Kell & Rigby Pty Ltd v Flurrie Pty Ltd - [2006] NSWSC 906 - NSWSC 2006 case summary — Zoe

NSWNSWSC

Kell & Rigby Pty Ltd v Flurrie Pty Ltd

[2006] NSWSC 906

Supreme Court of NSW|2006-08-22|Before: Brereton J

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Source facts

Court

Supreme Court of NSW

Decision date

2006-08-22

Before

Brereton J

Source

Original judgment source is linked above.

Judgment (46 paragraphs)

[1]

Background 3 By a construction management agreement dated 6 May 2004, Kell & Rigby contracted with Flurrie to provide construction management services in connection with the construction of a mixed residential/commercial building on the properties. As at 19 October 2004, Flurrie had failed to pay progress claim 11 and progress claim 12. On that day, Flurrie paid $620,195, leaving $619,352 owing under progress claim 12. On 18 November 2004, Kell & Rigby gave Flurrie notice of intention to suspend construction work pursuant to s 15(2)(b) of the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Security of Payment Act"), and advised Flurrie of its intention to determine the contract. Kell & Rigby suspended work on 1 December. However, Flurrie agreed to grant Kell & Rigby a charge over the properties if they resumed work, and on 2 December 2004 the parties executed a variation of the construction management agreement, inserting a new "Special Condition 1", "to operate as if [it] had always existed", which purported to grant Kell & Rigby a charge over the properties as security for Flurrie's obligations under the agreement, and to acknowledge the right of Kell & Rigby to lodge caveats over the properties. Special Condition 1 is in the following terms:- Flurrie provides as security for its obligations under the PM Agreement by way of charge and acknowledges the right of Kell & Rigby to lodge caveats over the following properties: Lot 12 and 13 DP 857630 - being 58-60 Terry Street, Rozelle; Lot 1 and 2 DP 711316 - being 561-563 Darling Street, Balmain.

[2]

[3]

5 On 15 February 2006, Kell & Rigby obtained an adjudication determination against Flurrie for $1,177,933.12, under the Security of Payment Act. Flurrie did not pay the amount determined, and Kell & Rigby obtained an adjudication certificate on 23 February 2006, which was registered on 24 February as a judgment of this Court in proceedings 1095 of 2006. On 15 March 2006, Kell & Rigby obtained a further adjudication determination, for $514,312.71, in respect of which an adjudication certificate issued on 28 March and was registered as a judgment of the District Court on 31 March. Flurrie is currently indebted to Kell & Rigby for a total of $1,645,042.93, plus interest, pursuant to those judgments. 6 Meanwhile, on 7 March 2006, Flurrie served a lapsing notice in respect of Kell & Rigby's caveat. An interlocutory order extending the operation of the caveat until further order has been made, upon the usual undertaking as to damages. Section 7D Home Building Act 1989 (NSW) 7 Absent s 7D, a provision such as Special Condition 1 creates a charge, and a caveatable interest, with immediate effect, even though no moneys are yet due under the building contract [Griffith v Hodge (1979) 2 BPR 9474, 9475-6]. In Griffith v Hodge, Waddell J, as he then was, said, in respect of a clause which charged the owner's land with "all moneys that may become payable to the builder by virtue of this contract, or otherwise arising from the carrying out of the works" (at 9475-9476):- The interest in land given by [the clause] does not depend upon it being established that at the time the caveat was entered into there was in fact money owing under the agreement. The charge given by [the clause] extends to amounts which might become due in the future. The builder therefore had an interest in land which he was entitled to protect against the possibility that moneys would become due and owing and enforceable under the charge in the future … Accordingly, in my view the defendant had an interest which he was entitled to protect by the lodgement of the caveat at the time when the caveat was lodged. That interest continues until it is finally determined whether or not any moneys are owing by the plaintiffs to the defendant pursuant to the building contract. 8 In its initial form, s 7D, which was introduced into the Home Building Act by the Building Services Corporation Legislation Amendment Act 1996 (NSW) (Act No 122, Schedule 1[3]), provided as follows:- 7D Extent of caveatable interest in land under contract . The holder of a licence who is a party to a contract and in whose favour a judgment or order of a court or tribunal has been made against another party to the contract has a caveatable interest for the purposes of the Real Property Act 1900 in the land in which the contract work is, or is to be, carried out if the land is subject to that Act. 9 From the second reading speech on the Building Services Corporation Legislation Amendment Bill [Hansard, Legislative Assembly, 30 October 1996], it appears that the purpose of s 7D when first introduced was to limit the circumstances in which a contractor had a caveatable interest in a consumer's land to those where a judgment or order of a court or tribunal was made in favour of the contractor.

