Grave v Blazevic Holdings

CITATION: Grave v Blazevic Holdings [2010] NSWCA 324

Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421 Chase Oyster Bar v Hamo Industries [2010] NSWCA 190 CASES CITED: Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 Paper Products Pty Ltd v Tomlinsons (Rochdale) Limited (1993) 43 FCR 439 Samick Lines Co Ltd v Antonis P Lemos (Owners) [1985] AC 711

Decision 21 I start by repeating that the primary judge did not conclude, as a matter of fact, that the proposed defence had no prospect of success. This Court has not had the opportunity of hearing the witnesses and is in no position to make such a finding. Mr Lozina did not submit otherwise. 22 As I have said, the primary judge found that the applicant was a person who fell within s 13(1) of the Security of Payment Act because, in his Honour's view, the applicant was a person is was or might be liable to pay the amount claimed. In my opinion, that finding is wrong, because (as I have indicated already) it did not pay attention to the words "under the construction contract concerned". That follows, in my opinion, from the proper construction of the relevant provisions of the Security of Payment Act. 23 I have referred to the object of the Act as set out in s 3. It is no part of that object to give a party to a construction contract a right to receive progress payments from someone who is not a party. The object is limited to operating between those who are parties to a construction contract. 24 Section 8 is the source of the statutory right to receive progress payments. It says who is entitled to be paid. That is a party to the construction contract - the person who undertakes to carry out construction work. It does not say in terms who is liable to make the payment, but I think it is implicit at least that the liability is one that is created against the other party to the construction contract. 25 Section 13 is, as I have said, the starting point of the statutory mechanism for enforcement. The mechanism is one of which a person referred to in s 8(1) who is or who claims to be entitled to a progress payment may avail himself or herself. The words "who claims to be entitled" do not detract from the qualification introduced by the words "a person referred to in section 8(1)". They do not qualify the requirement that the person claiming the progress payment must be a person who has undertaken to carry out construction work under the contract. 26 The person on whom the progress claim may be served is someone who, under the construction contract concerned, is or may be liable to make the payment. The words "is or may be liable" may be capable of referring, for example, to primary or secondary liability (the latter, for example, as guarantor). They may be capable of encompassing disputes as to quantification; and indeed, disputes as to whether, on the proper construction of the contract and the Security of Payment Act, any payment is due at all. However, whatever is the nature and amount of the liability sought to be enforced, it must be a liability "under the construction contract concerned". If the proposed recipient of the payment claim is not a party to or liable under the construction contract, then it falls outside that statutory description. 27 Section 14 deals with the way in which the recipient of a payment claim may dispute, in whole or in part, its liability. The consequences of failure to take advantage of the dispute process are spelled out in s 14(4). The respondent to the payment claim "becomes liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates". 28 The person referred to in s 14(4) as "the respondent" is, by reference to subs (1), the person on whom the payment claim is served. That in turn directs attention back to s 13(1). The person must be someone who under the construction contract is or may be liable to make the payment. I do not think that it is the correct construction of the statutory liability that may come into existence pursuant to s 14(4) that it extends beyond those who, by s 13(1), are denoted as being susceptible to that liability. 29 Section 15 provides for alternative ways of enforcing a statutory liability which may arise under s 14(4). If the alternative of litigation is chosen, the rights of the respondent are limited by s 15(4)(b). It is to be noted that again, in subpara (ii), the words "under the construction contract" are used. It follows from s 15(4)(b)(ii) that the statutory liability created by s 14(4) may be defeated by a defence that does not arise under the construction contract. 30 It is accordingly necessary to consider the extent of the words "arising under the construction contract". In some contexts, those words have been considered to be equivalent to the words "arising out of". See, for example, the authorities reviewed by Allsop J in Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at [169] and following. However, as Lord Brandon of Oakbrook pointed out in Samick Lines Co Ltd v Antonis P Lemos (Owners) [1985] AC 711 at 727 (one of the decisions reviewed by Allsop J), the width to be given to prepositional phrases such as "arising out of" and "arising under" must depend on their context. 31 In some cases, as French J observed in Paper Products Pty Ltd v Tomlinsons (Rochdale) Limited (1993) 43 FCR 439 at 448, reference to a dispute "arising under" an agreement may be of more limited application than reference to a dispute "arising out of" an agreement. 32 Again in some cases, prepositional phrases should be construed widely. Thus, an arbitration clause that sends to arbitration disputes arising out of or under a contract would generally be given a wide construction, consistent with the presumed intention of the parties that arbitration is their preferred method of dispute resolution. 33 In this case, however, the words "arising under the construction contract" must be construed having regard to their statutory context and the object of the legislation in which they appear. That statutory object does not extend to imposing obligations on those who are not parties to construction contracts. The context of s 13 makes it clear that the liability that is enforced through the mechanism of judgment, is one of which the starting point is, again, "arising under a construction contract". 34 The alternative construction - that it is sufficient that the person be named as a respondent and not supply a payment schedule, so as to be susceptible to judgment - has consequences which render it unlikely. First, it creates disconformity with the alternative enforcement path of adjudication. It is clearly established, by the decision in Brodyn, that an adjudication determination is void if there is no underlying construction contract. The authority of Brodyn in this respect was not disturbed by the decision of this Court in Chase Oyster Bar v Hamo Industries [2010] NSWCA 190. It would be quite extraordinary if a claimant who chose to go down the path of adjudication could be disappointed because the adjudicator lacked jurisdiction (for want of a construction contract between the claimant and the respondent), but a claimant who went down the path of litigation could enforce the claimed right even in the absence of such a construction contract. 35 A second inconvenience is that there would be an immediate multiplicity of proceedings. On the construction which appears to underlie the reasoning of the primary judge, a party in the position of the applicant in this case would have no defence to the action brought to enforce the statutory liability created, or said to have been created, by s 14(4). But there would be no true foundation for that liability, if there were no construction contract between that person and the claimant. In those circumstances, once judgment had been entered and enforced, the judgment debtor would be in a position to bring an action of a restitutionary nature, seeking to recover the amount paid. Such an action is quite distinct from an action of the kind contemplated by s 32 of the Security of Payment Act, to enforce claims under or in respect of the contract. It is difficult to conceive of a reason why the legislature would wish to encourage multiplicity of actions. 36 For those reasons, I conclude that the primary judge erred in his construction and application of ss 14 and 15 of the Security of Payment Act. He erred because the defence proposed by the applicant was not one foreclosed by s 15(4)(b)(ii). A defence that "I am not a party to, and thus not liable under, the construction contract" is not a defence arising under the contract sued upon. It is a denial of the existence, as between applicant and respondent, of any such contract. Conclusion and orders

(2004) 61 NSWLR 421

(2006) 157 FCR 45

(1993) 43 FCR 439