Kennedy Civil Contracting Pty Ltd (subject to deed of company arrangement) v Linx Constructions Pty Ltd - [2024] NSWCA 243 - NSWCA 2024 case summary — Zoe

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Kennedy Civil Contracting Pty Ltd (subject to deed of company arrangement) v Linx Constructions Pty Ltd

[2024] NSWCA 243

Court of Appeal (NSW)|2024-10-01|Before: Bell CJ, Wright J

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2024-10-01

Before

Bell CJ, Wright J

Catchwords

[2004] NSWCA 394 Cheng v Motor Yacht Sales Australia Pty Ltd t/as The Boutique Boat Company (2022) 108 NSWLR 342
[2022] NSWCA 118 Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635
[2017] NSWCA 151 Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1
[2018] HCA 4 Re Chetwynd's Estate [1938] Ch 13 Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317

Source

Original judgment source is linked above.

Catchwords

[2004] NSWCA 394 Cheng v Motor Yacht Sales Australia Pty Ltd t/as The Boutique Boat Company (2022) 108 NSWLR 342[2022] NSWCA 118 Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635[2017] NSWCA 151 Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1[2018] HCA 4 Re Chetwynd's Estate [1938] Ch 13 Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317[2019] NSWCA 11 Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340[2014] HCA 15 Style Timber Floor Pty Ltd v Krivosudsky (2019) 100 NSWLR 133

Judgment (16 paragraphs)

[1]

Background

The background to the proceedings and to the statutory scheme have been set out in sufficient detail by Griffiths AJA and can be briefly stated for present purposes. The relevant facts are, at this stage, not in dispute. The applicant made a payment claim, to which the respondent failed to provide a payment schedule, thus entitling the applicant to bring proceedings in debt for so much of the payment claim as was unpaid: Security of Payment Act, s 15(2). The payment claim was for approximately $147,000. After the claim was made (and the time for payment had passed) two payments were made by the respondent, one of $50,000 directly to the applicant, the other of $52,800 to a third-party subcontractor at the direction of the applicant. The amount claimed in the Local Court was therefore reduced to approximately $45,000. Of this amount, the respondent contended that there should be a reduction of some $30,000 which it had later paid to Civilcast Pty Ltd, an unpaid subcontractor of the applicant. The sole question (a question of law) was whether the respondent was entitled to the deduction from the judgment against it on account of its payment to a third party. The magistrate held that it was, a conclusion upheld by Wright J in the Division.

The correctness of this result turned upon the operation of the following provisions of the Security of Payment Act: 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. 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. [Emphasis added.]

[3]

Timing of payments

One aspect of the statutory scheme which was not addressed in the Courts below, was the precise matter as to which the magistrate was to be satisfied under s 15(4)(a). As has been noted, the condition for the claimant to bring proceedings was that the respondent had failed to pay the whole or some part of the claimed amount "on or before the due date for the progress payment to which the payment claim relates": s 14(4). The due date under the payment claim was 24 June 2022. The two payments made to or at the direction of the applicant were made in July 2022. There was a question, not raised in this case, as to the basis upon which the respondent could rely upon those payments in resisting a judgment for the full amount of the payment claim. Once the magistrate was satisfied as to the failure to pay the whole or any part of the claimed amount on or before the due date for the progress payment, arguably the applicant was entitled to judgment for that amount, unless there was an implied obligation to inform the Court of payments received thereafter. Alternatively, there would be an entitlement to judgment for the amount unpaid on the due date, but the judgment could only be enforced for that amount less payments later received, as would be the case in relation to payments received after judgment.
This issue is relevant because it illustrates the importance of having careful regard to the surrounding statutory context, and not construing a word or phrase in isolation. In principle it arose with respect to the payment made by the respondent to Civilcast (in August 2022, two months after the due date under the payment claim).
There are two other provisions in the Security of Payment Act similar to s 15(4). The first deals with failure to pay a claimant in accordance with a payment schedule (s 16); the second with enforcement of an adjudicator's determination (s 25). In contrast to the two earlier provisions, s 25(2) requires that the filing of an adjudication certificate must be "accompanied by an affidavit by the claimant stating that the whole or any part of the adjudicated amount has not been paid at the time the certificate is filed" (emphasis added). This procedure avoids the lacuna which appears to arise under s 15 with respect to payments made between the time when the progress payment fell due and the time when the proceedings were commenced, or indeed determined.