[4]

10 Section 7D in its original form was considered by Master Macready, as his Honour then was, in Thomas Hughes Homes Pty Ltd v Newland [1999] NSWSC 894. His Honour concluded that despite its apparent enabling - as distinct from prohibitory - terms, in the light of the object of the Act as a whole and the terms of the second reading speech, the section had the effect of restricting the circumstances in which a licence-holder would have a caveatable interest to those described in it. His Honour pointed out that s 7D was located amongst a series of provisions intended for the protection of consumers (at [21]):- 21 It is necessary to look at the Act to try and discern the nature of its purpose in accordance with the principles I have referred to above. If one does, one finds an Act which applies to a limited class of building work where the particular people likely to be affected are, apart from the builders, owners of residential property. Division 1 deals with the contracts which are entered into for such work and contains a series of restrictions on matters such as insertion of arbitration clauses, amount of deposit and the form of such contracts. One then moves through other divisions which regulate the licensing of people to do work, obviously for the benefit of the consumer being the home owner and further provisions which provide statutory warranties to benefit the home owner. The Act then deals with a variety of other matters such as disputes, insurance and penalties. 11 Prior to the determination of Thomas Hughes Homes, and in light of doubts as to whether the section in its original form achieved the object of limiting the circumstances in which a builder could lodge a caveat to a situation in which the builder had obtained a judgment against the consumer, the section was amended, to its current form, by the Home Building Amendment Act 1998 (Act No 56, Schedule 1[1]) - although the amendment did not apply to the case before Master Macready. In the second reading speech for the Home Building Amendment Bill 1998, the Minister said:- One of the other reforms which was introduced in 1996 for the home building industry related to a building contractor's right to place a caveat on the title to a consumer's land. The right to lodge a caveat is often provided for in building contracts and is seen as a way to secure payment for the builder. However, this right has been abused by some unscrupulous contractors. The anti-consumer nature of caveat clauses in building clauses was recognised by Parliament in 1996 when it moved to limit the right to lodge a caveat to the situation in which the contractor obtains a judgment against the consumer. Unfortunately, doubts have arisen as to whether the provisions which were introduced on 1 May 1997 [being the original s.7D], are legally effective in preventing contractors from inserting caveat clauses in their contracts This Bill will clarify the operation of the Home Building Act in relation to caveat clauses in home building contracts and contracts for sale of kit homes The amendment to be introduced by this Bill provides that a contractor will have an interest in land which can be protected by a caveat only if first, the contractor obtains a judgment against the home owner, second, the contract provides that non-payment of a judgment gives this right, and, third, the judgment debtor is the owner of the land at the time the caveat is lodged. 12 In its amended form, s 7D is as follows:- (1) A contract does not give the holder of a contractor licence or any other person a legal or equitable estate or interest in any land and a provision in a contract or other agreement is void to the extent that it purports to create such an estate or interest. (2) Accordingly, the holder of a contractor licence or any other person may not lodge a caveat under the Real Property Act 1900 in respect of an estate or interest prohibited by sub-section (1). (3) However, sub-section (1) does not apply to a provision in a contract that creates a charge over land if: (a) the land, the subject of the charge, is land in which the contract work is, or is to be, carried out, and (b) the charge is in favour of the holder of a contractor licence who is a party to the contract, and (c) the charge is created to secure the payment to the holder of the contractor licence, by another party to the contract of money due under the contract, but only if a court or tribunal has made an order or judgment that such payment be made, and (d) in the case of a charge over land under the Real Property Act 1900 - the party to the contract against whom the judgment or order is made is the registered proprietor of the land. (4) A charge referred to in sub-section (3) over land under the Real Property Act 1900 ceases to operate if the party to the contract against whom the judgment or order is made ceases to be the registered proprietor of the land so charged. 