Hawkins Construction v Mac's Industrial Pipework

1 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J

2186/01 Hawkins Constructions (Australia) P/L v Mac's Industries Pipework Pty Ltd

1 This is an application by the plaintiff to set aside a statutory demand served on it by the defendant. 2 The plaintiff is the head contractor on the construction of Singleton Abattoir. The defendant was initially subcontracted to install plumbing and fire services on 15 February 2000 ("the first contract"). During the course of this contract, the plaintiff invited tenders from the defendant, another plumber contracted to work on the construction and two other contractors to install the hot and cold water reticulation system on the site. The defendant was successful and the plaintiff and the defendant entered into a second contract in July 2000 ("the second contract"). There were some irregularities in the formal signing of the contract but nothing turns on this. The defendant signed the contract, but it appears that the plaintiff did not. I am satisfied that the acceptance of the defendant's tender brought into existence a contract incorporating the same general terms as the first contract. One of these terms was a "pay when paid" provision, which would have meant that the plaintiff only had to pay the defendant as and when it itself was paid. There is evidence that around $105,000 remains to be paid to the plaintiff as head contractor for the work done by the defendant under this second subcontract. 3 The statutory demand relates to invoices issued in relation to this second contract by the defendant seeking progress payments. These payments were sought under the Building and Construction Industry (Security of Payments) Act 1999 (NSW) ("the Act"). This Act came into force on 26 March 2000, that is between the date of the first and second contract. So far as this case is concerned its effect was to make "pay when paid" provisions invalid and require progress payments such as those sought. 4 By summons the plaintiff seeks a declaration that the Act does not apply to the second contract and an order setting aside the statutory demand. As well as arguing that the Act should not apply, Mr Gray for the plaintiff also contended that the defendant's invoices did not comply with it, that the statutory demand was invalid because it was improperly signed, and that the plaintiff had an offsetting claim against the statutory demand if it were upheld. The existence and amount of the offsetting claim were both conceded by the defendant at the hearing. Issues: 5 The issues are:

1. Does the Act apply to the second contract between the plaintiff and the defendant to install the hot and cold water reticulation system?