[6]

Construction argument

Dealing first with the construction argument, the respondent's case was that par (b) identified two separate procedures, one the bringing of a cross-claim, the other the raising of a defence. It was clear that the procedural process of bringing a cross-claim had not been invoked against the applicant: the applicant having abandoned any reliance on par (ii), the respondent submitted that that was an end to the matter: it was entitled to rely on the set-off pleaded in its defence.
On the other hand, the applicant submitted that if the substance of the respondent's resistance to the claim (to use a neutral phrase) was something that could have been raised by a cross-claim, the mere fact that it had been inserted in a document entitled "defence" was no answer to the prohibition. This approach to the question of statutory construction was, it was submitted, analogous to the approach adopted by this Court in Stehar Knitting Mills Pty Ltd v Southern Textile Converters Pty Ltd. [2] The prohibition in that case lay in a court approved scheme of arrangement by which Southern Textile was protected against a creditor (which included Stehar) from commencing or continuing "any action, proceeding, suit or arbitration against [Southern Textile]". Southern Textile having made a claim against Stehar, the latter sought to rely upon a set-off of moneys owing to it from Southern Textile. The set-off was disallowed by the trial judge and the appeal dismissed. After referring to the prohibition in the scheme of arrangement against commencing a proceeding against the respondent, Hutley JA held: "(35) Having regard to the above analysis of the nature of set-off, that is, it is one of the means of bringing conflicting claims to a single adjudication, I am of the opinion that claiming to set-off a sum of money is commencing a proceeding against the company, and this is by statutory force prohibited. The fact that it is done by way of defence is immaterial. It is still a claim."
Further consideration of Stehar is of limited value: the statutory scheme as to set-offs and cross-claims with which it was concerned has since been removed, and then replaced. It provides limited assistance in understanding the scope of s 15(4) of the Security of Payment Act. Importantly, it is unlikely that the latter was intended to be construed by reference to the substantive and procedural rules with respect to set-offs, equitable, legal and statutory, which have existed from time to time in different Australian jurisdictions. [3] It is to be remembered that the Security of Payment Act exists in common (or very similar) form in most jurisdictions. [4]
On the other hand, Stehar provides an example of the importance of not viewing statutory prohibitions through a narrow textual lens in circumstances where a purposive approach would permit a different conclusion. Thus, it would be wrong to construe differences in wording in the two subparagraphs of s 15(4)(b) so as to allow a lacuna by which a defence can be pleaded, which would otherwise involve a cross-claim, without falling foul of the apparent limitation in relation to the raising of defences. It will be convenient to return to this point after considering the second legal issue, namely the nature of the defence raised by the respondent in the present case.
Another way of testing the issue is to ask whether the matter sought to be raised by the respondent could have been raised in a payment schedule. The relevant issue in this respect was not the payment to the subcontractor by the respondent, but the claim by the applicant that moneys were owing to it for work done or goods supplied by the subcontractor. A question was raised in the course of the hearing of this matter as to whether the applicant had provided (or been required to provide) a statement with its payment claim affirming that payments had been made to the relevant subcontractors, pursuant to s 13(7)-(9) of the Security of Payment Act. The Court was informed that the applicant was not the "head contractor" and was therefore not obliged to provide a statement under those provisions. That may be so, but it is not uncommon for a principal to protect itself by requiring that the payment claim be accompanied by such a statement pursuant to the contract. The reason for such a contractual requirement is that the principal may otherwise be liable, without recourse, directly to the subcontractors pursuant to the Contractors Debts Act 1997 (NSW), s 5. [5] This provides a further reason why the absence of the construction contract militates against a grant of leave.
Putting to one side the requirement for a statement, the issue of non-payment of the subcontractors could have been raised in a payment schedule. Had the respondent provided a payment schedule which did not raise the issue, and the matter had proceeded to an adjudication, the adjudicator would not have been permitted to take that matter into account. It would subvert the scheme of the legislation if the respondent could have then raised the issue of non-payment (and its own subsequent payment of the subcontractors) as a basis for having a judgment based on an adjudication certificate set aside, pursuant to s 25(4)(a). As the particular prohibition against challenging the adjudicator's determination (subpar (iii)) would not be the ground relied upon, the prohibition on such a course must fall within the other two subparagraphs of s 25(4)(a), which are identical with s 15(4)(b). Self-evidently the same words should receive the same construction in each section; the position of a respondent which has not provided a payment schedule cannot be better than that of one which has.