13 Section 7D applies to building contracts which involve residential building work [see s 6(1)]. The legislative history and context makes clear that the section is a consumer protection provision - as was recognised in Thomas Hughes Homes - and that Parliament's intention was, at least, to limit the circumstances in which a contractor had a caveatable interest to those in which it had obtained a judgment or order against the consumer. 14 Kell & Rigby's caveat claims an interest "as equitable chargee" pursuant to Special Condition 1. It is common ground that the agreement, including the variation, is one which involves residential building work within the Home Building Act, and thus is a construction contract to which s 7D applies. Accordingly, Special Condition 1 is void, to the extent that it purports to create a legal or equitable estate or interest in the properties, and Kell & Rigby's caveat is not maintainable, unless s 7D(3) is attracted, so as to "disapply" s 7D(1). It is not in dispute that the requirements of paras (a), (b) and (d) of s 7(3) are satisfied. The question is whether (c) - which requires that the charge is created to secure payment to the holder of the contractor licence, by another party to the contract of money due under the contract, but only if a court or tribunal has made an order or judgment that such payment be made - is satisfied. Kell & Rigby contend that Special Condition 1 satisfies the first part of that criterion - as it creates a charge which secures payment to the licence holder of moneys due under the contract -and that the second part was met when Kell & Rigby obtained the judgments upon registration of the adjudication certificates. Flurrie contends that on the proper construction of s 7D, the requirements of (c) were and are not satisfied - so that Special Condition 1 is void - in two respects: first, that the charge it creates is not created only if a court or tribunal has made an order or judgment that a payment of moneys due under the contract be made; and secondly, that the registered judgments are not judgments that payments of moneys due under the contract be made. These submissions require analysis of s 7D, and in particular s 7D(3)(c) in its context. 15 The scheme of s 7D is to provide, first, that a provision in a contract or other agreement ("a contractual provision") does not give the holder of a contractor licence a legal or equitable estate or interest in any land (except where sub-s (3) is attracted) [s 7D(1)]; secondly, that a contractual provision which purports, contrary to the express words of s 7D(1), to create such an interest in land is void to the extent that it purports to achieve that effect [s 7D(1)]; thirdly, that the holder of a contractor licence may not lodge a caveat in respect of an interest prohibited by sub-s (1) [s 7D(2)]; but fourthly, that sub-s (1) does not apply to a contractual provision if the requirements of sub-s (3) are satisfied. The effect of sub-s (3) is that, despite sub-s (1), a contractual provision that creates a charge in favour of the holder of a contractor licence is not void, if the requirements referred to in that sub-s (3) are satisfied. And because in those circumstances such a charge is not prohibited by sub-s (1), it is permissible to lodge a caveat in respect of an interest so created. "But only if" 16 Flurrie's first contention in respect of s 7D(3)(c) concerns the effect of its second limb - the words "but only if a court or tribunal has made an order or judgment that such payment be made". For Flurrie, Mr McInerney contends that it qualifies criterion (c) only, and that, together with the first limb of (c), it defines the terms of a permissible charge, so as to save a contractual provision which creates a charge that arises only upon a court or tribunal ordering the payment of money due under the contract; and that there is no such limitation in the charge which Special Condition 1 would create. In effect, Flurrie submits that sub-s (3)(c) should be read as follows:- (c) the charge is created (i) to secure the payment to the holder of the contractor licence, by another party to the contract of money due under the contract, but (ii) only if a court or tribunal has made an order or judgment that such payment be made, …

[7]

