James Hardy Building Systems Pty Limited v Epoca Constructions Pty

[4] The claim of charge was for the sum of $1 038,897.45. The claim is made for a charge in respect of that sum of money "as payable for the work done by us... which is calculated as per the details attached."

"(2) The charge of a subcontractor shall secure payment in accordance with the subcontract of all money that is payable or is to become payable to the subcontractor for work done by the subcontractor under the subcontract."

[6] In Riteway Constructions Pty Ltd v Baulderstone Hornibrook Pty Ltd [1998] 2 Qd R 218 at 230 Derrington J observed -

"... to the extent that the effect of the Act is to impose a security that is limited to a particular amount of money in the hands of the principal as a matter of ordinary understanding the reference to `money to become payable' must refer to a specific sum that will become payable. That specific sum must be objectively determinable at the date of the charge by reference to the contract."

[7] Shepherdson J in James Hardy Building Systems Pty Limited v Epoca Constructions Pty Ltd (1999) 15 BCL 199 adopted an approach similar to that of Derrington J in Riteway, relying in particular on the analysis of s 5 of the Act by Campbell CJ in Groutco (Aust) Pty Ltd v Thiess Contractors Pty Ltd [1995] 1 Qd R 238 at 243.

[8] Those cases are authority for the proposition that where under the terms of a subcontract there arises a dispute between the contractor and subcontractor as to the amount payable in respect of work performed and the terms of the contract require a certification by an intermediary as to the value of the work or alternatively resolution of any dispute as to value by an arbitrator or some other specified person, it cannot be said that a specific sum of money capable of being charged upon money payable to the contractor "is payable or is to become payable to" the subcontractor "for work done" before there has been compliance with the contractual requirement for certification as to value expressed as a specific sum and/or a determination of that value pursuant to the terms of the contract.

[9] It is clear that no claim of charge can be made in respect of damages which a subcontractor may recover against a contractor for breach of the subcontract - see Groutco (Australia) Pty Ltd v Thiess Contractors Pty Ltd [1995] 1 Qd R 238.

[10] In this case although a written subcontract was prepared by the contractor for execution by the subcontractor in about July 1999, it seems that it was never executed. However, it is clear upon the material to which I will not refer in detail that the subcontractor commenced work pursuant to a sub-contract with the contractor and that that work was performed on the assumption that the unsigned written subcontract set forth the terms of that subcontract.

[11] Prior to March (and May) 2000 various disputes as to valuation of variation works performed had arisen between contractor and subcontractor which have to date been dealt with (or not dealt with) having regard to clauses 42 and 47 of the subcontract.

[12] To determine the issue before me it is unnecessary to analyse those clauses or refer to the matters of dispute and the steps taken (or not yet taken) to resolve those disputes prior to March (and May) 2000.

[13] In November 1999 the State of Queensland had directed that the completion of the head contract work be accelerated. The subcontract provided for the steps to be taken in this event so that progress payments etc. could be met. However the subcontractor complained that as a consequence of the acceleration of performance of the subcontract work, the subcontractor was not obtaining payment for variations in the subcontract in time to avoid financial embarrassment in funding the subcontract work. It is the case for the contractor that it was on 3 March 2000 that an officer of the subcontractor sought to persuade the contractor to depart from the constraints under the subcontract requiring certification of valuation of work performed under variations etc and to make payments on account before they strictly became due so that the subcontractor could avoid financial embarrassment.

[14] There is a real dispute between contractor and subcontractor as to the terms of whatever arrangement was made in the meeting of 3 March 2000.

[15] It is not appropriate to embark upon a consideration of which version of the discussion is the more probable. Upon an application of this kind under section 21 of the Act it is inappropriate to entertain arguments based upon disputed questions of fact - at least questions of fact disputed to the extent that they are in this case.

[16] For the contractor however, it is contended that to the extent that it is necessary to consider the terms of any variation of the subcontract agreed to on 3 March 2000, I should accept for the purpose of the application, the version of the agreement upon which the subcontractor relies.