4. If these questions are answered in the affirmative, should the amount of the demand be adjusted? The relevant provisions of the Act: 1 Name of Act This Act is the Building and Construction Industry Security of Payment Act 1999 . 2 Commencement This Act commences on a day or days to be appointed by proclamation. 3 Object (1) The object of this Act is to ensure that any person who carries out construction work (or who supplies related goods and services) under a construction contract is entitled to receive, and is able to recover, specified progress payments in relation to the carrying out of such work and the supplying of such goods and services. (2) The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to such a payment in circumstances where the relevant construction contract fails to do so. (3) The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves: (a) the making of a payment claim by the person claiming payment, and (b) the provision of a payment schedule by the person by whom the payment is payable, and (c) the referral of any disputed claim to an adjudicator for determination, and (d) the setting aside of money as security for payment of the progress payment so determined. (4) It is intended: (a) that this Act does not limit any other entitlement that a person may have under a construction contract, or any other remedy that a person may have for recovering any such other entitlement, and (b) in particular, that the setting aside of money as security does not prejudice any claim, counter-claim or defence that may be raised in civil proceedings concerning the work to which a payment claim relates, but merely ensures that money will be available to satisfy those entitlements when they are finally determined. 4 Definitions In this Act: … construction work is defined in section 5. … related goods and services is defined in section 6. … 5 Definition of construction work'' (1) In this Act, construction work means any of the following work: (a) the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of buildings or structures forming, or to form, part of land (whether permanent or not), (b) the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of any works forming, or to form, part of land, including walls, roadworks, power-lines, telecommunication apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage or coast protection, (c) the installation in any building or structure of fittings forming, or to form, part of land, including heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply, fire protection, security and communications systems, (d) the external or internal cleaning of buildings and structures, so far as it is carried out in the course of their construction, alteration, repair, restoration, maintenance or extension, (e) any operation which forms an integral part of, or is preparatory to or is for rendering complete, work of the kind referred to in paragraph (a), (b) or (c), including: (i) site clearance, earth-moving, excavation, tunnelling and boring, and (ii) the laying of foundations, and (iii) the erection, maintenance or dismantling of scaffolding, and (iv) the prefabrication of components to form part of any building or structure, whether carried out on-site or off-site, and (v) site restoration, landscaping and the provision of roadways and other access works, (f) the painting or decorating of the internal or external surfaces of any building or structure, (g) any other work of a kind prescribed by the regulations for the purposes of this subsection. (2) Despite subsection (1), construction work does not include any of the following work: (a) the drilling for, or extraction of, oil or natural gas, (b) the extraction (whether by underground or surface working) of minerals, including tunnelling or boring, or constructing underground works, for that purpose, (c) any other work of a kind prescribed by the regulations for the purposes of this subsection. 6 Definition of related goods and services'' (1) In this Act, related goods and services , in relation to construction work, means any of the following goods and services: (a) goods of the following kind: (i) materials and components to form part of any building, structure or work arising from construction work, (ii) plant or materials (whether supplied by sale, hire or otherwise) for use in connection with the carrying out of construction work, (b) services of the following kind: (i) the provision of labour to carry out construction work, (ii) architectural, design, surveying or quantity surveying services in relation to construction work, (iii) building, engineering, interior or exterior decoration or landscape advisory services in relation to construction work, (c) goods and services of a kind prescribed by the regulations for the purposes of this subsection. (2) Despite subsection (1), related goods and services does not include any goods or services of a kind prescribed by the regulations for the purposes of this subsection. 7 Application of Act (1) Subject to this section, this Act applies to any construction contract, whether written or oral, or partly written and partly oral, and so applies even if the contract is expressed to be governed by the law of a jurisdiction other than New South Wales. … 8 Rights to progress payments (1) On and from each reference date under a construction contract, a person: (a) who has undertaken to carry out construction work under the contract, or (b) who has undertaken to supply related goods and services under the contract, is entitled to a progress payment under this Act, calculated by reference to that date. (2) In this section, reference date , in relation to a construction contract, means: (a) a date determined by or in accordance with the terms of the contract as: (i) a date on which a claim for a progress payment may be made, or (ii) a date by reference to which the amount of a progress payment is to be calculated, in relation to work carried out or to be carried out (or related goods and services supplied or to be supplied) under the contract, or (b) if the contract makes no express provision with respect to the matter, the date occurring 4 weeks after the previous reference date or (in the case of the first reference date) the date occurring 4 weeks after construction work was first carried out (or related goods and services were first supplied) under the contract. 9 Amount of progress payment

The amount of a progress payment to which a person is entitled in respect of a construction contract is to be: (a) the amount calculated in accordance with the terms of the contract, or (b) if the contract makes no express provision with respect to the matter, the amount calculated on the basis of the value of construction work carried out by the person (or of related goods and services supplied by the person) under the contract. … 12 Effect of ``pay when paid'' provisions (1) A pay when paid provision of a construction contract has no effect in relation to any payment for construction work carried out (or for related goods and services supplied) under the contract. … 13 Payment claims (1) A person who is entitled to a progress payment under a construction contract (the claimant ) may serve a payment claim on the person who under the contract is 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 for the construction work done (or related goods and services supplied) to which the payment relates (the claimed amount ), and (c) must state that it is made under this Act. … Schedule 2 Savings and transitional provisions (Section 37)

Part 2 Provisions consequent on enactment of Building and Construction Industry Security of Payment Act 1999 2 Certain construction contracts not affected A provision of this Act does not apply to a construction contract entered into before the commencement of that provision.

