J C Butko Engineering Pty Ltd v Talis Civil Pty Ltd

(a) The components of a payment schedule

1. Section 14 of the Building and Construction Industry Security of Payment Act relevantly provides: "14 Payment schedules (1) A person on whom a payment claim is served (the respondent) may reply to the claim by providing a payment schedule to the claimant. (2) A payment schedule: (a) must identify the payment claim to which it relates, and (b) must indicate the amount of the payment (if any) that the respondent proposes to make (the scheduled amount). (3) If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent's reasons for withholding payment. (4) If: (a) a claimant serves a payment claim on a respondent, and (b) the respondent does not provide a payment schedule to the claimant: (i) within the time required by the relevant construction contract, or (ii) within 10 business days after the payment claim is served, whichever time expires earlier, the respondent becomes liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates."
2. As is apparent, to constitute a payment schedule in respect of Payment Claim 13 the documents relied upon by Talis Civil to constitute the payment schedule must: 1. identify Payment Claim 13; 2. indicate the amount Talis Civil proposes to pay; and 3. provide the reason or reasons for withholding payment of any part of the claimed amount.
3. In the absence of a payment schedule, Talis Civil is liable for the claimed amount.

(b) The argument

1. JC Butko submits that the two emails, either separately or together, do not constitute a payment schedule on the basis that Payment Claim 13 is not identified and there is no indication of the amount Talis Civil proposes to pay and no reason is given for any underpayment of the claim.
2. Talis Civil submits that the payment claim was identified by it being the "most recent payment claim", by being similar to a draft claim issued 30 days earlier, and because Talis Civil had indicated orally 17 days earlier that Talis Civil would not pay the variations and that it claimed back charges.
3. There are several problems with this submission. The circumstance that Payment Claim 13 was the most recent payment claim might have significance if the asserted payment schedule made reference to this, but it did not; not to the most recent payment claim, not to any payment claim. Rather, the 7 August 2020 email from Talis Civil was proposing, with substantiating material, certain back charges. The 3 August email sought more information about the variations asserted by JC Butko, which mistakenly (see email of the same day at 3.27pm) [5] was thought not to have been provided. The circumstance that only one uncontested variation was part of Payment Claim 13, [6] underlines the irrelevance of the 3 August email to Payment Claim 13. That there was some contested back charges says nothing about the identification of Payment Claim 13, especially since, according to Talis Civil, [7] the back charges had been the subject of about 12 conversations over 8 months and had presumably not been the subject of any payment schedule in respect of a prior payment claim in that period. An assertion that some money is owed does not identify a payment claim, nor identify the amount of the payment claim proposed to be paid.
4. The requirement that the payment schedule must identify the relevant payment claim is mandatory and not to be satisfied by guesswork as to what was intended. It may be sufficient to refer to the last payment claim or progress claim, but that did not occur. When the payment claim makes no claim in respect of contested variations or in respect of back charges, reference to contested variations and long discussed back charges, far from supplying an identifying link to Payment Claim 13, indicate the contrary.
5. Talis Civil also made reference to an earlier draft payment claim which did include some contested variations; and in respect of which there was evidence that those variations had been orally disputed in a meeting 17 days earlier. The circumstance that none of the disputed variations were included in Payment Claim 13 undermines the relevance of Talis Civil's reaction to an earlier draft. In any event, a payment schedule must be served, and an earlier conversation not identified or incorporated by a written document cannot serve to identify a document, the subject of the conversation. Like in Joye Group Pty Ltd v Cemco Projects Pty Ltd at [23], [8] "There was no attempt, either express or by necessary inference, in the" emails of 3 August or 7 August 2020 "to incorporate" the conversation about the earlier draft.
6. Whilst conversations may supply contextual evidence to identify the ambit of the reasons for reduced payment in a payment schedule, in Joye Group: [9] "what was sought to be achieved by reference to extraneous documents was to create a sufficient degree of particularly in the absence of incorporation. That course is not available. A payment schedule is not to be reconstructed by reference to external materials, so as to give it a degree of particularity which it simply did not enjoy." Unincorporated extraneous documents cannot operate to identify a payment claim. It is the payment schedule which must identify the payment claim, not a conversation, and even less a disputed conversation well prior to the issue of a payment claim.
