The plaintiff as Principal entered into a Construction Contract with the defendant as Contractor on 27 March 2013 for the construction of a residential aged care facility. The contract took the form of an amended version of Australian Standard AS4000-1997 General Conditions of Contract.
On 12 May 2015, the plaintiff called upon the security that had been provided by the defendant pursuant to clause 5 and item 13 of the contract. The security had been provided in the form of two unconditional bonds issued by an insurer, each in the sum of $438,040. The defendant thereafter paid the amount of $876,080 to the insurer.
On 15 May 2015, the plaintiff issued a notice of termination of the contract, pursuant to the right to terminate for convenience given by clause 40A.1 of the contract. The notice provided, inter alia, that the Principal was terminating the contract "with effect from Friday 29 May 2015".
On 27 May 2015, the defendant submitted Progress Claim No. 25. It claimed an amount of $2,892,763.13 in respect of work done up to 27 May 2015. On 29 May 2015, the defendant submitted Progress Claim No. 26. It claimed an amount of $3,783,899.71 in respect of work done up to 29 May 2015. It included an item described as "cash held" in the sum of $876,080. Both progress claims were stated to be payment claims made under the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act").
The plaintiff made various complaints about the validity of the payment claims, including that the pursuit of them amounted to an abuse of process. The plaintiff sought undertakings from the defendant that it would not take further steps in relation to the claims and would not seek to have them adjudicated upon. The defendant declined to give the undertakings sought.
The plaintiff commenced these proceedings by Summons filed on 15 June 2015. It sought interlocutory and final injunctive relief restraining the defendant from acting upon the payment claims, including by applying for adjudication in respect of them.
The Summons was listed for an early final hearing in circumstances where the plaintiff has served payment schedules in response to the claims and the time for the defendant to apply for an adjudication expires on 29 June 2015.
Since the commencement of the proceedings, the defendant has withdrawn Progress Claim No. 25 and has agreed not to press certain parts of Progress Claim No. 26. The issues in the case have thus narrowed considerably. However, the plaintiff maintains that Progress Claim No. 26 is not, either in whole or in part, a valid payment claim under the Act, and thus cannot be the subject of a valid adjudication under the Act. In essence, the plaintiff contends that this is so for the following two reasons:
1. that as the contract had been terminated by the end of 28 May 2015, the reference date which otherwise would have arisen on 29 May 2015 (as the last Business Day of the month) did not so arise, and there was therefore no reference date to support the payment claim ("the first issue"); and
2. that the inclusion of the "cash held" item, which concerned the security taken by the plaintiff, was not something that could be claimed under the processes of the Act, and there was no identification of the particular work in respect of which that part of the claim was made ("the second issue").
The first issue raises the question of precisely when the termination of the contract occurred. If it is determined that the termination of the contract had occurred by the end of 28 May 2015, a further question would arise as to whether a reference date which could support Progress Claim No. 26 nonetheless arose after the termination of the contract.
The contract was terminated pursuant to the termination for convenience provisions of clause 40A.1 which provides:
"Without limiting any of the Principal's other rights under this Contract, the Principal may:
(a) at any time, for its sole convenience, and for any reason, by written notice to the Contractor, terminate the Contract effective from the time and date stated in the Principal's notice; and
(b) thereafter, at its absolute discretion, complete the uncompleted part of WUC or the Works either itself or by engaging in other contractors to carry out any uncompleted part of WUC or the Works."
The Notice of Termination relevantly provided:
"[…]
2 Notice - Termination for the Principal's Convenience
2.1 This is notice that the Principal is terminating the above Contract for the Principal's convenience under clause 40A.1 of the Contract, with effect from Friday 29 May 2015.
2.2 Please note that, under subclause 40A.1 of the Contract, the Contractor, its employees, consultants and subcontractors are required to leave the Site by the date stated above, including removing all temporary Work, Materials and other unfixed things the Contractor has brought onto the Site with the exception of the items described in paragraph 3 of this Notice.
3 Your obligations until 29 May 2015
3.1 You are instructed not to remove from site any materials, furniture, fittings and equipment for which payment has been made by the Principal or for which payment will be due under subclause 40A.2 of the Contract. […]
3.2 You must immediately hand over to the Principal all original copies of documents provided by the Principal or the Superintendent to the Contractor or prepared by the Contractor (or its subcontractors) for the carrying out of the WUC to the date of termination (whether complete or not), in accordance with subclause 40A.2(b)(ii) of the Contract.