[7]

Nature of defence

In the circumstances more fully outlined by Griffiths AJA, the respondent pleaded a set-off against its liability with respect to the payment claim of a payment of some $30,000 made by it to Civilcast. Civilcast appears to have sought payment directly from the respondent, no doubt fearing that its claim against the applicant for goods or services supplied would not be met (or not met in full). However, the respondent's payment was a voluntary payment, in the sense that it was not made at the applicant's request, nor under any actual or threatened legal compulsion; there was no assignment of the applicant's debt; the payment was not made by mistake. Such issues are dealt with in Mason & Carter's Restitution Law in Australia. [6] In Ch 8, titled "Necessitous Intervention: Restitution for Unsolicited Services or Payments", section 6, titled "Fulfilment of Another's Duty", the authors state that, "[t]here have always been some cases where [the payer] could recover, even in the absence of contract, request or compulsion". [7] An 1836 English decision is cited as authority for that proposition. [8] Otherwise referring to the "[a]pparent rejection of all unrequested or uncompelled claims", the authors noted: [9] "The English cases show a general reluctance in the courts to allow reimbursement to a third party who pays another's debts other than on request or under legal compulsion. Some of them illustrate the undoubtedly correct proposition that the bare fact of conferral of a benefit will not establish an entitlement to restitution."
The authority given for the last proposition was the High Court judgment, Lumbers v W Cook Builders Pty Ltd (in liq). [10] The Lumbers were the owners of a property on which they had contracted for a builder (known as "Sons") to construct a residential dwelling. After a falling out between members of family, the work was taken over by a second company (referred to as "Builders"). Builders sought payment from the Lumbers for work undertaken on the home. It was successful at first instance, but its appeal was upheld by the Full Court of the Supreme Court of South Australia. The Lumbers obtained special leave to appeal to the High Court, which unanimously overturned the decision of the Full Court. The High Court concluded that the owners were not liable to the respondent for undertaking work on the house, the joint reasons concluding: "126 … To now impose on the Lumbers an obligation to pay Builders would constitute a radical alteration of the bargains the parties struck and of the rights and obligations which each party thus assumed. There is no warrant for doing that."
An inference which might be drawn from that decision, and was relied upon by the applicant, was that Civilcast had no legal entitlement to payment from the respondent and the respondent had no liability to make the payment to it. Thus, one of the consequences of the respondent seeking to set-off against its liability under the payment claim the amount it had paid to Civilcast was to leave undisturbed the contract and mutual obligations between the applicant and Civilcast. [11] It was known that Civilcast had served three payment claims on the applicant (two being claims covered by the applicant's own payment claim) in response to which the applicant had not (it may be inferred) provided payment schedules. The applicant was therefore indebted to Civilcast in accordance with the terms of the Security of Payment Act. The magistrate treated the payment made by the respondent to Civilcast as a compromise of the two claims, but it was possible that it was a compromise of three claims made by Civilcast, one being subsequent to the payment claim made by the applicant, the subject of the proceedings. Whether that is so or not might be relevant to any claim or proceedings made by Civilcast against the applicant, which is not presently the issue. Rather, the issue is whether, in the proceedings on the applicant's payment claim, the respondent was entitled as of right to plead in its defence a payment it had made to a creditor of the applicant. To the extent that the answer to that question depends on the respondent having a restitutionary claim against the applicant for payment made to one of the applicant's creditors, it is clear that the answer will depend upon uncertain legal principles and presently unfound (and unpleaded) facts. The set-off should only have been permitted if the restitutionary claim were made good. The failure of the Courts below to adopt that approach involved legal error.

[8]

Application of principles to defence

It was reasonably arguable that the need for the respondent to establish a restitutionary claim to justify a defence by way of set-off constituted a proceeding by way of cross-claim against the applicant.
The alternative issue is whether pleading the matter as part of a defence fell foul of the prohibition in subpar (ii) against raising "any defence", "in relation to" matters "arising under" the construction contract. The construction contract was the contract between the respondent and the applicant. One of the matters arising under that contract was undoubtedly the indebtedness of the respondent with respect to a payment claim served by the applicant. Although the contract was not before this Court (or, it appears, the Courts below), the payment claim was, and there was no dispute that it related to work undertaken and payments incurred for goods or services supplied, under the construction contract. (Indeed, the failure of the respondent to serve a payment schedule precluded it from disputing such matters.) One of the matters which arose was the liability of the applicant to pay Civilcast. The respondent's defence was that it had paid the applicant's liability to Civilcast. That claim constituted a "defence" and was more than arguably "in relation to" a matter arising under the construction contract. (Indeed, the argument to the contrary is not obvious.)
On that approach, it was open to the applicant to treat each limb of s 15(4)(b) as referring to a procedural process and succeed under subpar (ii). However, not only did it not do that, but it expressly eschewed that approach. That made it necessary to consider its case solely by reference to subpar (i). While, in my view, it had a strong case for saying that the respondent's set-off was in the nature of a "cross-claim", that case cannot be properly resolved without considering (i) the interrelationship of the two parts of s 15(4)(b), (ii) the extent to which those parts must be given a meaning which will operate coherently in the various jurisdictions which have adopted a provision in those terms and (iii) where the issue has been adequately argued in the Courts below. The last step did not occur in the present case, partly due to the error of law in treating the issue as simply a calculation of the "unpaid portion" for the purposes of s 15(2)(a)(i).
These deficiencies make this an inappropriate vehicle to determine what are undoubtedly matters of general importance as to the operation of the Security of Payment Act, being legislation with common provisions in all but one of the States and Territories, and having a large impact on the day-to-day business of an important section of the Australian economy.
The combination of this case being an inappropriate vehicle to consider such issues, and the small amount involved, justifies the refusal of leave to appeal. The applicant must pay the respondent's costs in this Court.
GRIFFITHS AJA: This is an application for leave to appeal (heard concurrently with any appeal) from the judgment of the primary judge, Wright J, published on 11 April 2024 (Kennedy Civil Contracting Pty Ltd (subject to Deed of Company Arrangement) v Linx Constructions Pty Ltd [2024] NSWSC 366 (PJ)). The primary judge dismissed an appeal under s 39 of the Local Court Act 2007 (NSW) (LC Act), which appeal is of right where the appeal is "only on a question of law". The appeal was from an ex tempore decision of Magistrate Thomas in the Local Court delivered on 25 September 2023.
The applicant contends that the central question is whether the respondent's claim for an offset in respect of a judgment debt was the bringing of a "cross-claim" within the meaning of s 15(4)(b)(i) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act). If it was a cross-claim, it was prohibited under that provision.

