Impero Pacific Group Pty Ltd v Bonheur Holdings Pty Ltd

Supreme Court of NSW|2019-03-12|Before: Parker J

Judgment

These proceedings arise out of a contract between the plaintiff, Impero Pacific Group Pty Ltd, as Contractor, and the defendant, Bonheur Holdings Pty Ltd, as Principal, for the design and construction of a building development at Bellevue Hill in eastern Sydney. The Contractor seeks judgment under the Building and Construction Industry Security of Payment Act 1999 (NSW) for approximately $1.4 million, representing a payment claim issued in November 2018. Unless otherwise stated, statutory references in the balance of this judgment are to that Act. All figures are inclusive of GST.

Issues for decision

Section 8 of the Act provides: 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. (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 the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the contract, or (b) if the contract makes no express provision with respect to the matter - the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and the last day of each subsequent named month.

The building contract and the payment claim

The contract between the parties consisted of two written agreements. The first was a Formal Instrument of Agreement based on the General Conditions of Contract for Design and Construct published by Standards Australia (AS4902-2000). The second was a Deed of Agreement which provided for rights and obligations of the parties additional to those under the Formal Instrument of Agreement. Both instruments were executed on 6 April 2018. It was not suggested that the terms of the Deed of Agreement are relevant for present purposes and in what follows I will refer to the Formal Instrument of Agreement based on AS4902-2000 as the "Contract".
The Contract sum was $7.37 million plus GST. The work (defined as Work under the Contract, or "WUC"), involved the construction of a residential building consisting of ten strata lot apartments. The date for completion was 1 March 2019.
Clause 37 of the Contract dealt with payment. It relevantly provided: 37.1 Progress claims The Contractor shall claim payment progressively in accordance with Item 33 and on: (a) satisfaction of the conditions precedents to the Contractor's entitlement to make a progress claim set out in subclause 37.8; and (b) the dates or stages set out in Item 33. An early progress claim shall be deemed to have been made on the date for making that claim. Each progress claim shall be given in writing to the Superintendent and shall include: (c) details of the value of WUC done and may include details of other moneys then due to the Contractor pursuant to provisions of the Contract; (d) details of the amounts claimed in connection with each subcontractor's works and services; and (e) such other information as may reasonably be required by the Superintendent. 37.2 Certificates The Superintendent shall, within 10 business days after receiving such a progress claim, issue to the Principal and the Contractor a progress certificate which states: (a) the value of WUC completed in accordance with the Contract; (b) the amount already paid to the Contractor; (c) the amount the Principal is entitled to retain, deduct, withhold or set-off under this Contract; (d) the amount (if any) which the Superintendent believes to be then payable by the Principal to the Contractor on account of the contract sum and otherwise under the Contract and which the Principal proposes to pay to the Contractor; and (e) if the amount in paragraph (d) is less than the amount claimed in the progress claim: (i) the reason why the amount in paragraph (d) is less than the amount claimed in the progress claim; and (ii) if the reason for the difference is that the Principal has retained, deducted, withheld or set-off payment for any reason, the reason for the retention, deduction, withholding or setting-off payment. … The Contractor shall within 3 days of receipt of a progress certificate issue a tax invoice in the name of the Principal to the Superintendent for the amount stated as then payable in the progress certificate. The Principal shall within the time stated in Item 33A, pay the amount stated in the progress certificate. If the progress certificate shows an amount is payable by the Contractor to the Principal, the Contractor shall pay that balance to the Principal within 7 days of receiving written notice thereof. … 37.4 Final payment claim and certificate Within 28 days after the expiry of the last defects liability period, or the rectification by the Contractor of all defects in accordance with clause 35, but subject to clause 37.8, the Contractor may give the Superintendent a written final payment claim endorsed 'Final Payment Claim' being a progress claim together with all other claims whatsoever in connection with the subject matter of the Contract. Within 10 business days following receipt of the final payment claim, the Superintendent shall issue to both the Contractor and the Principal a final certificate evidencing the moneys finally due and payable between the Contractor and the Principal on any account whatsoever in connection with the subject matter of the Contract. Subject to subclause 37.6, within the time stated in Item 33A: (a) the Contractor must pay to the Principal the moneys certified as due and payable in the final certificate; or (b) the Principal must pay to the Contractor the moneys certified as due and payable in the final certificate, as the case may be. …