[17] In about May 2000, the contractor and subcontractor entered into a further agreement varying again the terms and conditions of the subcontract in accord with the content of a document described as "Deed of Variation". That document seems to have been signed only on behalf of the subcontractor at some time in May 2000. It was never signed by the contractor and it was not executed by the subcontractor under its company seal.

[18] It was not seriously in issue I think between the parties that the so called "Deed of Variation" records the terms of the variation agreement which became operative on 15 May 2000 as provided by clause 2 of that document.

[19] It is unnecessary to analyse what difference that second variation agreement made to the rights and obligations of the contractor and subcontractor under the subcontract.

[20] For the contractor reference is made to clauses 5, 6 and 7 of that "Deed of Variation" which provides -

"5 All issues and claims arising out of or under the subcontract and its performance prior to the effective date will subject to clause 6 below be assessed in accordance with the terms and conditions of the subcontract applicable prior to the effective date.

6. HWE will use its best endeavours to allocate the necessary additional resources to process and finalise such past issues and claims on a priority basis.

7. To give effect to clause 6 the parties hereby appoint Mr John Ingen-housz as subcontract superintendent with agreed powers and limitations to assess and determine issues and claims arising prior to the effective date which cannot be resolved within a reasonable time by agreement between the parties."

[21] It is the contention of the subcontractor that it was agreed on 3 March 2000 that the subcontract be amended by the introduction of what was described as a "payment protocol." The essence of this alleged arrangement was that all the subcontractor's variation claims would be paid by the contractor without any deduction or adjustment but that the contractor would increase the standard retention sum from moneys paid from $452,747.70 to $1,000,000; the amount of approximately $550,000 to be held over and above the standard retention sum was called a "variation verification contingency sum". It was contended that the intention of the parties was to avoid the time constraints etc on the subcontractor receiving progress payments, inherent in complying strictly with the certification process and dispute resolution process provided for in clauses 42 and 47 of the sub-contract.

[22] It is the contention of the subcontractor that under the agreement of 3 March 2000 all disputes concerning the value of the variation claims made by it when ultimately determined in accord with the provisions of the subcontract would if determined in favour of the contractor enable the contractor to retain at least the $550,000 described as the "variation verification contingency sum."

[23] For the contractor it is contended that even accepting the subcontractor's version of the agreement reached on 3 March 2000 (which is strongly denied), the sums allegedly payable by the contractor - being the whole of the claims made by the subcontractor - could not be said to be moneys payable or to become payable to the subcontractor for work done, because even on the subcontractor's version of the variation agreement, ultimately there would have to be a resolution of disputes, if any pursuant to cls 42 and 47 of the subcontract, as to whether the whole or part only of monies still claimed for variations was finally payable under the subcontract before it could be said that monies to be advanced to the subcontractor "on account" were really "payable or to become payable" for work actually done by the subcontractor under the subcontract.

[24] Unsuprisingly, there is significant difference between the amounts claimed by the subcontractor in respect of variations and the amounts awarded by the contractor upon those claims. It is the difference between the amount claimed and the amount awarded - the sum of $1,038,897.45 - which is the subject of the subcontractor's claim of charge.

[25] I mention only in passing variation claim no. 2054 which is particularised in the attachment to the notice of claim of charge which reads -

"Mimosa Creek - Deletion from the Contract - Amount Claimed $103,127.35."

[26] On its face this claim would seem to be one for damages for breach of contract and not one "for work done". No amount was awarded on this variation claim in the list of claims attached to the notice of claim of charge. It is clear of course that no charge may attach in respect of a claim for unliquidated damages for breach of contract.

[27] In my view the first point taken by the contractor is a good one. Even accepting that an agreement was made between the subcontractor and contractor varying the subcontract by setting up the "variation verification contingency sum" to which I have referred, it is abundantly clear that even if $550,000 was to be held by the contractor pending a resolution of any disputes between the parties as to the value of the variations, it could not be said that as a consequence the total of all the uncertified variation claims comes within the category of "moneys payable or to become payable" under the subcontract for work done by the subcontractor, if that subcontract were varied by the agreement of 3 March 2000 in the terms for which the subcontractor contends.