3.3 You must mitigate the costs payable by the Principal in accordance with subclause 40.2(b)(i) of the Contract.
3.4 In accordance with your obligations under clause 11.3 of the Contract, we remind you that you will continue to be principal contractor until the effective date of termination, that is, 29 May 2015.
[…]
4.2 In accordance with subclause 40A.2 of the Contract, the amount to which the Contractor is entitled under this Notice shall be a limitation upon the Principal's liability to the Contractor arising out of, or in connection with, the termination of the Contract and the Contractor may not make any claim against the Principal arising out of, or in connection with, the termination of the Contract, other than for the amount assessed by the Superintendent as payable under subclause 40A.2 of the Contract.
4.3 To assist the Superintendent in assessing your entitlements, please submit a payment claim in accordance with subclause 37.1 of the Contract, for work carried out up to the date of termination and other relevant amounts set out in subclause 40A.2 of the Contract. Please also provide evidence supporting the payment claim, including evidence of the amounts claimed under subclauses 37.1 and 40A.2 of the Contract."
The plaintiff, for whom Mr M Christie SC and Mr B Michael appeared, submitted that construed objectively as it must be, the Notice of Termination should be held to have provided that the termination was to take effect immediately prior to 29 May 2015. They pointed in particular to the words "with effect from Friday 29 May 2015" in paragraph 2.1 of the notice, and the words "until the effective date of termination, that is, 29 May 2015" in paragraph 3.4 of the notice.
I was referred to a number of authorities in which the word the word "from" was considered, notably Associated Beauty Aids Pty Ltd v Federal Commissioner of Taxation (1965) 113 CLR 662 at 668; Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 440-441 and 450; Chief Commissioner of Land Tax v Macary Manufacturing Pty Ltd [1999] NSWCA 471; (1999) 48 NSWLR 299 at [7], [87]-[88] and [97]-[98]; and Hughes v NM Superannuation Pty Ltd (1993) 29 NSWLR 653 at 667-668.
Considerable reliance was placed by Mr Christie upon the last mentioned case, which concerned the termination of a contract of employment by a notice which stated that the agreement was "terminated with effect from 1 July 1989". Sheller JA (with whom Kirby P and Meagher JA agreed) referred to various authorities concerning the word "from" and then stated (at 667G-668A):
"No party suggested that the word "from" should be read as exclusive of
1 July 1989. The parties could not so have intended. If "from" is read as
inclusive, it seems to me plain that the employment of the three Messrs
Hughes ended at the last moment of 30 June 1989. The employment expired
at midnight on that date: compare Crate v Miller [1947] KB 946 at 948-949;
Sidebotham v Holland [1895] 1 QB 378 at 382-384. Termination of the employment agreement was effective thereafter, that is to say, from the first moment of 1 July 1989."
Mr M Dempsey SC, who appeared with Mr D Macfarlane of Counsel for the defendant, noted that despite the terms of clause 40A.1(a) which referred to "the time and date stated in the Principal's notice", the Notice of Termination did not identify a time. I interpolate that it was not suggested that the notice was thereby invalid, or that the contract had not in fact been validly terminated by the plaintiff. However, Mr Dempsey submitted that the language of the notice read as a whole indicated that the termination was not to occur until the end of 29 May 2015. He submitted, for example, that the words "by the date stated above" found in paragraph 2.2 should be read as requiring the defendant to leave the site by the end of 29 May 2015. Mr Dempsey pointed in particular to paragraph 4.3 which requests the submission of a payment claim "in accordance with clause 37.1 of the Contract".
Clause 37.1 concerns the making of payment claims on the last Business Day of each month for work carried out and completed to such day. Unlike other provisions (such as clauses 37.6 and 40A.2), clause 37.1 is not expressed to survive termination of the contract. It was therefore submitted that, in circumstances where 29 May 2015 was the last Business Day in May, the request made in paragraph 4.3 of the notice could not be complied with unless the contract was still on foot on 29 May 2015.
In my opinion, the Notice of Termination should be read as providing for termination to occur at the conclusion of 28 May 2015. The termination is stated in paragraph 2.1 to take effect from Friday 29 May 2015. Those words seem to me to convey that the contract will come to an end at the end of 28 May 2015 such that the termination will come into effect from the moment 29 May 2015 arrives. 29 May 2015 can thus be readily described as "the effective date of termination" (see paragraph 3.4). Moreover, requiring the defendant to leave the site by 29 May 2015 (see paragraph 2.2) suggests that the defendant must be gone by the time 29 May 2015 arrives.