[9]

Background facts summarised

The applicant, Kennedy Civil Contracting Pty Ltd (subject to deed of company arrangement) (KCC), claimed to be a subcontractor for the respondent, Linx Constructions Pty Ltd, operating in the building and construction industry. On 22 February 2022, the parties entered into a written contract for KCC to carry out various works on a project site in Werrington NSW, which works are accepted as falling within the meaning of ss 5 and/or 6 of the SOP Act. No copy of that contract was adduced in evidence at any stage of the proceedings.
On 25 May 2022, KCC issued a tax invoice to Linx, which was expressly stated to be a payment claim under the SOP Act, for the total sum of $147,879.17 (May payment claim). The due date for payment of the May payment claim was 24 June 2022. Because Linx did not serve a payment schedule in response to the May payment claim, and had not otherwise paid the claimed amount by the due date, Linx became liable to pay the whole amount (SOP Act, s 14(4)).
That sum of $147,879.17 included an amount of $77,998.95 for an item described in the May payment claim as "Stormwater - Supply Only". It was common ground that this item related to goods and services supplied to KCC by a third party, Civilcast Pty Ltd, which supplied precast and steel solutions for civil constructions. Civilcast had issued KCC with several tax invoices which were also stated to be payment claims. Relevantly, they included an invoice dated 17 May 2022 in the amount of $32,349.90 for various goods and services relating to stormwater described in that invoice. There is another invoice dated 23 May 2022 in the amount of $3,918.20 for goods and services relating to stormwater described in that invoice. No copy of any contract between KCC and Civilcast (nor, if any existed, between Linx and Civilcast) was adduced in evidence at any stage of the proceedings.
It was not disputed that Linx made two payments to KCC after the 24 June due date, in reduction of the claimed amount of $147,879.17: 1. On 19 July 2022, it paid $52,800 on behalf of and at the direction of Mr Luke Kennedy (who was described by the primary judge as "the" director of the plaintiff) to another supplier, Veljohn Pty Ltd, for the supply of sandstone. 2. On 20 July 2022, it paid $50,000 to KCC following a request from Mr Kennedy to help pay wages.
As such, KCC's claim against Linx in the Local Court was limited to $45,079.17 (ie, $147,879.17 less the above two payments).
On or about 1 August 2022, KCC was placed into external administration.
The next day (ie, 2 August 2022), Civilcast issued a tax invoice to Linx for $60,166.70. That figure was the sum of three earlier invoices (for $32,349.90, $3,918.20 and $23,898.60), which were originally issued by Civilcast to KCC on 17, 23 and 30 May 2022 respectively, the first two of which are referred to at [33] above. The description in the Civilcast invoice of the various construction-related goods and services was substantially similar to the description of the comparable items in the three invoices which Civilcast had previously issued to KCC in May. However, some of the amounts claimed differed in minor respects.
As will further be developed, the evidence is unclear as to the circumstances in which Civilcast came to issue this invoice to Linx. In cross-examination in the Local Court, Mr Kennedy said that he was not aware that Linx had made any payments to Civilcast. Later in his cross-examination Mr Kennedy acknowledged, however, that the first two invoices formed part of the May payment claim (the third was issued after the date of the May payment claim). That cross-examination is set out at PJ[36]: Q. The amount of those invoices [from Civilcast totalling $36,268.10] would have been incorporated into your May payment claim, wouldn't they? A. Correct. Q. So, it's the case that if those payments, if that debt was satisfied, your payment claim would be reduced, you'd no longer claim the [total of $147,879.17], correct? A. Correct.
In its formal defence, Linx claimed that, acting on behalf of KCC, it paid $60,166.70 (which formed part of KCC's debt of $77,998.95) to Civilcast. Linx also pleaded that it had been assigned the debt which KCC owed to Civilcast. That alleged assignment was unsupported by any evidence.
On 8 August 2022, Linx reached what Mr Charbel Demian (the sole director of Linx) described as a "commercial agreement" with Civilcast whereby it agreed to pay Civilcast $30,083.35 in satisfaction of the $60,166.70 invoice (ie, one half of that total amount).
On 10 August 2022, Civilcast issued Linx with a replacement tax invoice in the amount of $30,083.35. That amount was paid by Linx to Civilcast on 12 August 2022. It appears that, as part of the commercial agreement, Linx would ensure that additional product required for the construction would be procured through Civilcast.
On 6 September 2022, KCC's administrators sent a letter to Linx demanding payment of the May payment claim, reduced to an amount of $97,879.17, which presumably reflected a credit for the $50,000 paid by Linx to KCC as noted at [34(b)] above. Linx's solicitors denied any liability in a letter dated 14 September 2022. The letter explained that Linx and Civilcast had reached a compromise and that Linx had made a lump sum payment directly to Civilcast.
On 19 September 2022, KCC commenced proceedings in the Local Court against Linx, seeking summary judgment in the amount of $45,079.17.
Before summarising the Magistrate's ex tempore reasons for judgment and those of the primary judge it is desirable to outline the policy and key provisions of the SOP Act.