Item 33 specified the times for progress claims for the purposes of cl 37.1 as: 1. 25th day of each month for WUC done to the last day of that month up to the issue of a certificate of practical completion; and 2. Within 14 days after the issue of a certificate of practical completion
Clause 39A dealt with the termination for convenience. It relevantly provided: 39A.1 Right to terminate Without prejudice to any of the Principal's other rights or entitlements or powers under the Contract, the Principal may: (a) at any time for its sole convenience by written notice to the Contractor terminate the Contract from the date stated in the notice; and (b) thereafter either itself or by third parties complete the uncompleted part of WUC. The termination of the Contract by the Principal pursuant to this subclause 39A.1 shall be without prejudice to the rights of either party to recover damages in respect of any prior breach of contract by the other party. 39A.2 Costs If the Principal terminates the Contract under subclause 39A.1, the Contractor: (a) subject to subclause 37.6, shall be entitled to payment of the following amounts as reasonably determined by the Superintendent: (i) for the cost of work carried out prior to the date of termination the amount which would have been payable if the Contract had not been terminated and the Contractor submitted a progress claim under subclause 37.1 for work carried out to the date of termination; (ii) the cost of plant materials reasonably ordered by the Contractor for the Works for which the Contractor is legally bound to pay provided that: (A) the value of the plant or materials is not included in the amount payable under subclause 39A.2(a)(i); and (B) title in the plant and materials shall vest in the Principal upon payment; (iii) the reasonable cost of removing from the site all labour, constructional plant and other things used in connection with WUC; and (iv) the amount specified in Item 36A [the nominal amount of $10], (b) shall: (i) take all reasonable steps possible to mitigate the costs referred to in subclause 39A.2(a)(ii) and subclause 39A.2(a)(iii); (ii) as soon as practicable, hand over to the Principal all copies of documents provided by the Principal under subclause 8.2; and The amount to which the Contractor is entitled under this subclause 39A.2 shall be a limitation upon the Principal's liability to the Contractor arising out of, or in any way in connection with, the termination of the Contract and the Contractor may not make any claim against the Principal arising out of, or in any way in connection with, the termination of the Contract other than for the amount payable under this subclause 39A.2. … This subclause 39A.2 shall survive termination of the Contract by the Principal under subclause [left blank in contract; apparently a reference to 39A.1].
The Principal exercised its option under cl 39A to terminate the contract for convenience. It did so by notice issued on 29 October 2018. There was a question as to whether that notice was served on the date it was issued, 29 October, or on the following day, 30 October. Nothing turns on this for present purposes.
The payment claim the subject of these proceedings was dated 27 November 2018. It was described as progress claim 6. The narrative stated: Pursuant to clauses 37.1, 37.4 and/or 39A.2 of the Design and Construct Contract executed 6th April 2018 and subsequently Terminated for Convenience pursuant to clause 39A.1 by the Principal on Monday 29th October or Tuesday 30th October 2018 (subject to which interpretation of the Principal's termination notice is preferred as to timing), we herewith submit Progress Claim No.06 for your approval for the period 25th September 2018 to 30th October 2018 (reference date being 31st October 2018, or alternatively 30th October 2018, or alternatively 29th October 2018, or alternatively 25th October 2018).
The amount claimed was $1,394,484.55 inclusive of GST. The claim was in conventional form. It divided the works into categories and identified the amount claimed for each category. It was accompanied by a bundle of invoices from subcontractors.
The payment claim was also accompanied by a document in the form of a supporting statement under s 13(7). The document contained a statutory declaration which was signed by Manuel Kalach, the project manager for the Contractor.