[28] When the notice of claim of charge was given on 7 November 2000, no steps seem to have then been taken to resolve the disputes between the subcontractor and contractor as to what part of the difference between variation claims and the sums awarded by the contractor was due under the subcontract. There is no evidence that there was ever agreement between the parties as to what part of the rejected variation claims should be payable out of the $550,000 allegedly agreed to be held as a variation verification contingency sum. The only particulars of the charge attached to the notice of claim of charge indicate that all told $2,430,062.52 was claimed by the subcontractor of which only $1,391,165.07 was awarded by the contractor. It is clear from the attachment to the claim of charge that claims in the sum of approximately $350,000 were entirely rejected by the contractor.

[29] In my judgment even accepting the subcontractor's version of the alleged agreement made 3 March 2000, the charge claimed suffers from the same deficiency as did those in Riteway Constructions Pty Ltd v Baulderstone Hornibrook Pty Ltd (supra) and James Hardy Building Systems Pty Ltd v Epioca Constructions Pty Ltd (supra).

[30] In essence, according to the terms of the oral agreement of 3 March 2000 upon which the subcontractor relies, the difference between the amounts claimed and the amounts awarded will not become finally payable by the contractor to the subcontractor if it ever becomes so payable prior to the resolution of the dispute between them in accordance with clause 47 of the subcontract. Under the alleged agreement the subcontractor's entitlement to those moneys "for work done by it", is contingent upon resolution of the dispute as to valuation of variation work in accordance with the terms of the subcontract (as allegedly varied on 3 March 2000).

[31] A second point taken on behalf of the contractor is that clauses 5, 6 and 7 of the "Deed of Variation" on their face, rescinded or set at naught any agreement reached between the contractor and subcontractor on 3 March 2000.

[32] For the contractor it is contended that clause 5 requires that the claims in respect of which the charge is claimed in respect of work done prior to 15 May 2000, be assessed in accordance with the terms of the subcontract unvaried by any agreement reached on 3 March 2000. It is contended that clauses 6 and 7 obviously contemplate the subcontract superintendent determining disputes between contractor and subcontractor as to variation claims made prior to 15 May 2000.

[33] For the subcontractor however, it is contended that clause 5 should be construed so that the term "subcontract" reads "subcontract as varied on 3 March 2000." It is contended that the "terms and conditions of the subcontract applicable prior to the effective date" in cl 5, exclude the terms requiring certification, dispute resolution etc relating to valuation of variation works in the subcontract, which are not "applicable" because they had been changed, or at least modified, by the agreement of 3 March 2000.

[34] I must say I find the contention of the subcontractor on this point unpersuasive.

[35] The "recitals" to this "deed" do not suggest that the "subcontract" as defined should mean "subcontract as varied on 3 March 2000".

[36] In my view, if it became necessary to decide the application on this point, the better construction would be that the so called "Deed of Variation" was designed to vary the subcontract in writing and in effect to supplant any variation of that subcontract effected by the agreement of 3 March 2000. Although unexecuted by either party the written contract , prepared it would seem in about July 1999, (Vide Ex "E1" to the affidavit of Bill Arndt filed 11 December 2000) was clearly treated by each as containing the terms of the subcontract between them at least prior to 3 March 2000.

[37] However, I find it unnecessary to determine the application on the construction point argued on behalf of the contractor, even accepting the subcontractor's assertions as to the content of the alleged agreement of 3 March 2000.

[38] In my judgment it cannot be said that the unpaid difference between the variation sums claimed by the subcontractor and the sums awarded by the contractor can be categorised as "money that is payable or is to become payable to the subcontractor for work done by the subcontractor under the subcontract", in the absence of relevant certificates and the resolution of disputes as to valuation of variation works between the contractor and subcontractor pursuant to cls 42 and 47 of the subcontract.

[39] I order therefore that the subcontractor's claim of charge dated 7 November 2000 be cancelled.

[40] I will hear argument on the question of costs.