19 Kell & Rigby submit that whatever ambiguity might otherwise be present in requirement (c) is resolved by requirement (d), which is said to make clear that the "order or judgment" is an event, rather than part of a description of the charge, because it contemplates that there must already be a judgment or order at the time of its operation. However, requirement (d) is also capable of being read as a description of the charge: if (c) is read as describing the charge as, inter alia, one which is created only if an order or judgment has been made or given, then (d) can equally be read as describing the judgment or order which the charge, upon being created, will secure, as one against the registered proprietor of the land the subject of the charge. Accordingly, I do not accept that requirement (d) resolves any ambiguity. 20 Sub-section (1) avoids contractual provisions that create estates or interests, but sub-s (3) disapplies it from contractual provisions that create charges, if the other requirements of sub-s (3) are satisfied. These sub-sections recognise a distinction between the contractual provision that creates an interest, and the interest it creates. In sub-s (3), the first requirement is that the interest created be a charge. The remaining requirements, specified in paras (a) and following, are, generally, characteristics of the charge - that is, the interest that the contractual provision creates - rather than of the contractual provision itself, although characteristics of the charge will often if not always be determined by the contractual provision. Thus the charge, which the contractual provision creates, must be over the land on which the contract work is or is to be carried out [s 7D(3)(a)], and it must be in favour of the licence holder who is a party to the building contract [s 7D(3)(b)]. Ultimately, however, sub-s (3) exempts contractual provisions, not charges, from the operation of sub-s (1). This indicates that the focus of the section is the relevant contractual provision, but that its validity is determined according to the characteristics of the charge which it would create. 21 Contracts for residential building work are made before, not after, the building work is done, let alone any court proceedings are instituted, and it is improbable in the extreme that an owner/consumer would agree to give a charge after judgment had been obtained against it; thus, almost invariably, contracts containing charging clauses will be made before there is any judgment or order. It is clear, from the terms of s 7(3)(a), that the section contemplates a contract made before any work has been done, and s 7D(3) should be construed as intending to provide that a building contract could ab initio contain a contractual provision which creates a charge in certain circumstances and yet not be void, and the criteria in s 7D(3) are to be construed in that light. 22 One consequence of the construction advanced by Kell & Rigby is that the requirements of sub-s (3) could never be satisfied unless and until there was a judgment or order: if the second limb of requirement (c) describes an event upon the occurrence of which satisfaction of the requirements of sub-s (3) depends, then that requirement could never be satisfied until there was a judgment or order. Thus on the construction for which Kell & Rigby contend, every relevant contractual provision would be "void" pursuant to sub-s (1), in the absence of a judgment or order. Thus in every case - except the extraordinary one of a contract made after a judgment was obtained - the provision would be void at the outset. As this would avoid all contractual provisions creating charges, this would appear quite contrary to the intent of s 7D, which was to save certain contractual provisions from invalidity.

[8]

23 Mr Ashhurst attempts to overcome this difficulty by arguing that in sub-s (1), "void" does not mean permanently void, but unenforceable (temporarily, until and unless the requirements of sub-s (3) are satisfied). In aid of this he cites the observations of Windeyer J in Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432, 458, to the effect that the actual legal result is what matters, rather than the particular word used to describe it:- "Void" "Invalid" "Unenforceable". I have in this judgment used the words "invalid", "unenforceable" or "ineffectual", as, in similar cases, other judges have done. Other words and phrases can be used. For example, in the judgment under appeal the appellant's covenant is called "illegal and void". A similar promise was called by Asquith L.J. "void and unenforceable": Gaisberg v. Storr [100] , at p. 115. The words used do not matter if the actual legal result they are used to express be not in doubt or debate. But it has always seemed to me likely to lead to error, in matters such as this, to adopt first one of the familiar legal adjectives--"illegal", "void", "unenforceable", "ineffectual", "nugatory"--and then having given an act a label, to deduce from that its results in law. That is to invert the order of inquiry, and by so doing to beg the question, and allow linguistics to determine legal rights. That need not happen if words be used, as Hobbes said that by wise men they should be, only as counters to reckon with; but reckoning becomes difficult if the values of counters are not constant. There may be no difficulty for adherents to Humpty Dumpty's principle as expounded by him to Alice. But his latitude and his command of his words as his servants are not generally allowed to lawyers. They are called upon to interpret other men's words. 24 Windeyer J (whose judgment was a dissenting one) spoke of inverting the order of inquiry "in matters such as this", in the context of discussion of the status of a covenant by a wife in a deed of matrimonial settlement to accept weekly payments "in full settlement of all claims of all claims against the husband for alimony or maintenance …", in the light of the rule of public policy against ousting the jurisdiction of courts. Thus in Brooks the court was concerned to describe the results in law of the application of legal doctrine to the factual circumstances. The present case is not such a matter, because here the problem is to identify the results intended by a statutory provision in which the word "void" is itself used. This is a process of statutory construction, which necessitates adoption of the course that Windeyer J eschewed in the different type of case with which His Honour was concerned: namely, deducing the results in law from the word used.