7. Talis Civil also relied on the circumstance that Payment Claim 13 was in the email trail of the 3 and 7 August emails. That may assist in identification of the relevant payment claim if reference had been made to one, but no reference was made. Identification of the payment claim is not to be found by searching back through the email trail and concluding that if reference to a payment claim is made, Payment Claim 13 is it, when no reference to a payment claim was made.
8. In my view, Payment Claim 13 is not identified as required by the Act. That alone is sufficient to deny to the emails of 3 and 7 August, either separately or cumulatively, the character of a payment schedule.
9. However, as they were raised, I propose to deal also with the other two necessary components of a payment schedule, namely that it must indicate the amount Talis Civil proposes to pay, and the reasons for any shortfall.
10. As there is no reference to any payment claim or invoice, it is unsurprising that there is no indication of the amount Talis Civil proposes to pay. Rather, as indicated, the relevant email does no more than identify, with substantiation for discussion, certain back charges and indicate an issue about variations. As has been authoritatively [10] stated by Palmer J in Multiplex Constructions Pty Ltd v Luikens and Anor: "[67] … The evident purpose of s 13(1) and (2), s 14(1), (2) and (3), and s 20(2B) is to require the parties to define clearly, expressly and as early as possible what are the issues in dispute between them; the issues so defined are the only issues which the parties are entitled to agitate in their dispute and they are the only issues which the adjudicator is entitled to determine under s 22. It would be entirely inimical to the quick and efficient adjudication of disputes which the scheme of the Act envisages if a respondent were able to reject a payment claim, serve a payment schedule which said nothing except that the claim was rejected, and then 'ambush' the claimant by disclosing for the first time in its adjudication response that the reasons for the rejection were founded upon a certain construction of the contractual terms or upon a variety of calculations, valuations and assessments said to be made in accordance with the contractual terms but which the claimant has had no prior opportunity of checking or disputing. In my opinion, the express words of s 14(3) and s 20(2B) are designed to prevent this from happening. … [76] A payment claim and a payment schedule are, in many cases, given and received by parties who are experienced in the building industry and are familiar with the particular building contract, the history of construction of the project and the broad issues which have produced the dispute as to the claimant's payment claim. a payment claim and a payment schedule must be produced quickly; much that is contained therein in an abbreviated form which would be meaningless to the uninformed reader will be understood readily by the parties themselves. A payment claim and a payment schedule should not, therefore, be required to be as precise and as particularised as a pleading in the Supreme Court. Nevertheless, precision and particularity must be required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute. [77] A respondent to a payment claim cannot always content itself with cryptic or vague statements in its payment schedule as to its reasons for withholding payment on the assumption that the claimant will know what issue is sought to be raised. Sometimes the issue is so straightforward or has been so expansively agitated in prior correspondence that the briefest reference in the payment schedule will suffice to identify it clearly. More often than not, however, parties to a building dispute see the issues only from their own viewpoint: they may not be equally in possession of all of the facts and they may not equally appreciate the significance of what facts are known to them. This will be so especially where, for instance, the contract is for the construction of a dwelling house and the parties are the owner and a small builder. In such cases, the parties are liable to misunderstand the issues between them unless those issues emerge with sufficient clarity from the payment schedule read in conjunction with the payment claim." [11]
11. Whilst the Talis Civil emails of 3 and 7 August may have indicated an issue about back charges and variations, there was no indication that those matters raised an issue about Payment Claim 13. Rather, the correspondence and conversation indicated that certain variations (not in Payment Claim 13) would not be paid, [12] and flagged 30 days earlier, on 1 June 2020, that the "final progress claim", evidently not Payment Claim 13, which did not include the variations, "will have to wait until all issues are resolved". That does not identify whether any and what amount of Payment Claim 13 would be paid. [13]
12. Had the correspondence identified Payment Claim 13, and asserted that it would not be paid because of the back charges, which were detailed in an attachment to the 7 August email, the email may satisfy the s 14(3) requirement of providing reasons for underpayment. But without the identification of Payment Claim 13, and the indication of the amount to be paid, the foundation for reasons for an underpayment is absent.
13. The identified correspondence cannot properly be regarded as a valid payment schedule and the plaintiff is entitled to judgment on Payment Claim 13.