Available reference date

The reference date for progress claims under cl 37.1 of the Contract was the 25th day of the month. As at 25 October, the contract remained on foot. Accordingly, 25 October was an available reference date for making a progress claim under the Act for work done to that point. But a claim could not be made under that reference date for work done between 25 October and the date of termination (29 or 30 October). This follows from the fact that an entitlement to a progress payment only arises "on and from" each reference date.
Had the Contract continued in operation, work done after 25 October would have been claimable under the next reference date under cl 37.1, namely 25 November. But the Contract was terminated before that date was reached. Recognising that the prospective right to claim from that reference date did not survive termination (see Patrick Stevedores, cited at [20] below), the Contractor did not rely upon 25 November as a reference date. Instead, the contention was that termination of the Contract gave rise to another reference date for the purposes of the Act which enabled work done from 26 to 29 or 30 October to be claimed. If this contention be correct, work done between 26 September and 25 October, which could have been claimed on the 25 October reference date, could also be claimed from this later date: see s 13(6).
In Patrick Stevedores Operations No. 2 Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2014] NSWSC 1413, a decision of Ball J, the construction contract gave the owner (Patrick) the right to terminate the contract for convenience. Patrick exercised this right on 24 April 2014. The payment claim by the builder (McConnell Dowell) was served on 30 June, claiming for work done up to the point of termination.
The contract in Patrick Stevedores appears to have been based on AS4902-2000 or some other very similar standard form of contract. The clauses dealing with payment (cl 37) and with termination (cl 39A) were numbered the same way, and were substantially the same as, if not identical to, the corresponding clauses of the Contract in this case.
Ball J first considered whether McConnell Dowell's entitlement on termination was an entitlement for "work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under" the construction contract between McConnell Dowell and Patrick. Clause 39A(2)(a) conferred an entitlement on termination to four amounts specified in sub-clauses (i) to (iv) were in substantially the same form as in this case.
His Honour considered (at [34]-[35]) that amount (i) (the cost of work carried out prior to termination which would have been payable if the contract had not been terminated and the contractor had submitted a progress claim under cl 37.1 for work carried out to the date of termination) answered the statutory description. He considered that amounts (ii), (iii) and (iv) did not.
Having pointed out that work done under prior reference dates could have been claimed on reference dates which accrued prior to termination could have been claimed under cl 37.1, but that the following monthly reference date became unavailable as a result of termination, his Honour said (at [38]): That leaves the question of what happens in relation to work done after the last reference date under the contract and before termination. In my opinion, the contract still provided a reference date in respect of that work at the time the work was performed because, at that time, the contract was still on foot. Consequently, there is no room for the operation of s 8(2)(b). The fact that the contract was terminated before the reference date in respect of that work arrived does not alter the position. It simply means that no reference date in respect of that work can arise. That result does not seem to me to be inconsistent with the purpose of the Security of Payment Act. As I have said, the purpose of the Act is not to ensure that a contractor is paid for work as soon as it is done. Nor do I think it is to ensure that a contractor is paid everything it is owed promptly. Rather, the purpose of the Act is to provide a practical mechanism to ensure that contractors receive progress payments for the work that they do. It seems to me that purpose is achieved even if, because of the way in which the contract and Act operate, the contractor is not entitled to use the mechanism provided for by the Act to recover a payment for work done shortly before termination.
His Honour concluded (at [39]): It follows that no part of the amount claimed by McConnell Dowell was a claim for a progress payment within the meaning of the Security of Payment Act either because the claim was not a claim for construction work under a construction contract (or for the supply or related goods or services) or because there was no reference date in respect of which the claim could be made. As a result, neither adjudicator had jurisdiction to determine McConnell Dowell's payment claim. For that reason, Patrick is entitled to the primary relief that it seeks.
In Omega House Pty Ltd v Khouzame [2014] NSWSC 1837, a decision of Darke J, a similar issue arose. The contract provided for progress payments to be made at the completion of each stage of the works (cl 12.6). It also gave the owner (Omega House) the right to terminate the contract for convenience. Omega House exercised that right on 15 November 2013. The payment claim in question (number 11) was lodged on 23 July 2014. The claim included a claim for retention monies under the contract.
Counsel for the builder sought to distinguish the decision of Ball J in Patrick Stevedores but did not challenge it. Darke J said (at [46]-[47]): [46] In my opinion, despite the differences between the relevant contracts, similar reasoning can and should be applied in the present case to conclude: (1) that the Contract provided reference dates in respect of the construction work carried out under the Contract prior to its termination; and (2) that the Contract does not, after termination, continue to provide reference dates in respect of construction work carried out under the Contract prior to its termination. [47] Payment claim 11, at least insofar as it claimed the retention moneys, concerned construction work carried out under the Contract during the period the Contract was on foot. It seems to me that clause 12.6(b)(i) made express provision for reference dates in relation to the construction work carried out under the Contract until termination occurred on 15 November 2013. Moreover, the provisions of clause 12 (including clause 12.6), do not in my view survive termination. Accordingly, the Contract provides that reference dates in relation to such construction work cease on termination (or at least cease to arise following termination), and there is no room for s 8(2)(b) to supply reference dates after termination. Section 8(2)(b) does not operate merely because clause 14.9 does not itself provide any reference dates.