[9]

25 Moreover, his Honour continued:- The word "void" has never been an easy word, as is pointed out in the second Australian edition of Cheshire and Fifoot's Law of Contract, p. 440. It is commonly said that when it describes a juristic act it means that it was always devoid of legal consequences. But this in itself is ambiguous, as witness the difference (which I have emphasized by italics) between the first edition of Sir George Paton's Text Book of Jurisprudence (1946) and the second edition (1951). In the first it was said (at p. 241) that "if the defects [of a juristic act] are such that the act has no legal effect at all , then the act is said to be void". The relevant passage in the latter edition (at p. 250) states--more accurately perhaps, and influenced probably by Professor Cohn's remarks in Law Quarterly Review , vol. 64 (1948), at pp. 325, 326-- A defect may make a juristic act either void or voidable. If the defect is such that the act is devoid of the legal results contemplated then the act is said to be void. A void act is sometimes said to be a nullity in law, but this is not strictly so, as an act void in its primary intent may nevertheless have an effect in another way. 26 This passage supports the view that "void" means devoid of any legal effect, ab initio. To similar effect are the observations of Kirby P, as his Honour then was, in National Acceptance Corporation Pty Ltd v Benson (1988) 12 NSWLR 213, 214-5:- The word used is "void". Although that word may, in particular contexts, invite a more limited construction, normally (as it seems to me) it should receive the meaning which ordinarily attaches to it in everyday speech, viz, having no legal effect for any purpose as against the world so that it is as if the transaction which is void" has not occurred, at least so far as the eye of the law is concerned: see Mercredits Finance Ltd v Ramsey [1979] 1 NSWLR 354, at 362; cf Brady v Stapleton (1952) 88 CLR 322. This is the starting point. Other considerations may require a more limited meaning to be given to the word. But because Parliament from time to time uses "voidable" in statutes or expressions such as "void as against the liquidator" (see, eg, s 451 of the Code), it should be presumed, at least to begin with, that where Parliament refers to "void" it intends a more radical consequence, both in terms of effect and in respect of the parties affected. 27 It would, therefore, be a curious and unlikely use of the word "void", if it were intended to mean only "temporarily unenforceable". That is all the moreso when the phrase "voidable at the option of the purchaser" is used elsewhere in the Act [Home Building Act, s 95(4), introduced by the Building Services Corporation Legislation Amendment Act, (Act No 122, Schedule 4[3]]. Yet unless that curious and unlikely interpretation is adopted, then, contrary to the apparent intention of s 7D(3), Kell & Rigby's construction would have the result that there would be no contractual provision that could satisfy sub-s (3) and escape being voided by sub-s (1).