I do not think that the request made in paragraph 4.3 of the notice compels a different conclusion. That paragraph must be read in its context, including the immediately preceding paragraph which is plainly concerned with the making of a claim for a payment under clause 40A.2 of the contract. Such a claim is not a claim under clause 37.1 of the contract, although the amount of the entitlement is determined in part by the amount which would have been payable if the contract had not been terminated and the Contractor had submitted a payment claim under clause 37.1 (see clause 40A.2(a)(i)). I note also that payment claim is defined in the contract by reference to the provisions of clause 37.1.
In my view, notwithstanding the references in paragraph 4.3 to submitting a claim "in accordance" with clause 37.1, and amounts claimed "under" clause 37.1, paragraph 4.3 should be read as referring to the making of a claim under clause 40A.2 and containing a request that the evidence in support of such claim include a payment claim that would (if made under clause 37.1) accord with the requirements of that provision.
Mr Dempsey submitted that even if the notice was construed as providing for termination to occur by the end of 28 May 2015, the parties subsequently agreed that the termination would not take effect until the end of 29 May 2015. In that regard, he referred the Court to evidence of certain communications between the parties concerning the termination. In particular, Mr Dempsey referred to:
1. an email sent by Mr Morris of the defendant to Mr Cockrem and Ms Lyon (the Legal Counsel) of the plaintiff at 3:32pm on 28 May 2015 which was relevantly in the following terms:
"Rebecca, James,
Further to our discussion yesterday regarding the termination and demobilisation from site, we confirm the following:
1. The last of our contract works and demobilisation will be completed by COB Friday.
2. Our insurances will remain current up until 11:59pm 29 May 2015.
3. Denham and IRT to coordinate IRT padlocks on Friday, approx. 5:00pm (to be confirmed over the course of the day).
4. IRT to maintain static security guards over the weekend.
5. IRT insurances to take effect from 12:00am 30 May 2015 as the termination takes effect.
Other items discussed:
[…]
Can you please confirm your agreement of the above."
1. an email sent by Ms Lyon to Mr Morris at about 4:56pm on 29 May 2015 which included the following:
"We refer to our recent correspondence and confirm that Denham Constructions Pty Ltd (Denham) will complete its demobilisation from site by close of business today, 29 May 2015.
Your obligations in respect of demobilisation and termination.
We remind you of Denham's obligations including for demobilisation upon termination of the contract between Illawarra Retirement Trust (IRT) and Denham for the Tarrawanna Project (Contract), that were outlined in IRT's notice to terminate for convenience, dated 15 May 2015. These obligations are:
[…]
4. In accordance with your obligations under clause 11.3 of the Contract, we remind you that you will continue to be principal contractor until the close of business today.
Professional Indemnity Insurance
We refer to the email dated 28 May 2015 from you to our James Cockrem and Rebecca Lyon.
In that email you confirmed that Denham's insurances would remain current until 11:59am [sic] 29 May 2015. […]"
Mr Dempsey submitted that the communications showed that the parties had agreed that the termination of which notice had been given would not take effect until the end of 29 May 2015. He submitted that the agreement was reached in circumstances where the notice was unclear as to the precise time at which the termination would occur. He pointed to the terms of the email sent by Mr Morris on 28 May 2015 which confirmed various matters that had been the subject of earlier discussion between the parties. He noted that the email records that at least some contract work was to take place on 29 May 2015 and that the plaintiff's insurance was to take effect "from 12:00am 30 May 2015 as the termination takes effect". Mr Dempsey also pointed to Ms Lyon's email of 29 May 2015 which referred to the defendant completing its demobilisation of the site by close of business on 29 May 2015, and contains a reminder that the defendant "will continue to be principal contractor until the close of business today". He submitted that Ms Lyon's email took no issue with anything contained in Mr Morris' email.
Mr Christie submitted that if his construction of the Notice of Termination was correct, the contract terminated at midnight on 28 May 2015 and nothing that was said by the plaintiff after that time could overcome that legal consequence. He further submitted that in any event the communications did not establish that any agreement had been reached as alleged. He stated that Mr Morris' email did not put a proposal to alter the termination date and Ms Lyon's email contains no agreement that the termination date be extended. He also pointed out that the email was predicated on the assumption that demobilisation may take place after termination has been effected, and that in so acting the defendant would remain bound by certain obligations (including its occupational health and safety obligations pursuant to clause 11.3 of the contract).
I have come to the conclusion that an agreement was reached between the parties, prior to 29 May 2015, to the effect that the termination would not take effect until the end of 29 May 2015. I think that the existence of such an agreement can be inferred in all the circumstances and in particular from the terms of Mr Morris' email and Ms Lyon's email in response.