In Southern Han v Lewence Constructions the building contract entitled the principal (Southern Han), in the event of substantial breach by the contractor (Lewence), and following a show cause procedure, to take the work out of the contractor's hands and suspend payment. On 27 October 2014, having purportedly invoked the show cause procedure, Southern Han issued a notice purporting to take the remaining work out of Lewence's hands and suspending payment under the contract. On 28 October, Lewence purported to terminate the contract on the basis that Southern Han, in taking this step, had repudiated. Lewence then, on 4 December, issued the payment claim which was the subject of the proceedings. The claim did not expressly specify its reference date, but included work done up to 27 October.
The High Court made some general observations about the way in which a reference date is determined under the Act. The Court said (at 361-362 [64]-[66], footnotes omitted): [64] That issue needs to be addressed in light of the definition of "progress payment", which applies to the construction of the Act "except in so far as the context or subject-matter otherwise indicates or requires". The definition picks up the statutory entitlement created by s 8(1) by providing that a progress payment means a payment to which a person is entitled under s 8. That was all that the definition did when it was originally enacted. The definition was amended by the Amendment Act, however, in order "to make it clear that the Act creates an entitlement not only to payments that are in the nature of instalments, but also to final payments and to single or one-off payments". The amendment of the definition was responsive to an earlier judicial interpretation which had limited references to progress payments in s 8 and elsewhere in the Act to payments designated by construction contracts to be progress payments. [65] Through its adoption of the drafting device "means … and includes …", the amended definition serves to indicate that the categories of payment to which s 8(1) is capable of applying extend to include a payment meeting any of the descriptions in the three paragraphs of the definition. That is to say, s 8(1) is to be read in light of the definition as capable of creating a statutory entitlement not only to a payment in the nature of an instalment but also to a final payment under a construction contract, to a single or one-off payment under a construction contract and to a payment of a type known in the construction industry as a milestone payment. This makes clear that the Act is not concerned only with providing a statutory mechanism for securing payments that are to occur during the currency of an existing construction contract. The statutory contemplation is that a claim for a progress payment might be made after the contract has expired. [66] The repeated references in s 8, and in the extended definition of progress payment, to payment "for" work carried out or to be carried out (or goods and services supplied or to be supplied) "under" a construction contract nevertheless point to an important limitation that is implicit in the overall design of the Act, and that has been so from the time of its original enactment. That limitation is that the Act is concerned to provide a statutory mechanism for securing payment of an amount claimed to be payable in partial or total discharge of an obligation to pay for work (or for goods and services supplied) imposed by the contractual force of a construction contract. The Act is not concerned to provide security for payment of an amount claimed by way of damages for breach of a construction contract. Nor is the Act concerned to provide security for payment of an amount which, according to prevailing authority, might be claimed as an alternative to damages by way of restitution for work carried out (or goods and services supplied) in the event of the construction contract terminating on acceptance of repudiation.
Clause 37 of the contract provided for the making of progress claims on the eighth day of each calendar month for work done to the seventh day of that month. The Court held that after 28 October cl 37 did not operate so as to provide a reference date. If the notice taking the works out of Lewence's hands was valid, any entitlement under cl 37 was suspended. And (at 365 [79]): On the hypothesis that Lewence accepted Southern Han's repudiation and terminated the Contract on 28 October 2014, the effect of termination was that Lewence and Southern Han were both discharged from further performance of the Contract and that Lewence's rights under the Contract were limited to those which had then already accrued under the Contract except in so far as the Contract is properly to be interpreted as stipulating to the contrary. The right to make a progress claim under cl 37.1 of the Contract in relation to work carried out to 27 October 2014 had not accrued as at 28 October 2014. Had the Contract not then been terminated, the right would have accrued only on 8 November 2014.
The difference between the parties in this case is highly technical and, on the face of it, very narrow. As I have already noted, 25 October remained available as a reference date for work done up to that point. Counsel for the Principal accepted that, should the progress claim the subject of these proceedings fail, it would be open to the Contractor to make a fresh progress claim under the Act for work done up to 25 October. Counsel acknowledged that on the Principal's argument, only work done between 26 October and termination on 29 or 30 October could not be claimed under the Act (although it could, of course, be claimed in an ordinary contractual action).
Nevertheless both parties maintained their positions. This may be because the commercial issue between the parties is bound up with the objections to the claim which the Principal, by being late in serving its payment schedule, could not propound in response to the payment claim. But whatever the motivation for the dispute, the Court must resolve it.
Counsel for the Contractor recognised that his client's contention was contrary to the decision of Ball J in Patrick Stevedores. Counsel submitted, however, that the High Court decision in Southern Han, which post-dated Patrick Stevedores (and Omega House) casts a new light on the interpretation of the relevant provisions. Alternatively, counsel submitted that the decision in Patrick Stevedores is "plainly wrong" and I should not follow it.