The Act was assented to and commenced on 26 March 2001. Does the Act apply to the contract? 6 The plaintiff submitted two arguments against the application of the Act to the July contract. First, the plaintiff contends that the second contract was merely a variation to the first contract, which predated the Act and so was not subject to its regime. The first contract contained provisions for such variation. I am not sure whether this argument was abandoned during the hearing, but if it was then this was done correctly. It is clear that the second contract was separate from the first. The separate tendering process is sufficient to establish this. The second contract was independent and not a variation of the first. 7 Secondly, the plaintiff argued that the Savings and Transitional Provisions in Schedule 2 of the Act operate to preclude the second subcontract from the operation of the Act. If this reading is correct, Hawkins could continue to enter into subcontracts on the Singleton Abattoir project and these would not be subject to the Act. The contention is that the construction of the Singleton Abattoir is "construction work" as defined in s5 of the Act and any sub-contracts Hawkins' entered into were for the provision of "related goods and services" as defined in s6. Further it was argued that if the contract for construction work was not subject to the Act, then none of the contracts for related goods could be subject. This could not be correct. The Act defines a "construction contract" as both a contract for construction work and a contract for the supply of related goods and services. The periodic payment regime the Act sets up applies to both. Whether the contract between Hawkins and Mac's was for construction work or for related goods and services, it was a construction contract to which the Act applied. To find otherwise would undermine the legislative intention and be contrary to the stated objects of the Act. Has the Act been complied with? 8 Mr Gray contended that the payment claims served on the plaintiff by the defendant before the issuing of the Statutory Demand were ineffective because they did not comply with sections 13(2)(a) and(c) of the Act. The arguments were that they contained the incorrect contract number and abbreviated the name of the Act under which the claim was made, referring to it as the "Building Construction Ind Security of Payments Act 1999". As to the first, while the contract number may have been wrong in some cases, the claims did identify the work done. The second argument was that because the payment claims abbreviated the name of the Act, they did not fulfil the statutory requirement to name the Act. This argument might have had some weight in 1800. In 2001, an argument based on the absence of the word "and" and the letters "ustry" has no merit. It should not have been put. Was the statutory demand valid? 9 The statutory demand was signed by a Penelope Hunter who identified her capacity as "Solicitor for the Creditor." The demand was made under s459E of the Corporations Law, which provides, in sub-section (2)(f), that the Statutory Demand must be signed "by or on behalf of the creditor". It clearly purports to be signed on behalf of the creditor, but Ms Hunter is not a partner in the firm of solicitors retained by the defendant, Messrs Turnbull Hill Solicitors. The plaintiff contends that she cannot sign "on behalf of" the creditor. This issue was considered by Cohen J dealing with an identical provision in the then operative Companies (New South Wales) Code in Metropolitan Waste Disposal Authority v Willoughby Waste Disposals Pty Ltd (1987) 9 NSWLR 7 who said at p11: In my opinion, if a firm of solicitors…is given general authority to carry out the necessary steps for the winding up of a company, and if one of those steps involves the signing of a notice of demand then the firm…is entitled to use its properly accredited employees in the exercise of the powers given by the client. 10 I take the phrase "properly accredited employees" merely to indicate that if a solicitor's signature is required then the person signing must be admitted and hold a practicing certificate. In general with changing company law legislation, decisions given on earlier acts should be followed when considering like provisions in later Acts. If there were no further legislative requirements, Ms Hunter's signature would be sufficient. 11 However, Mr Gray relied on the prescribed form of Statutory Demand, form 509H, which contains a note that states: The form must be signed by the creditor or the creditor's solicitor. It may be signed on behalf of a partnership by a partner, and on behalf of a corporation by a director or by the secretary or an executive officer of that corporation. 12 This raises two issues: first, what is the legislative force of the notes; and secondly, whether the note has any bearing on the question here. Whatever the standing of the notes, they cannot override s459E(2)(f) of the Corporations Law. But leaving that aside the note does not have any bearing on this question. The reference to a partner signing on behalf of a partnership relates, I think, to situations where a partnership is the creditor. It does not limit the authority given by a creditor to its solicitors. The reference to persons who can sign for company creditors supports this view. The amount of the claim. 13 The statutory demand was for $167,041.67. It is conceded by both sides that this amount should be adjusted because there is a genuine dispute as to part of the claim and the plaintiff also has an offsetting claim against the defendant. The defendant conceded amounts for both these claims, so I will adjust the claim to account for both these amounts under s459H. 14 The genuine dispute arises over two amounts: first, the plaintiff is entitled to retain five per cent of the initial contract price as security until the work is complete, and secondly, there are a few small figures, some of which the plaintiff claims already to have paid and one other that it claims is owed to the defendant by a third party. The former amount is $29,451.01 and the latter amounts total $1,851.01. Therefore the admitted amount under s459H(5) is $135,739.48. 15 The plaintiff's offsetting claim is based on defective work done by the defendant and it led evidence of the estimated amount it would cost to repair defective work done by the defendant. This amount was $33,775.92. The defendant conceded this amount. Therefore the substantiated amount of the claim under s459H(2) is $101,936.56. I intend to vary the amount of the demand to this figure under s459H(3). 16 Orders: 1. Dismiss the summons;

2. Order that the amount of the demand be varied to $101,963.56.

3. Order the plaintiff pay seventy-five percent (75%) of the defendant's costs.

Last Modified: 09/25/2001 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.