(a) The document

1. By an email dated 6 November 2020, JC Butko sent Payment Claim 14 to Talis Civil. On 9 November 2020 Bradford Maiden, on behalf of Talis Civil, responded. The email contained the same subject entry, namely Payment Claim 14 and stated: "Subject: RE: Payment Claim No. 14 Shane, Please be advise that this progress claim and any outstanding claims are in dispute and cannot be processed until outstanding issues have been resolved. Further to our meeting conducted on 14 July 2020, TALIS is still awaiting responses to queries relating to JCB variations and also on response to TALIS backcharge submission for the project. Can you please provide responses immediately so that this issue can be closed out and finalisation of your contract can be achieved." [14]

(b) The argument

1. JC Butko did not dispute that this email identified Payment Claim 14 as the claim to which it relates, and indicated that nil amount would be paid in respect of the claim. The issue is whether Talis Civil gave reasons for withholding payment.
2. JC Butko asserts the absence of reasons is evident because the disputed back charges and variations, at their highest, total an amount somewhat less than the sum of Payment Claims 13 and 14 - $77,065 less in the initial written submissions, only about $6,000 less in the oral submissions and in a supplementary submission. It was submitted that unless the sum exceeded the amount of the claim, there was no rational basis in the reasons for making no payment. JC Butko asserts that the sum of Payment Claims 13 and 14 is the relevant figure for the calculation because the correspondence refers to "This payment claim and any outstanding claims", Payment Claim 13 being unpaid and thus being an "outstanding" claim.
3. It may be that reasons proffered in a purported payment schedule cannot be so lacking in merit that it "flies in the face of the statute", [15] and cannot be so "cryptic or vague" [16] that the claimant cannot determine what issue is raised. Reasons that are irrational or obviously without merit might not be sufficient to satisfy the requirements of s 14(3). Similarly, a refusal to pay any part of a large sum because of a countervailing set-off for a small sum may not suffice as a statutory reason. In Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA Pty Ltd), Chesterman J stated: "The machinery for prompt payment and enforcement of payment would break down if a document, said to be a payment schedule, took issue with part only of a claim but was silent as to what it proposed to pay in respect of the balance." [17]
4. Thus, a claimed set-off that is relied upon to assert a larger deduction to the payment claim than the set-off identified might not satisfy the requirement of reasons in the Act, especially if the difference is significant. Had the claimed set-off been less than Payment Claim 14, the assertion of JC Butko would arguably have merit.
5. But this is not the case. The claimed set-off exceeds, by a substantial margin, the amount of Payment Claim 14. JC Butko argues that the email claimed a set-off against Payment Claim 13 also, but that is of no significance. The 9 November email cannot be a basis not to pay Payment Claim 13, issued on 31 July. So the reference to "any outstanding claims", if it is a reference to Payment Claim 13, is an invalid assertion and can be disregarded. It does not disentitle Talis Civil from asserting a set-off in respect of Payment Claim 14. The Court looks at the purported payment schedule from the knowledge of the parties, even if it may appear incomprehensible to the uninformed observer. [18] Here, the set-off could only be asserted against Payment Claim 14.
6. In these circumstances, the response of Talis Civil to Payment Claim 14 does contain reasons which are rational and which, if accepted, would justify the non‑payment of the claim. The Court is not otherwise concerned with the "adequacy or sufficiency of those reasons". [19]
7. In the result, the statutory requirements for a payment schedule in response to Payment Claim 14 are satisfied. A payment schedule has been served, or at least arguably served in accordance with the Act. There is no basis for summary judgment.
8. Accordingly, JC Butko has succeeded in respect of Payment Claim 13, but not Payment Claim 14. While these reasons might indicate that the proceedings in respect of Payment Claim 14 are problematic, the respondent applied for no relief in that regard and so it is sufficient to refuse summary judgment.

Interest

1. JC Butko is entitled to interest on Payment Claim 13 at the statutory rate from the date of payment, namely 20 business days from 30 July 2020, being 28 August 2020.

Costs

1. The parties have not had an opportunity fully to argue the question of costs. If either party seeks a different costs order from that made below, they can apply by notifying my associate by email within the next 14 days to have that issue ventilated.

Other matters

1. The matter is listed next on Thursday, 4 November at 9.30 before the Judicial Registrar so that the matter can be progressed in respect of the claim in respect of Payment Claim 14, if that is to be pursued. If either party wants to raise some question about venue, that the matter should formally be moved to Sydney or that it should remain in Albury, of course either party can raise those matters before the Judicial Registrar.

Orders

1. The orders of the Court are: 1. Judgment for the plaintiff in the sum of $351,638.92 (including interest from 28 August 2020 in the sum of $16,283.02). 2. By consent, make orders in accordance with order 3 of the amended notice of motion (filed 28 April 2021) striking out: 1. paragraph 7(c); 2. paragraph 7(d); 3. paragraph 8(e)(i), the words "(which is not admitted)"; 4. paragraph 8(e)(v), the words "(which is denied)". 1. The defendant to pay the costs to date of the proceedings, including the costs of the motion. 2. Liberty to either party to apply by email to my associate within 14 days in respect of the costs order in order (3) hereof. 3. List the proceedings for further directions before the Judicial Registrar in Sydney on Thursday, 4 November 2021 at 9.30am in respect of the residue of the proceedings concerning Payment Claim 14.

Endnotes

1. Affidavit of Shane Giddens, 26/4/21 at p 38.
2. Affidavit of Shane Giddens, 26/4/21 at p 35.
3. Affidavit of Shane Giddens, 26/4/21 at p 37.
4. Affidavit of Shane Giddens, 26/4/21 at p 37.
5. Affidavit of Shane Giddens, 26/4/21 at p 36.
6. See affidavit of Bradford Maiden, 10/6/21 at [35]; Mr Maiden is the Construction Manager of Talis Civil, see at [1].
7. Affidavit of Bradford Maiden, 10/6/21 at [14], [17] and [20].
8. [2021] NSWCA 211.
9. At [24].
10. Joye Group at [13].
11. [2003] NSWSC 1140 at [67], [76]-[77].
12. Affidavit of Bradford Maiden, 10/6/21 at [35].
13. See Style Timber Floor Pty Ltd v Krivosudsky [2019] NSWCA 171 at [76].
14. Affidavit of Shane Giddens, 26/4/21 at p 62.
15. See Joye Group at [32] per Macfarlan JA.
16. See Multiplex at [77].
17. [2007] QSC 333 at [29].
18. Leighton v Arogen [2012] NSWSC 1323 at [69]-[70].
19. Barclay Mowlem v Tesrol Walsh Bay [2004] NSWSC 1232 at [26]. 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: 14 February 2022