In Patrick Stevedores Ball J made five preliminary observations about the structure and operation of the Act before dealing with the specific issues raised in the case. The fifth of those preliminary observations was (at [30]): … although "progress payment" is a defined expression in the Act, it is doubtful that s 8 was intended to pick up that definition: see Interpretation Act 1987 (NSW), s 6, which provides that "[d]efinitions that occur in an Act or instrument apply to the construction of the Act or instrument except in so far as the context or subject-matter otherwise indicates or requires". Section 8 of the Security of Payment Act states that a contractor is entitled to progress payments in respect of construction work under a construction contract and in respect of the supply of related goods and services. The section simply says that a contractor is entitled to periodic payments for the work that it does. Section 13 provides that a person who claims to be entitled to a progress payment under s 8(1) may serve a payment claim; and the Act provides a mechanism for the adjudication of that claim and the recovery of any amount adjudicated to be owing. The definition of "progress payment" makes it clear that a payment is still a progress payment for the purposes of s 13 even if it is a claim for the final payment, a single payment or a milestone payment. What ss 8 and 13 and the definition of "progress payment" must be understood as saying is that a person who carries out construction work under a contract is entitled to progress payments for work done and goods and services supplied and is entitled to use the mechanism provided for by the Act to recover those payments; and that those payments include the final payment, one-off payments and milestone payments payable in respect of the construction work and related goods and services.
His Honour also observed (at [32]): It is not altogether easy to fit a claim under cl 39A.2 of the contract into the structure of the Security of Payment Act. Clause 39A.2 contemplates a one-off payment calculated in accordance with that clause. The starting point for the claim is the calculation of the amount due under that clause. However, the starting point of a claim under the Act is s 8. That section requires the identification of construction work carried out under the contract and the supply of related goods and services. The question is whether the contract makes provision for progress payments in respect of that work and the supply of those goods and services.
Counsel for the Contractor pointed out that Southern Han at [64] makes it clear that the term "progress payment" used in s 8 does pick up the statutory definition. Furthermore, Southern Han at [65] emphasises that the Act applies to create progress claim entitlements by reference to final payments under construction contracts, and by reference to single or one-off payments, and by reference to milestone payments, as well as by reference to progress payments strictly so-called.
The argument in Patrick Stevedores, based on the earlier Court of Appeal decision in Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421; [2004] NSWCA 394, was that after termination of the contract, in the absence of any further contractual reference dates, reference dates continued to accrue at the end of each calendar month in accordance with s 8(2)(b) of the Act. The focus of the decision in Patrick Stevedores, and in Omega House, was therefore on s 8(2)(b). That is clearly shown by the way Darke J expressed his conclusions in Omega House, already quoted.
In rejecting the argument, Ball J decided that s 8(2)(b) did not apply so as to create an alternative reference date outside the contract just because the contract had been terminated. With respect, that seems correct and it is consistent with the subsequent approach of the High Court in Southern Han.
But the Contractor's argument in this case is different. The Contractor is arguing that the termination of the Contract gave rise to a contractual entitlement to payment which is separate from the contractual entitlement to receive progress payments. From the judgments, it appears that no such argument was advanced in Patrick Stevedores or Omega House. There is no question that the contractual right to payment under cl 39A survived the termination of the Contract: that was a necessary consequence of the provision for payment after termination; and, in any event, the Contract expressly provided that the clause would survive termination.
The Principal's contention is that, if the Contract is terminated for convenience, the Act cannot be used to obtain a progress payment for work done between the last contractual progress payment date and the date of termination. I agree with Ball J that such a state of affairs would not necessarily be inconsistent with the broad object and purpose of the Act. But it is still unattractive. The clear intent of cl 39A.1 was that upon termination the Contractor would be entitled to payment for the period up to termination in the same manner it was entitled to progress payments under cl 37.1.
Southern Han makes it clear that where a contract is terminated for breach, or the contract is repudiated and the repudiation accepted by the other party, there is no room for reference dates to accrue thereafter (unless the contract expressly so provides). But a termination for convenience is different. The obligation to pay the amount specified in cl 39A.2 is an obligation under the Contract, and the parties remain in contractual relations with each other, even though building work ceases. The situation is quite different from enforcing a right to damages which arises as a result of termination for breach, or from repudiation, of the type discussed in Southern Han at [66].
In my view, when the expanded definition of "progress payment" is taken into account, the entitlement under cl 39A gives rise to a statutory entitlement to a progress payment according to that definition.
Clause 38.1A does not prescribe when such a claim may be made; indeed it does not contain any express provision as to making a claim at all. But clearly if there is an entitlement to payment there must be an entitlement to make the claim. No date is specified for the purposes of s 8(1)(a), so, by s 8(1)(b), the relevant reference date for the purpose of the Act is the end of the calendar month, in this case, 31 October.
For these reasons, I conclude that the termination of the Contract gave rise to a fresh reference date for the purposes of the Act. The Contractor was entitled to make a progress claim, under the Act, at least for amount (i), under cl 38A.2 as and from either the date of termination or 31 October. The payment claim was not invalid on this ground.
I am very conscious that in reaching this conclusion, I am departing from what Ball J said in Patrick Stevedores, which was followed by Darke J in Omega House. In doing so, I do not accept the submission from counsel for the Contractor that those decisions were "plainly wrong" in the context in which they were delivered. Like Leeming JA in Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at 632 [102], I would prefer to ask whether there are compelling reasons to depart from another decision rather than ask whether the decision can be characterised as "plainly wrong". The present case underlines how unfortunate the "plainly wrong" terminology is. The factors which have influenced me are that the particular argument presented to me does not appear to have been presented in the earlier cases, and there has been a subsequent judgment in the area from the High Court. In combination, I find that these are sufficiently compelling reasons to reach the conclusion which I have.