[10]

The policy and key provisions of the SOP Act

The policy of the SOP Act has been pithily described as "pay now, argue later" (see Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82; [2017] NSWCA 151 at [102] per McColl JA, with whom Beazley ACJ and Macfarlan JA agreed). This reflects what was said by the responsible Minister in the second reading speech which introduced amending legislation in 2002 to the original SOP Act (New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 12 November 2002 at 6542): The Act was designed to ensure prompt payment and, for that purpose, the Act set up a unique form of adjudication of disputes over the amount due for payment. Parliament intended that a progress payment, on account, should be made promptly and that any disputes over the amount finally due should be decided separately. The final determination could be by a court or by an agreed alternative dispute resolution procedure. But meanwhile the claimant's entitlement, if in dispute, would be decided on an interim basis by an adjudicator, and that interim entitlement would be paid.
The Minister went on to say: … pending final determination of all disputes, contractors and subcontractors should be able to obtain a prompt interim payment on account, as always intended under the Act.
The policy of the SOP Act, together with the statutory scheme it creates, has been analysed in numerous authorities, most relevantly Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4; Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340; [2016] HCA 52; Brodyn Pty Ltd t/as Time Cost and Quality v Davenport (2004) 61 NSWLR 421; [2004] NSWCA 394; Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317; [2019] NSWCA 11; Style Timber Floor Pty Ltd v Krivosudsky (2019) 100 NSWLR 133; [2019] NSWCA 171; TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 93; TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 118; and, more recently, A-Civil Aust Pty Ltd v Ceerose Pty Ltd [2023] NSWCA 144 and McDonald v MAK Constructions and Building Services Pty Ltd [2024] NSWCA 63.
The object of the SOP Act is clearly stated in s 3(1) as: … 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.
The means by which the SOP Act ensures that a claimant is entitled to receive a progress payment is by granting a statutory entitlement to such a payment irrespective of whether the relevant construction contract makes provision for progress payments (s 3(2)).
The procedure for recovering a progress payment is described in s 3(3) and 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.
A person who, under a construction contract, has undertaken to carry out construction work or to supply related goods and services has a statutory entitlement to receive a progress payment (s 8).
The amount of a progress payment the subject of that statutory entitlement either is calculated in accordance with the terms of the construction contract or, where the contract makes no express provision for the matter, is calculated on the basis of the value of construction work carried out or undertaken to be carried out by the person (or of related goods and services supplied or undertaken to be supplied by the person) under the contract (s 9).
The valuation of construction work and related goods and services is the subject of s 10 and the determination of the due date for payment is set out in s 11.
The requirements for the making of a payment claim by a claimant are set out in s 13.
A person on whom a payment claim is served may respond by providing a payment schedule to the claimant (s 14(1)). The payment schedule must indicate the amount of the payment, if any, that the respondent proposes to make, which is described as the "scheduled amount" (s 14(2)(b)). If the scheduled amount is less than the claimed amount, the payment schedule must indicate why that is the case and, if applicable, the reasons why the respondent is withholding payment (s 14(3)).
Provision is then made for the adjudication of disputes. If a claimant serves a payment claim and a payment schedule is not provided by the respondent within 10 business days (subject to the construction contract providing for a shorter period), the respondent is "liable to pay the claimed amount to the claimant on the due date for the progress payment" (s 14(4)).
If the respondent fails to provide a payment schedule within the requisite time and fails to pay the whole or any part of the claimed amount on or before the due date, the claimant may recover in any court of competent jurisdiction the unpaid portion as a debt due to the claimant (s 15(2)(a)(i)).
The following provision (s 15(4)) applies if the claimant commences proceedings (emphasis added): (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.
It is unnecessary to describe the provisions concerning the adjudication of disputes, which are set out in Div 2 of Pt 3, other than to note the terms of s 25 (which, in s 25(4), partly reflect the terms of s 15(4), but also go further): 25 Filing of adjudication certificate as judgment debt (1) An adjudication certificate may be filed as a judgment for a debt in any court of competent jurisdiction and is enforceable accordingly. (2) An adjudication certificate cannot be filed under this section unless it is accompanied by an affidavit by the claimant stating that the whole or any part of the adjudicated amount has not been paid at the time the certificate is filed. (3) If the affidavit indicates that part of the adjudicated amount has been paid, the judgment is for the unpaid part of that amount only. (4) If the respondent commences proceedings to have the judgment set aside, the respondent - (a) 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, or (iii) to challenge the adjudicator's determination, and (b) is required to pay into the court as security the unpaid portion of the adjudicated amount pending the final determination of those proceedings.
In TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 118, the Court (Bell P, Macfarlan and Leeming JJA) at [24]-[25] highlighted some relevant features of the statutory scheme: [24] In particular, and focussing on the provisions applicable in the present case, if a claimant serves a payment claim and the respondent does not provide a timely payment schedule, then "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": s 14(4). If the respondent which is liable to pay the claimed amount under s 14(4) fails to do so, then the claimant is entitled to the rights under s 15(2), one of which is an entitlement to recover the unpaid portion of the claimed amount as a debt in any court of competent jurisdiction (s 15(2)(a)(i)) while the respondent becomes subject to the disabilities in s 15(4)(b), namely, that it is not entitled to bring any cross-claim or to raise any defence in relation to matters arising under the construction contract. [25] Thus the Act provides for a speedy but interim determination and enforcement of disputes arising out of construction contracts through the service of payment claims and payment schedules and adjudications, leading to an entitlement to payment, enforcement of the parties' entitlements by way of judgment, and ultimately if necessary by way of execution, but without affecting the parties' contractual rights as determined in the ordinary way in litigation.