[18]

36 The exact meaning of the word "under" depends upon the context in which it appears, but it usually requires a direct connection with the contract. In Chan v Cresdon (1989) 168 CLR 242, in the context of a guarantee of obligations "under this lease", the majority of the High Court concluded (at 249) that "[t]he word 'under', in the context in which it appears, refers to an obligation created by, in accordance with, pursuant to or under the authority of, the lease". Their Honours proceeded to hold that an obligation deriving from a common law tenancy or equitable lease, containing obligations relevantly identical to the lease instrument (which was invalid), was not an obligation "under this lease". 37 In Butterell v The Douglas Group Pty Ltd (2000) 35 ACSR 398; [2000] NSWSC 942, Young J (as his Honour the Chief Judge then was) surveyed authorities that have construed the words "under a contract" (at [40] - [46]), and concluded that a person entitled to moneys pursuant to a charge created by s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) was not a person "to whom an amount is payable under a relevant contract of insurance" for the purpose of s 562A of the Corporations Law (Cth). His Honour's summary of the authorities indicates that the words "under a contract" bespeak a direct connection between the relevant act and the contract, in the sense that the act is in pursuance of an obligation created by, in accordance with, pursuant to or under the authority of the lease:- 41 What is "under a contract" has come up for decision in its use in section 82Y of the Income Tax Assessment Act 1936. See also section 82V(2)(a) of that Act. Gummow J considered the expression in that statute in Federal Commissioner of Taxation v Energy Resources of Australia Ltd (1994) 54 FCR 25, 53. Before dealing with what his Honour said, I should note that the problem in the Energy Resources case was considered at first instance by Davies J (1994) 28 ATR 67, thence by the Full Federal Court consisting of Beaumont, Gummow and Hill JJ in the report to which I have already referred, and then by the Full High Court in (1996) 185 CLR 66. The High Court thought that the present matter was irrelevant to the question that had to be decided as did Beaumont J and Davies J at first instance and thus they did not discuss it to any material extent. Accordingly, the only two Judges that considered the phrase "under a contract" were Gummow J and Hill J.

[23]

46 Applying this approach to the present case, in my view Mr Gleeson is correct. One must look to see what was the ordinary operation of section 562A(4). The ordinary operation would be that the insured would be the person with standing. One then goes to section 6 and sees whether it has the effect of having the chargee as a person who is entitled to the amount payable under the contract. Although in a loose sense the insured is given direct access to the insurance fund, it does not seem to me that on its proper construction section 6 goes further and makes the payment to the chargee a payment under the contract. Rather it is a payment under the statute. I do not consider that Mr Alexis' point is correct that the payment can be under both. 38 Is a judgment arising by registration of a certificate of adjudication under the Security of Payment Act a judgment for payment of money due under the relevant construction contract? Flurrie contends that it is not, and that the Security of Payment Act creates a statutory regime to ensure the expeditious provision of progress payments, even where a construction contract makes no (express) provision for progress payments, but does not alter the parties' substantive rights under the relevant construction contract, so that despite an adjudication the owner remains entitled to seek a substantive determination of any dispute arising under the contract, and if successful, to obtain restitution of any moneys paid pursuant to an adjudication. 39 The objects of the Security of Payment Act are stated to be as follows:- 3 Object of Act (1) The object of this Act is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services. (2) The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to such a payment regardless of whether the relevant construction contract makes provision for progress payments. (3) The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves: (a) the making of a payment claim by the person claiming payment, and (b) the provision of a payment schedule by the person by whom the payment is payable, and (c) the referral of any disputed claim to an adjudicator for determination, and (d) the payment of the progress payment so determined. (4) It is intended that this Act does not limit: (a) any other entitlement that a claimant may have under a construction contract, or (b) any other remedy that a claimant may have for recovering any such other entitlement. 40 Part 2 of the Security of Payment Act ("Rights to progress payments") creates a statutory entitlement to a progress payment. Section 8 provides as follows:- 8 Rights to progress payments (1) On and from each reference date under a construction contract, a person: (a) who has undertaken to carry out construction work under the contract, or (b) who has undertaken to supply related goods and services under the contract, is entitled to a progress payment.