Supporting statement

The form of a supporting statement has been prescribed for the purposes of s 13(9). The form is found in the Building and Construction Industry Security of Payment Regulation 2008 (NSW), Schedule 1: see reg 19. It is as follows: Head contractor: [business name of head contractor] ABN: [ABN] * 1. has entered into a contract with: [business name of subcontractor] ABN: [ABN] Contract number/identifier: [contract number/identifier] OR * 2. has entered into a contract with the subcontractors listed in the attachment to this statement. * [Delete whichever of the above does not apply] This statement applies for work between [start date] and [end date] inclusive (the construction work concerned), subject of the payment claim dated [date]. I, [full name], being the head contractor, a director of the head contractor or a person authorised by the head contractor on whose behalf this declaration is made, hereby declare that I am in a position to know the truth of the matters that are contained in this supporting statement and declare that, to the best of my knowledge and belief, all amounts due and payable to subcontractors have been paid (not including any amount identified in the attachment as an amount in dispute).
The attachment contains two schedules. The first is for "subcontractors paid all amounts due and payable". The second is for "subcontractors for which an amount is in dispute and has not been paid". In each case, the schedule requires identification of the subcontractor's name, ABN, the contract number/identifier, the date of works and the date of the payment claim.
The Interpretation Act 1987 (NSW), s 80(1), provides: 80 Compliance with forms (1) If a form is prescribed by, or approved under, an Act or statutory rule, strict compliance with the form is not necessary but substantial compliance is sufficient.
The supporting statement which accompanied progress claim 6 complied with the form, apart from one mistake. The form is clearly designed for use in two alternative cases: one where a single contractor is referred to and the other where a list of subcontractors is to be provided. The Contractor's statement contained an attachment listing eight subcontractors as "paid all amounts due and payable", and provided details for those subcontractors in accordance with the form, in accordance with alternative 2 on the form. But rather than deleting the reference to a single contractor (alternative 1 on the form), the Contractor's form contained details of the contract with the Principal. This mistake is of no consequence and clearly the form represented "substantial compliance" for the purposes of the Interpretation Act, s 80(1). Counsel for the Principal did not suggest to the contrary.
Counsel for the Principal focused on his argument on two of the invoices which accompanied the payment claim. One invoice was from a company called Shower Screen Traders Pty Ltd ("SST"), for the supply and installation of shower screens. It was dated 29 October 2018 and totalled $15,035.37. Payment terms were stated as "COD". The second invoice was from a company called Prime Plumbing Group Pty Limited ("PPG"), for the installation of seventeen "mixers". It was dated 25 September 2018 and totalled $11,220.00. No terms of payment were specified.
Counsel for the Principal argued that as the SST invoice was dated 29 October the shower screens referred to in the invoice would presumably have been supplied on or around that date; and the terms being COD, the amount specified would have been payable then. For the PPG invoice counsel relied on s 11(1B) of the Act which provides for payment of a payment claim, unless disputed, within thirty business days after receipt. Accordingly, so it was submitted, payment would have been due by 6 November. There was no evidence that either invoice had been paid by 27 November when the payment claim was issued, and counsel submitted I should infer neither had been. In addition, SST was not listed in the schedule of subcontractors attached to the supporting statement at all.
These arguments first emerged from the written submissions which were served shortly before the hearing. In response, counsel for the Contractor contended that payment had not been required under either subcontract before 27 November. Counsel sought at the hearing to lead further evidence from Mr Kalach about the subcontracts in question. This resulted in some opposition from counsel for the Principal on account of late service of Mr Kalach's affidavit. The objections were overcome by limiting the new evidence. The relevant subcontracts were tendered. I also received evidence from Mr Kalach, without objection, that SST had not "delivered, the materials or provide[d] the services" referred to in its invoice.
