that amount under s 14(4) if two conditions are satisfied. They are: 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.
5. The presently relevant requirements relating to payment claims and their service are contained in s 13: 13 Payment claims ... (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 … (5) A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract. … (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. … (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.
6. The prescribed form of supporting statement at the time DK's payment claims were made is set out in Sch 1 to the Building and Construction Industry Security of Payment Regulation 2008 (NSW): see cl 19. That form also is extracted in Kitchen Xchange v Formacon Building Services [2014] NSWSC 1602 at [35] (McDougall J). It requires, 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."

The evidence as to service of the payment claims

1. The affidavit evidence of the parties was read without objection and was not contested. The deponents of those affidavits were DK's general manager, Mark Yuen, who was responsible for the day-to-day administration of the contract; DK's managing director, Gavin Duffy; the principal of Lainson, Charles Lainson; and the "Superintendent" under the building contract, Elvis Fantov.
2. The sum for which DK agreed to carry out the contract works was $21.9 million. The bill of quantities for that amount included an allowance of $869,270 for shoring and earthworks. Under the arrangements between the parties and NAB, as recorded in the Tripartite Deed, progress payments were to be made by the bank out of funds available under a facility agreement between it and Lainson. DK was to provide progress claims to the Superintendent together with the signed statutory declaration described in cl 8.3. The Superintendent was then to issue to Lainson and DK a progress certificate recording his opinion as to the moneys due under the progress claim. Within seven days of receiving that certificate, Lainson was to pay DK the amount certified as due, having deducted any permissible set-off.
3. The payment claims which are the subject of DK's summary judgment application were made as follows. On 1 August 2015, DK issued and forwarded to the Superintendent a document described as "Progress Claim #01" in the form of a schedule headed "Payment Schedule Summary". That claim was for $140,256.50. A few days later, at a meeting between representatives of the parties and the Superintendent, it was agreed that claim would be revised to include other items.
4. On about 17 August 2015, DK issued a revised Payment Schedule Summary described as "Progress Claim #1B". That claim was for $487,897.60 (excluding GST). That document when provided to the Superintendent was accompanied by a form of statutory declaration which included a statement that all sub-contractors engaged in works under the contract had been paid in full all moneys due and owing to them. That declaration was dated 17 August 2015.
5. On 25 August 2015, Mr Yuen emailed NAB advising that he had "lodged our claim to the Superintendent" so that DK might be paid upon the Superintendent's assessment. On the following day, Mr Yuen sent a further revised claim to the Superintendent for $374,493.50 (again excluding GST).
6. On 1 September 2015, following a meeting between representatives of the parties and the Superintendent, DK "resubmitted" (Mr Yuen's words) its payment claim by issuing a Tax Invoice addressed to Lainson for an amount of $411,942.85 (being $374,493.50 plus 10% GST). The date of that invoice is recorded as "17/08/2015 (revised by Super 27 Aug 2015)". The heading of the invoice includes the words "Progress Claim #1B" and the following sentence appears at the foot of the invoice: This Payment Claim is made under the Building & Construction Industry Security of Payment Act 1999 (NSW).
7. In response, the Superintendent issued "Payment Certificate No #1B Revised". That certificate was dated 1 September 2015 and addressed to Lainson. It certified that in respect of "Progress Claim No #1B submitted by the Contractor they are entitled to a payment of $411,942.85 including GST".
8. The events to this point, insofar as they are relied upon in support of DK's alternative claim for $411,942.85, are pleaded in paragraphs 9 to 15 of its List Statement as follows: Payment Claim 1 9 On or around 17 August 2015, the Plaintiff issued a payment claim (Invoice No: Cronulla, Progress Claim #1B) dated 17 August 2015. 10 On 27 August 2015, the Aleemax Pty Ltd (the Superintendent) revised the claim, removing Design Fees in the amount of $85,000. 11 On 1 September 2015, the Plaintiff submitted the claim (Invoice No: Cronulla, Progress Claim #1B) and marked "(revised by Super 27 Aug 2015)" (Payment Claim 1) for the sum of $411,942.85 (incl. GST) (PC1 Amount). 12 In accordance with Section 13(2) of the Act Payment Claim 1; a. identified the construction work, and b. indicated the amount of the progress payment that the Plaintiff claims to be due. 13 In accordance with Section 31(1)(e) of the Act, Payment 1 Claim was served in writing to the Superintendent which is the manner provided by the Contract. 14 On 2 September 2015, the Payment Certificate was issued by the Superintendent certifying the amount to be paid as $411,942.85. 15 The Plaintiff claims that the Payment Certificate is the Payment Schedule and accordingly is entitled to recover PC1 Amount under Section 16(2)(a)(i) of the Act, or in the alternative, there was no Payment Schedule provided by the Defendant and accordingly the Plaintiff is entitled to recover PC1 Amount under Section 15(2)(a)(i) of the Act.
9. On about 15 September 2015, DK issued a further Tax Invoice addressed to Lainson. That invoice included in its heading the words "Progress Claim #2" and was for $760,943.41 (including GST). It also contained, at the foot of the invoice, a statement as to its being a payment claim made under the Act.
10. Paragraphs 19 to 21 of the contentions in DK's List Statement are directed to "Progress Claim #2": Payment Claim 2 19 On or around 15 September 2015, the Plaintiff issued a payment claim (Invoice No: Cronulla, Progress Claim #2) dated 15 September 2015 (Payment Claim 2) in the sum of $760,943.41 (incl. GST) (Claimed Amount). Payment Claim 2 included; a. Outstanding Payment Claim #1B of $411,942.85 (inc.GST), and b. Payment Claim #2 of $349,000.56 (inc GST). 20 In accordance with Section 13(2) of the Building and Construction Industry Security of Payments Act 1999 (NSW) (the Act) Payment Claim 2; a. identified the construction work, and b. indicated the amount of the progress payment that the Plaintiff claims to be due. 21 In accordance with Section 31(1)(e) of the Act, Payment Claim 2 was served in writing to the Superintendent which is the manner provided by the Contract.
11. As formulated, DK's claim is for $760,943.41 (including GST) as a debt due under s 15(2)(a)(i) and, in the alternative, for $411,942.85 (including GST) as a debt due under the same provision. Each of those claims is, in the language of s 15(2), for recovery of "the unpaid portion of the claimed amount" as a debt due. In each case the unpaid portion is the whole of the claimed amount.
12. The matters which must be established to entitle DK to judgment for either amount are -