Mr Morris' email refers to "our discussion yesterday regarding the termination and demobilisation from site" and goes on to confirm certain matters. These matters included:
1. That the last of the defendant's contract works would be completed by the close of business on 29 May 2015;
2. That the defendant's insurances would remain current up until 11:59pm on 29 May 2015; and
3. That the plaintiff's insurances would take effect from 12:00am on 30 May 2015 "as the termination takes effect".
An affidavit affirmed by Mr Morris was read. The affidavit referred to the email of 28 May 2015, but Mr Morris did not depose to the terms of the discussion held on the previous day. Nevertheless, I think that it should be inferred from the terms of the email that there was a discussion on 27 May 2015 involving Mr Morris, Mr Cockrem and Ms Lyon in which it was accepted that the termination would not take effect until the end of 29 May 2015, and that insurance arrangements would be made accordingly. Mr Morris' email was evidently written by him not so much to put forward proposals to the plaintiff, but to confirm the outcome of the discussions about termination that had already taken place. There is no reason to think that Mr Morris' recording of the outcome of the discussions was in any way inaccurate.
It is true that Mr Morris sought confirmation from the plaintiff that it agreed with what he had set out, and that Ms Lyon's email does not expressly provide such confirmation. However, there is nothing in her email to suggest any disagreement at all with Mr Morris' record of the discussion. Indeed, it specifically mentions that the defendant's insurance would remain current until "11:59am [sic] on 29 May 2015", and takes no issue with Mr Morris' statement that the plaintiff's insurance would take effect "from 12:00am 30 May 2015 as the termination takes effect". The lack of any challenge to Mr Morris' account of the discussion, as contained in his email, further supports the drawing of the inference. I note further that neither Mr Cockrem or Ms Lyon gave evidence.
Accordingly, it is my view that, following the issue of the Notice of Termination (which did not clearly identify the time when the termination would take effect) the parties held discussions and agreed that the termination would not take effect until the end of 29 May 2015. In those circumstances, 29 May 2015, being the last Business Day in May, became a reference date under the contract. Accordingly, on and from 29 May 2015 the defendant was a person entitled to a progress payment within the meaning of s 8(1) of the Act, and was therefore able to serve a payment claim using 29 May 2015 as the relevant reference date.
The defendant advanced an alternative argument that, even if the contract had terminated immediately prior to 29 May 2015, s 8(2)(b) of the Act would operate to provide a further reference date on the last day of May. I think that argument faces considerable difficulties, but in view of my conclusion about the time of termination, it is not necessary to deal with it.
The second issue raises the question whether the inclusion of the "cash held" item of $476,080 renders Progress Claim 26 invalid, either in whole or to that extent.
Mr Christie essentially made two complaints. The first was that the amount of $876,080 was not related to any identified construction work. The second was that a claim for return of the amount of security taken by a principal calling upon unconditional bonds put in place by a contractor, does not fall within s 13(3)(b) of the Act and is not otherwise a claim that may form part of a payment claim under the Act.
It is true that the amount of $876,080 is not related to any identified construction work in Progress Claim 26. Progress Claim 26 does identify the construction work to which the claimed progress payment relates, but the amount of $876,080 is not stated to be claimed in respect of such work. Rather, it is tolerably clear that the $876,080 is treated as an amount that is to be included in the accounting exercise that must be undertaken in determining any amount to be paid to the defendant pursuant to its claim.
As explained by Mr Dempsey, the $876,080 is in effect a repayment to the plaintiff of amounts already paid by it under the contract, and is to be brought to account upon the final reconciliation between the parties contemplated by clause 40A.2 following a termination for convenience. Mr Dempsey pointed out that the plaintiff, in its payment schedule in response to Progress Claim 26, stated that it has used the $876,080 to offset certain liquidated damages owed and overpayment of electrical trades. He submitted that such matters would themselves form part of the exercise an adjudicator would undertake in accordance with s 22 of the Act.
So understood, the inclusion of the "cash held" item in the payment claim does not in my view invalidate it, either in whole or to that extent. It is merely an item that forms part of the actual monetary position between the plaintiff and the defendant which may be taken into account in the determination of the amount (if any) that should be paid to the defendant in respect of its claim. It is not expressed to be an amount claimed in respect of any particular construction work, and it does not seem to be a claim, as such, for release of an amount held by the plaintiff (c.f. s 13(3)(b) of the Act). Neither is it expressed to be a claim for damages, a quantum meruit or other claim for restitution.
For the above reasons, the plaintiff's claim for injunctive relief in respect of Progress Claim 26 fails. The Summons should be dismissed. I reserve the question of costs.
[2]
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Decision last updated: 26 June 2015