[27]

45 Flurrie points to s 32 of the Act, which provides as follows:- (1) Subject to section 34, nothing in this Part affects any right that a party to a construction contract: (a) may have under the contract, or (b) may have under Part 2 in respect of the contract, or (c) may have apart from this Act in respect of anything done or omitted to be done under the contract. (2) Nothing done under or for the purposes of this Part affects any civil proceedings arising under a construction contract, whether under this Part or otherwise, except as provided by subsection (3). (3) In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal: (a) must allow for any amount paid to a party to the contract under or for the purposes of this Part in any order or award it makes in those proceedings, and (b) may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings. 46 In Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2005] NSWCA 49, [21]-[22], the Court of Appeal said of this section:- Subsection 1 provides that Part 3 of the Act (ss 13-32), does not affect the rights of any party under a construction contract. Subsection 2 is particularly important because it relevantly provides that nothing done under, or for the purposes of Part 3, affects any civil proceedings arising under a construction contract. Finally, sub-s 3(b) makes a judgment entered under s 25 on an adjudication certificate provisional only, both in what it grants and in what it refuses A builder can pursue a claim in the courts although it was rejected by the adjudicator and the proprietor may challenge the builder's right to the amount awarded by the adjudicator and obtain restitution of any amount it has overpaid. … It is clear that the Act confers statutory rights on a builder to receive an interim or progress payment and enables that right to be determined informally, summarily and quickly, and then summarily enforced without prejudice to the common law rights of both parties which can be determined in the normal manner. 47 Thus, in contrast to an arbitration under the Commercial Arbitration Act 1984 (NSW), which determines the substantive rights of the parties, an adjudication under the Security of Payment Act is in effect only a provisional determination of their rights and liabilities in respect of a progress payment, and as Falgat makes clear, the parties remain at liberty to contest any substantive matter arising under the contract in subsequent proceedings and, if appropriate, to obtain restitution of moneys paid pursuant to the adjudication.

[39]

54 It is therefore strictly unnecessary to decide in this case what is the position in relation to contracts that do not make express provision for progress payments. However, the right to receive and obligation to make progress payments is one which arises, albeit because of the statute, as an incident of parties entering into a construction contract. It relates to moneys which would be payable under the contract in any event, but not until later. It is noteworthy that s 32(1)(b) speaks of rights that a party may have under Part 2 in respect of the contract, thus the Act recognises the rights that it gives to progress payments as being rights "in respect of" the relevant construction contract. The right and liability is each one of a party to the contract, and is derived from the contract. The contract is the source of the right and obligation. It can therefore be said to be one "under" the contract. Butterell is distinguishable on the basis that the party entitled to the charge under Law Reform (Miscellaneous Provisions) Act was not a party to the relevant insurance contract. This is a further basis for concluding that a progress payment pursuant to an adjudication is a payment of moneys due under the relevant construction contract. 55 It follows that in a case (such as the present) where the construction contract makes express provision for progress payments, those payments, albeit recovered pursuant to the Security of Payment Act, are of moneys due under the contract. Whether or not the contract makes express provision, the right to a progress payment has its source in the contract. On both those grounds, such a payment is of moneys due under the relevant contract. A judgment obtained by registering an adjudication certificate in respect of a progress payment is a judgment that a payment of money due under the contract be made, a fortiori where the contract makes express provision for such payment. I reject Flurrie's submission that the judgments obtained by Kell & Rigby by registration pursuant to the Security of Payment Act do not satisfy the description of judgments that payments of moneys due under the contract be made. Estoppel 56 Kell & Rigby submit that even if the contractual provision creating the charge is void pursuant to s 7D(1), nonetheless there was a common assumption between the parties that Flurrie's indebtedness to Kell & Rigby was secured by a charge over the property, and that Kell & Rigby relied on that common assumption in agreeing to resume work and incur further costs, and that it would be unconscionable for Flurrie now to resile from the common assumption, with the consequence that it is estopped from doing so by the principles described in Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641, 674. Flurrie counters that Kell & Rigby are not able to achieve indirectly via estoppel what the legislature has prohibited them from achieving directly by contract. 57 I accept that Kell & Rigby, in resuming work after they had suspended it, acted upon an assumption that they had a caveatable interest in the properties, and that Flurrie knew of that assumption and encouraged Kell & Rigby's reliant activity. Prima facie, that establishes the requisite elements of an estoppel precluding Flurrie from denying that Kell & Rigby has such an interest. However, although an estoppel can operate to create rights where a statute deprives an agreement to the same effect of enforceability - of which the Statute of Frauds is a paradigm [see Waltons Stores (Interstate) Pty Ltd v Maher (1988) 164 CLR 387, 408 (Mason CJ and Wilson J), 431-433 (Brennan J), 445-446 (Deane J), 464 (Gaudron J)] - that is not so where it would deprive the party said to be estopped of rights or protections of which the law, as a matter of public policy, will not allow him or her to be deprived [see Spencer Bower's Estoppel by Representation, 4th ed, para VII.1.1, p 161, extracted by Campbell J in Sanpine v Koompahtoo Local Aboriginal Land Council [2005] NSWSC 365, [338]]. Thus persons given statutory rights to apply for family provision [Lieberman v Morris (1944) 69 CLR 69; Smith v Smith (1986) 161 CLR 217] or for maintenance [Brooks v Burns Philp Trustee Co Ltd] cannot contract out of those rights - except in accordance with statutory provisions that authorise such agreements - and just as policy denies legal validity to contracts in those circumstances, so it denies legal validity to estoppels that would produce the same effect.