• A payment claim having been made for the whole of the claimed amount (s 13(2)(b)).
• Service of that claim on Lainson (s 14(4)(a)).
• Lainson not having provided a payment schedule within the relevant time (ss 14(4)(b), 15(1)(a)).
• Lainson not having paid the whole or any part of the claimed amount on or before the relevant time (s 15(1)(b)).
• All or part of the claimed amount remaining unpaid at the time judgment is given (s 15(2)(a)(i)).

The withdrawal of Lainson's admission

1. At the conclusion of the evidence, and having regard to the principles referred to by Heydon JA in Damberg v Damberg [2001] NSWCA 87; 52 NSWLR 492 at [155]-[160] (Spigelman CJ and Sheller JA agreeing), I raised with the parties before the argument proceeded further, that the admission made by Lainson on 21 March 2016 (see [3] above) did not accord with the uncontested evidence that no supporting statement had accompanied service of either of the payment claims relied upon. I did so accepting for present purposes that service of the payment claims on the Superintendent was service on Lainson. I then adjourned the hearing for a short time to enable the parties to consider their respective positions in relation to that question.
2. When the hearing resumed, DK submitted that Lainson should not be permitted to withdraw its admission. It had not pleaded that either payment claim had been served contrary to the prohibition in s 13(7) and by its admission was to be taken to have agreed that each had been served in accordance with s 13, so as to satisfy s 14(4)(a). DK did not, however, suggest that the admission was made by Lainson in the knowledge that it was contrary to the facts or on a view of the law from which Lainson now sought to resile. Nor was it suggested that DK would suffer any prejudice if the admission was withdrawn because of any need to lead further evidence or to amend its claim or the application for summary judgment. There was no reference by either party, in relation to the subject of prejudice, to what costs consequences, if any, might follow if the admission was permitted to be withdrawn.
3. On the assumption that Lainson was able to argue that any service had been contrary to s 13(7), DK made two further submissions. The first was that a breach of s 13(7) did not have the consequence that a payment claim had not been served for the purposes of s 14(4). It would follow that DK remained entitled to judgment subject only to the set-off arguments. Secondly, and accepting that no supporting statement had accompanied service of its second claim, DK submitted that Payment Claim 1 was a revision of the claim made on 17 August 2015 which was accompanied by a statutory declaration that satisfied the requirements for a supporting statement. Accordingly DK argued that Payment Claim 1 was not served contrary to s 13(7) and that it was entitled to summary judgment for the claimed amount of $411,942.85.
4. Not unexpectedly, Lainson did seek to withdraw its admission. It argued that having regard to the uncontested evidence, it was clear that neither of the payment claims, when served, was accompanied by a supporting statement. As to the form of the pleadings and the absence of any pleading of a contravention of s 13(7), Lainson submitted that there was no specific allegation of service to which it was required to plead and that it did not in terms make any admission that either payment claim had been accompanied by a supporting statement when served.
5. Lainson's admission, in the terms in which it was made, was as to a matter of law which in turn was based on mixed questions of fact and law. Those questions included whether there had been service in accordance with the provisions of s 13, and particularly whether the payment claim had been served contrary to the prohibition in s 13(7). Focussing on that question, the admission, as made in relation to Payment Claim 1 and Payment Claim 2 (in each case as defined in DK's List Statement), is contrary to the evidence.
6. It is conceded that no supporting statement accompanied the service of Payment Claim 2. As to Payment Claim 1, it is argued that it was served on 17 August 2015 and accompanied by a supporting statement. There are two fatal difficulties for this argument. The first is that the statutory declaration served on 17 August 2015 was not in the form required of a supporting statement by the Regulation. It did not identify the sub-contractor or sub-contractors with whom DK had contracted. The second is that the claim served on 17 August 2015 is not the claim pleaded or relied upon. It was served on an earlier date to Payment Claim 1 and claimed an amount ($487,897.60 excluding GST) which is different to the "claimed amount" now the subject of DK's alternative claim: cf ss 13(2)(b), 14(4), 15(1).
7. Lainson should be permitted to withdraw its admission, at least to the extent that it includes that the payment claims when served were accompanied by a supporting statement. That admission is contrary to the evidence. It did not arise from a calculated consideration of the effect of s 13(7) or a deliberate acknowledgement of a fact that was known on the evidence to be untrue. The making of it does not cause DK continuing or irretrievable prejudice because it has conducted its case in a particular way. In these circumstances, the interests of justice require that the Court determine the issue between the parties by reference to the true facts.