Counsel for the Principal submitted that the course of authority in this Court required me to find that if there had been a failure to comply with s 13, this invalidated the payment claim. Counsel relied on the line of authority which began with Kitchen Xchange v Formacon Building Services [2014] NSWSC 1602. In that case the supporting statement served with the payment claim in question did not comply with the Act. McDougall J held that the claim was invalid. In Central Projects Pty Ltd v Davidson [2018] NSWSC 523, Ball J, in obiter, argued for a contrary view. His Honour suggested that on a proper construction of the Act failure to comply with s 13 simply exposed the contractor to criminal sanctions, but did not have any effect on the validity of the payment claim itself. McDougall J returned to the issue in Greenwood Futures v DSD Builders [2018] NSWSC 1407. His Honour acknowledged the force of Ball J's reasoning, but decided he should follow his earlier decision in Kitchen Xchange because it had been followed, in the meantime, by Meagher JA sitting at first instance in two cases (Kyle Bay Removals Pty Ltd v Dynabuild Project Services Pty Ltd [2016] NSWSC 334 at [37]; Duffy Kennedy Pty Ltd v Lainson Holdings Pty Ltd [2016] NSWSC 371 at [37]).
Counsel for the Principal also relied on Mt Lewis Estate Pty Ltd v Metricon Homes Pty Ltd [2017] NSWSC 1121. In that case, Hammerschlag J held that the supporting statement was invalid because it post-dated the reference date in the payment claim. His Honour held that this invalidated the payment claim because "punctilious compliance is required" at [51].
Counsel for the Contractor argued that these authorities did not govern the present case. Counsel observed that in Greenwood Futures there was no supporting statement at all. The defect in the supporting statement in Mt Lewis was such that the statement provided no assurance that the subcontractors had actually been paid as at the reference date, which was the very purpose of the statutory prohibition. But counsel also invited me, if I did not think the decisions distinguishable, to adopt the view of Ball J in Central Projects.
Section 13 contains two separate prohibitions concerning the requirement of a supporting statement. The first prohibition is on serving a payment claim unless it is accompanied by a supporting statement (subsection (7)). The other is a prohibition on serving a supporting statement which is misleading or deceptive to the knowledge of the head contractor (subsection (8)).
The supporting statement in the present case may or may not have been accurate or complete, but in form it complied with the requirements of subsection (9). Section 13(7) was therefore not engaged. And there was no evidence that if the statement was incomplete or incorrect, it was knowingly incomplete or incorrect. No application was made to cross-examine Mr Kalach.
When I put these points to counsel for the Principal, counsel accepted that s 13(7) was not relevant and that there was no evidence to establish the state of mind required for s 13(8). Counsel nevertheless maintained that the accompanying statement was misleading and maintained the submission that this invalidated the payment claim.
I cannot accept this submission. The contention by the Principal depends upon demonstrating that the payment claim had no statutory validity because a statutory precondition was not met. That contention cannot be made out unless it is first shown that the service of the payment claim involved a contravention of s 13. The onus lies on the Principal to establish this defence. It has failed to do so.
Clause 38 of the Contract contained contractual obligations which parallelled the statutory obligation under s 13. It may be that the provision of an inaccurate or misleading statement would constitute a breach of cl 38. It might also amount to misleading and deceptive conduct for the purpose of the Australian Consumer Law. But even if so, that would simply give the Principal private law contractual rights, or rights to relief under the ACL, or both. It would not necessarily mean that the Contractor contravened s 13.
The facts of the present case illustrate the sort of problems which would arise in accepting the Principal's argument. On the face of it, the supporting statement complied with the Act. The Principal developed its argument based on invoices which accompanied the payment claim. There had been no requirement to include those invoices in the supporting statement (or the payment claim, for that matter). I was told, and I see no reason to doubt, that the Contractor included their payment claim, not because they were statutorily required, but in order to comply with the contractual obligations which the Contractor had. Counsel for the Principal observed, somewhat darkly, that the Principal only found out about the supposed problem from the invoices. To my mind, this only emphasises the random and fortuitous nature of the suggested defence.
Furthermore, the Contractor's riposte involved going into the terms of the subcontracts for the purpose of demonstrating that, in accordance with those terms, the invoices were not in fact payable. In my view it would be very surprising if the statutory validity of the payment claim could depend upon contestable conclusions (which might involve the resolution of disputed issues of fact) about the contractual rights and obligations of head contractors and subcontractors inter se.
For these reasons, I reject the Principal's defence on this point. As no contravention of s 13 has been established it is not necessary to enter into the debate about whether, had contravention of s 13 been established, that would have invalidated the payment claim.