[11]

The Magistrate's reasoning in the Local Court

As mentioned, the quantum of KCC's claim was $45,079.17. The proceedings were commenced in the General Division of the Local Court (with the claim exceeding $20,000 but being less than $100,000 (LC Act, s 29(1))).
Linx effectively raised two defences. The first was that the May payment claim had been orally withdrawn by Mr Kennedy and that KCC was now estopped from proceeding on that claim. This defence failed and is not appealed.
Linx's second defence, relevant on appeal, was that it had satisfied part or all of KCC's claim by paying $30,083.35 to Civilcast in satisfaction of the $60,166.70 claim made by Civilcast originally against KCC and later against Linx. In its formal defence, Linx raised this point in two ways: 8. In further answer to the whole of the Statement of Claim, the defendant says that any debt it owed to the plaintiff under the payment claim issued 25 May 2022 as Inv-1202 (Payment Claim) has been satisfied, and there is no debt outstanding, as the entry for Stormwater - Supply Only, of $77,998.95, includes a sum of money ($60,166.70) that was owed by the plaintiff to the CivilCast, a debt which the defendant has had [sic] satisfied on behalf of the plaintiff. … 12. Further or in the alternative to paragraph 8(c), in answer to the whole of the Statement of Claim, the defendant says that it has an offsetting claim against the Plaintiff in the sum of $60,166.70 (or a lesser amount as determined by the Court) as it has been assigned a debt in that sum that the plaintiff owed to CivilCast.
The main issue was whether Linx, in seeking in its defence to reduce its liability by the $30,083.35 payment to Civilcast, was purporting to "bring any cross-claim against [KCC]" in contravention of s 15(4)(b)(i) of the SOP Act or, alternatively, was simply questioning the amount of its debt to KCC under the May payment claim.
On this issue, the Magistrate reasoned as follows (emphasis added): There does not appear to be any doubt that Civilcast have been paid a compromised amount of $30,083.35, but it equally does not appear to be any doubt that the payment was not made at the direction of the plaintiff, and the payment was not made on behalf of the plaintiff. This issue turns on whether the payment of the amount in question, either the original $36,268.10, or the compromised amount of $30,083.35, can be considered a cross-claim, and if it [was], the defendant is prohibited from raising it by virtue of s 15(4)(b)(i) of the Act. When consideration is given to the evidence from Mr Kennedy regarding two invoices forming part of the May payment claim, and the extent to which it would be reduced, and the fact of [sic] the $36,268.10 was to be paid to Civilcast, I am of the view that, despite the plaintiff not being a party to the arrangement between the defendant and Civilcast, and the payment not being made on behalf of plaintiff, it is not the equivalent of a cross-claim, offsetting claim, or defence, as suggested by the plaintiff, but is simply a factual determination that is required to be made about the level of debt outstanding under the May payment claim, as suggested by the defendant. In that respect, I agree with the defendant's submission that the plaintiff should not be entitled to be paid an amount that it never originally intended to retain. It is not dissimilar to the payment of $52,800 made by the defendant to Veljohn, V-E-L-J-O-H-N, Proprietary Limited, which has also been taken into account in reducing the May payment claim.
In short, the Magistrate considered that Linx's $30,083.35 payment to Civilcast went to the question whether the May payment claim remained "unpaid" (for the purposes of s 15(2)(a)(i)), and did not constitute a "cross-claim" (within the meaning of s 15(4)(b)(i)). Because it was accepted that this payment had in fact been made, KCC's claim was to be reduced by that amount. Thus Linx was ordered to pay KCC $14,995.82.
The final paragraph of the Magistrate's reasoning warrants comment. The comparison between the payment made to Veljohn and the disputed payment to Civilcast is inapposite. Both the statement of claim and defence accepted that Linx paid $52,800 to Veljohn at the direction of, and/or on behalf of, KCC (see above at [34(a)]). On the other hand, as the Magistrate had earlier noted, the payment to Civilcast had not been made at the direction of KCC (or its administrators) or on KCC's behalf.

[12]

The primary judge's reasons summarised

Under s 39(1) of the LC Act, a party has a right of appeal from the General Division of the Local Court to the Supreme Court "only on a question of law". Leave is required to appeal on a mixed question of law and fact (s 40(1)). KCC did not seek leave to appeal; as such, its appeal was confined to questions of law (PJ[2]).