Determination of the summary judgment application

1. The evidence supports the following conclusions. First, the statutory declaration which accompanied the claim attached to Mr Yuen's email of 17 August 2015 was not a supporting statement within s 13(9). Secondly, no document purporting to be a supporting statement accompanied service of the first claim in respect of which DK seeks judgment, namely Payment Claim 1. Thirdly, no supporting statement accompanied the service of Payment Claim 2 dated 15 September 2015.
2. It follows that the service of each claim was contrary to s 13(7). DK was a head contractor and Lainson was also a sub-contractor. The latter was required to be identified in the supporting statement and a declaration made that all amounts that had become due and payable to Lainson in that capacity had been paid.
3. There remains to be considered DK's submission that service contrary to the prohibition in s 13(7) does not have the consequence that there has not been service within s 14(4)(a). The question whether such service is invalid, in the sense that it is not service for the purposes of the Act and does not attract the consequences of such service, was considered by McDougall J in Kitchen Xchange at [34]-[51]. His Honour concluded, relying on the reasoning of Allsop P in Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69; 74 NSWLR 190 at [14]-[15], that service contrary to s 13(7) was not service within the meaning of s 14(4). I agree with his Honour's reasoning and conclusion, which I followed in Kyle Bay Removals Pty Ltd v Dynabuild Project Services Pty Ltd [2016] NSWSC 334.

Conclusion

1. In the result it is sufficient to record that I am not satisfied that either payment claim was served in accordance with s 13 and for that reason I am not satisfied that there was service within s 14(4)(a). That being so, DK's application for summary judgment must be dismissed.
2. That conclusion makes it unnecessary to address Lainson's remaining arguments and its application for a stay of execution of any judgment.
3. There remains the question of costs. My view is that notwithstanding its success on DK's application, Lainson should not have an order for payment of its costs of either application. Had it not made the admission on 21 March 2016, it is most unlikely that the summary judgment application would have proceeded.
4. In circumstances where the matters that have been raised are also relevant to the resolution of the ultimate issues in the proceedings, the costs order which I propose to make is that there be no order as to the costs of either of the motions, the result being that each party should bear its own costs of those motions.
5. However, because the parties have not had the opportunity to address this question, I propose to grant leave to each to apply for a different order as to costs. That leave must be exercised within seven days and by way of lodging written submissions with my Associate. Those submissions are not to exceed three pages and should be served on the other party at the same time as they are lodged with my Associate.
6. If that leave is exercised by one party, the other should respond by written submissions, again not to exceed three pages, to be lodged with my Associate and served on the other party within seven days of receipt of the submissions seeking a different order. I will then determine the question of costs on the papers. Otherwise, the proceedings should be listed for directions in the Technology and Construction List.
7. Accordingly, I make the following orders:
8. Dismiss the plaintiff's notice of motion for summary judgment.
9. Dismiss the defendant's notice of motion for a stay of execution.
10. Make no order as to the costs of either of the motions in orders 1 and 2.
11. Grant leave to each party to apply to vary order 3. That leave is to be exercised within seven days of the date of these orders and by way of the lodgement with my Associate, and service on the other party of written submissions, not to exceed three pages, in support of any different order sought. If that leave is exercised, the other party should respond by written submissions, again not exceeding three pages, to be lodged with my Associate and served within seven days of receipt of the earlier written submissions. The question of costs will then be determined on the papers.
12. The proceedings listed for further directions in the Technology and Construction List on 15 April 2016.

Amendments 07 April 2016 - Formatting change to heading at [10] 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: 07 April 2016