Entitlement to progress payment on termination for convenience

As I have already noted, clause 39A gave the Contractor an entitlement, should the Contract be terminated for convenience, to payment of four amounts of money, corresponding to sub-clauses 39A.2(a)(i), (ii), (iii) and (iv). The sum claimed in the Contractor's payment claim included, so I was told by counsel for the Contractor, components (i) and (ii). It did not include anything for components (iii) or (iv).
The fact that the claim included claims for amounts (i) and (ii) was not clear from the claim itself. As I have noted the claim was in conventional progress payment form. There was no indication that it included a claim for the cost of materials ordered but not installed.
In Patrick Stevedores Ball J said (at [34]-[35]): [34] Clearly, construction work done pursuant to the contract, including construction work performed between the last reference date before termination and termination, is construction work performed under the contract. The same is true of related goods and services supplied during that time. [35] However, I do not think that plant and materials ordered by McConnell Dowell in order to comply with its contractual obligations, or the costs of removing equipment from the site [amount (ii)], can be described as construction work under the contract or the supply of related goods or services. If plant and materials were ordered by McConnell Dowell, then that was done to put McConnell Dowell in a position where it could comply with its contractual obligations. It was not itself construction work or the supply of related goods or services. It is true that cl 39A.2 states that title to the plant and materials vests in Patrick on payment. But the Security of Payment Act is concerned with supply before payment, not with a transfer of title consequent on payment. Similarly, the removal of equipment from the site [amount (iii)] is not construction work under the contract. It is an activity that follows that construction work coming to an end as a result of termination of the contract. The payment specified in Item 31A [amount (iv)] is minimal. It bears no relationship to construction work.
Counsel for the Principal submitted that I should follow the decision of Ball J, dealing as it did with a contract in the same terms as in the present case. A claim for payment of amount (i) was a claim for a progress payment for the purposes of the Act but a claim for amount (ii) was not. It followed, so counsel submitted, that no judgment could be obtained.
Counsel for the Contractor submitted that the decision of Ball J in Patrick Stevedores on this issue was "plainly wrong". But counsel also submitted that even if there was no statutory entitlement to amount (ii), that did not affect the Contractor's right to judgment.
I have already set out s 13, except for sub-s (2) and (3). Those sub-sections are as follows: (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 (c) if the construction contract is connected with an exempt residential construction contract, must state that it is made under this Act. (3) The claimed amount may include any amount: (a) that the respondent is liable to pay the claimant under section 27(2A), or (b) that is held under the construction contract by the respondent and that the claimant claims is due for release.
The Act (s 4) contains the following definition of the term "claimed amount": claimed amount means an amount of a progress payment claimed to be due for construction work carried out, or for related goods and services supplied, as referred to in section 13.
The Contractor's application for judgment is made under s 15 which relevantly provides: 15 Consequences of not paying claimant where no payment schedule (1) This section applies if the respondent: (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. (2) In those circumstances, the claimant: (a) may: (i) recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction, … … (4) If the claimant commences proceedings under subsection (2)(a)(i) to recover the unpaid portion of the claimed amount from the respondent as a debt: (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.
In the present case, it was not possible from the face of the payment claim to determine how much was claimed for amount (i) and how much for amount (ii). But it was common ground that, even if that had been possible, it would not have made any difference. Counsel for both parties agreed that, even if it were possible to identify the figure for amount (i), it would not be open to the Court to enter judgment for that amount.
I think that this is correct. The Act confers power on the Court only to enter judgment in the amount of the "claimed amount" (or, if some part of the claimed amount has been paid, the claimed amount less the amount paid). The Act does not permit the Court to make its own assessment of the extent to which the claimed amount represents payment for construction work or the supply of related goods or services. In that sense, it is an all-or-nothing provision.
The Act provides for two pathways for a contractor to follow. One is to apply for judgment under s 15(2) if no payment schedule is served. The other is to apply for an adjudication. If the latter course is followed, the amount of the payment claim is to be determined by the adjudicator: s 22(1)(a). This must be done by reference to the payment claim, the provisions of the contract, and the Act: s 22(2). The Court of Appeal has frequently emphasised that the process of adjudication is for the adjudicator. An error in interpreting the payment claim, or the contract, or in applying the Act, for the purpose of determining the amount of the progress payment to which the claimant is entitled is not jurisdictional and cannot be used to invalidate the determination: Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2018] NSWCA 339 at [32]. In this context, it is significant that s 8(1) refers to a person who either is or claims to be entitled to a progress claim (see s 13(1)). It is necessary that the payment claim actually be supported by a reference date. But beyond that it is not necessary that the claimant in fact has a valid claim: Bitannia Pty Ltd v Parkline Constructions Pty Ltd (2006) 67 NSWLR 9; [2006] NSWCA 238 at 30 [73], 31 [75]. It is enough that the contractor claims to be entitled to a progress payment: Quickway Constructions Pty Ltd v Electrical Energy Pty Ltd [2017] NSWCA 337 at [22].
What this means is that if the Principal had served a payment schedule taking the point that amount (ii) fell outside the Act, and the claim had proceeded to adjudication, it would have been a matter exclusively for the Adjudicator to determine, having regard to the terms of the Act and of the Contract, whether that was so. Even if the Court disagreed with the Adjudicator's interpretation of the Act or the Contract, that would be no ground to intervene. The Principal would simply have to pay the amount determined by the Adjudicator and pursue any contractual rights, and associated claim for restitution, in Court proceedings.
The Principal should not be in a better position to raise the point in this case as a result of its own failure to serve a payment schedule. I therefore accept the submission for the Contractor that it is entitled to judgment for the amount claimed in progress claim 6 irrespective of whether amount (ii) answers the statutory definition.
Counsel for the Principal asserted in submissions that the Contractor had been well aware, when submitting the claim, that amount (ii) was not claimable. If a claimant submits a deliberately false or exaggerated claim the opposing party may not be without remedy. If the claim is fraudulent, there might be a claim to recover any payment made in consequence of it: Luxford v Reeves [1941] VLR 118. Relief might also be available under the tort of abuse of process: Williams v Spautz (1992) 174 CLR 509; [1992] HCA 34. There may even be (although this is less clear) some available ground for resisting enforcement under the Act. But I do not need to go into this for the purposes of this case. There is no evidentiary foundation for counsel's assertions. If the point had been taken at an earlier stage of the proceedings there might have been. But, as I have said, no application was made to cross-examine Mr Kalach. In these circumstances I would not be prepared to infer that the claim was other than one made genuinely in good faith.

Conclusion and orders

I have concluded that the Principal's defences fail and the Contractor is entitled to judgment. At the hearing I was asked, should I reach this conclusion, to defer making any order until the parties had an opportunity to put submissions on the questions of interest and costs. I will therefore publish my judgment and stand the matter over for a short time to allow the parties to agree these matters. If there is no agreement, the proceedings may be listed for further argument on these questions by arrangement with my Associate.
The orders of the Court are:
Adjourn the proceedings for further argument, if necessary, on the question of interest and costs.

Amendments 01 April 2019 - amend typographical error 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: 01 April 2019

Building and Construction Industry Security of Payment Regulation 2008(NSW)

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