[40]

58 The distinction between the two classes of contract is that those in the former class, though made unenforceable, are not made invalid. Thus in Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993, Viscount Radcliffe, speaking for the Privy Council, said (at 1015 - 1016): "there are statutes which, though declaring transactions to be unenforceable or void, are nevertheless not essentially prohibitory and so do not preclude estoppels. One of these examples is the Statute of Frauds". In a passage which was cited with approval by the Court of Appeal in Overmyer Industrial Brokers Pty Ltd v Campbells Cash & Carry Pty Ltd [2003] NSWCA 305, Viscount Radcliffe explained (at 1016 - 1017):- A more direct test to apply in any case such as the present, where the laws of moneylending or monetary security are involved, is to ask whether the law that confronts the estoppel can be seen to represent a social policy to which the court must give effect in the interests of the public generally or some section of the public, despite any rules of evidence as between themselves that the parties may have created by their conduct or otherwise. Thus the laws of gaming or usury ... override an estoppel ... so do the provisions of the Rent Restriction Acts … General social policy does from time to time require the denial of legal validity to certain transactions by certain persons ... In all such cases there is no room for the application of another general and familiar principle of the law that a man may, if he wishes, disclaim a statutory provision enacted for his benefit, for what is for a man's benefit and what is for his protection are not synonymous terms Nor is it open to the court to give its sanction to departures from any law that reflects such a policy, even though the party concerned has himself behaved in such a way as would otherwise tie his hands. 59 In Overmyer, the statute provided that a real estate agent was not entitled to any remuneration unless various formalities were satisfied, and prohibited contracting out; Young CJ in Eq, with whom Meagher and Beazley JJA agreed, thought (at [55]-[56]) that it was almost unarguable that the legislature had made plain that there was to be no recovery of remuneration in such a case and that an estoppel would not lie "in the face of the statute" where such an estoppel would be contrary to the social policy of the statute. 60 Here, Kell & Rigby seek to support by conventional estoppel what they cannot achieve by agreement. The legislature has evinced the plainest intention that a provision such as Special Condition 1 cannot create a caveatable interest. The plain policy of s 7D is to prevent such an interest arising, save in the limited circumstances defined in sub-s (3). The presence of s 7D(2) destroys any analogy with the Statute of Frauds: it makes it clear that the purpose of s 7D is not merely to render unenforceable a certain class of contractual stipulations, but to invalidate them and deprive them of any legal effect, and in particular to prevent an interest in land arising. To permit such an interest, incapable of being validly created by contract, to arise by way of an estoppel, would be contrary to the policy of the section. In those circumstances, in my opinion, it is not open to achieve by estoppel what the statute prohibits by contract. Conclusion

Kell & Rigby Pty Ltd v Flurrie Pty Ltd

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