In its summons filed on 18 October 2023 (Summons), KCC claimed that the Magistrate had erred in law on the following four grounds: a. by finding that the amount of $30,083.35 paid by the defendant to Civilcast was not a cross-claim within the meaning of s 15(4)(b)(i) of the Building and Construction Security of Payment Act 1999 (NSW); b. ought to have found that such payment to a third party was not a payment 'to the claimant' within the meaning of s 14 of the Building and Construction Security of Payment Act 1999 (NSW); c. ought to have found that the asserted set-off was not able to be raised in defence of the judgment sought by the plaintiff; and d. erred by reducing the judgment by the amount of $30,083.35.
The primary judge recorded the two questions of law as formulated by KCC's counsel at PJ[5]: (1) As to ground (a), whether reliance on the payment of $30,083.35 by Linx to Civilcast Pty Ltd (Civilcast) amounted to a cross-claim within s 15(4)(b)(i) of the SOP Act?; and (2) As to ground (b), whether the payment of $30,083.35 by Linx to Civilcast must be taken into account in determining the "unpaid portion of the claimed amount" for the purposes of s 15(2)(a)(i)?
An issue was taken below as to whether the second question was in fact one of mixed law and fact for which leave was required (PJ[7]). The primary judge accepted that submission and rejected that part of the appeal (PJ[32]-[40]), observing that "whether the payment [of] $30,083.35 paid by Linx to Civilcast should be taken into account to reduce the 'unpaid portion' of the claimed amount was a question of fact". Nevertheless, his Honour considered at PJ[41] that there was no error of law in the Magistrate's finding that the $30,083.35 payment did in fact reduce the amount owing under the May payment claim.
It might be interpolated at this stage that although Linx did not dispute below that the first question was a question of law, it now disputes that matter.
Returning to the first question, KCC's essential submission was that a "cross-claim" in s 15(4)(b)(i) means "a cause of action for which relief could be given in a separate proceeding"; and that here Linx's reliance on the $30,083.35 payment to Civilcast was, in substance, a restitutionary claim of the kind contemplated in Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; [2008] HCA 27. The primary judge disagreed (see PJ[26]-[29]). His Honour preferred to construe "cross-claim" in the "procedural" sense contemplated by Pt 9 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). Since the UCPR requires a cross-claim to be made by statement of cross-claim or cross-summons, and because each of those requires the cross-claimant to specify the relief claimed, his Honour considered that "it is inherent in the concept of a cross-claim that the cross-claimant claims some form of relief, based on an articulated cause of action or other right or equity, independent from or in addition to the relief claimed by the plaintiff in the originating process" (PJ[26]). Importantly, "there is no actual cross-claim unless a claim for relief separate from that sought by the plaintiff or another defendant is made" (PJ[26]). But here, Linx's defence was limited to disputing the outstanding amount of the May payment claim; it did not seek (ie, "bring") any independent or additional relief against KCC (PJ[28]).
The primary judge then addressed grounds (b) and (c) in the Summons (see [69] above). His Honour accepted Linx's submission that whether the payment by Linx to Civilcast had to be taken into account in determining the "unpaid portion of the claimed amount" in s 15(2)(a)(i) involved a question of fact and therefore could not be the subject of an appeal under s 39 of the LC Act (PJ[40]). In any event, even if the issue truly raised a question of law, his Honour explained why the ground should fail, including on the basis of the Magistrate's finding that the payment of $33,083.35 did as a matter of fact reduce the amount outstanding under the May payment claim; consequently, such a payment was to be taken into account when determining the "unpaid portion of the claimed amount" (PJ[41]).
Finally, it is important to note how the primary judge dealt with ground (c), namely that the Magistrate erred in not finding that the asserted set-off "was not able to be raised in defence of the judgment sought by the plaintiff". This appeared to rely on the prohibition set out in s 15(4)(b)(ii) (see at [58] above). At PJ[45], the primary judge noted, however, that in oral submissions KCC had conceded that reliance on a payment which reduced the "unpaid portion" did not amount to "raising any defence in relation to matters arising under the construction contract", meaning the prohibition in s 15(4)(b)(ii) did not apply. Thus ground (c) failed and no appeal has been made in respect of that finding.
For completeness, the primary judge noted that ground (d) effectively only raised an error which would have been established if grounds (a) or (b) had been made out (which they had not) (PJ[46]).

[13]

The proceeding in this Court

The applicant requires leave to appeal because the amount of the set-off is only $30,083.35, which is far less than the figure specified in s 101(2)(r) of the Supreme Court Act 1970 (NSW).
The draft notice of appeal contains three proposed grounds: 1. By ground 1, it is contended that the primary judge erred in finding that the set-off claimed by the respondent did not constitute the bringing of a cross-claim within the meaning of s 15(4)(b)(i) of the SOP Act. 2. Ground 2 is, in effect, a particular of ground 1. It claims that the primary judge ought to have followed the decision of the Court of Appeal in Stehar Knitting Mills Pty Ltd v Southern Textile Converters Pty Ltd [1980] 2 NSWLR 514 that "bringing a cross-claim is not limited to filing a statement of cross-claim or a cross-summons". 3. Ground 3 is framed broadly and contends that the primary judge should have found that the Magistrate erred in law in reducing the judgment sum by $30,083.35.
In brief, the applicant makes the following primary contentions: 1. The SOP Act establishes a "pay now, argue later" regime. It aims to minimise delay in the payment of builders. In the premises, the scheme of ss 14 and 15 is that, if a party wishes to dispute a payment claim, it can serve a payment schedule with reasons for the reduced amount (which can then go to an adjudicator). Otherwise, any cross-claim or defence under the contract (eg, for deficient works) is deferred until after the builder has been paid. 2. A cross-claim is a cause of action for which relief could be given in a separate proceeding. That is consistent with the meaning of "cross-claim" in ss 3 and 22(1) of the Civil Procedure Act 2005 (NSW), which Pt 9 of the UCPR picks up. It is also consistent with Stehar, where Hutley JA (at [35]) considered that "claiming to set off a sum of money is commencing a proceeding against the company". 3. The offsetting claim pleaded was, in substance, a restitutionary claim, being an independent cause of action. It therefore fell within the phrase, "to bring any cross-claim". That statutory prohibition should not be able to be circumvented by pleading what is in substance a cross-claim as a defence.
The respondent emphasises that the Magistrate's decision was essentially one of "accounting", ie, establishing the unpaid amount of the May payment claim. It also points out that "cross-claim" (in s 15(4)(b)(i)) must be construed alongside "defence" (in s 15(4)(b)(ii)); and that the use of two different terms supports the primary judge's finding that "cross-claim" is intended to refer to a cross-claim in the procedural sense provided for by Pt 9 of the UCPR.

[14]

Consideration and determination

The relevant principles guiding the issue whether or not to grant leave to appeal, particularly where the monetary amount at issue is modest, were set out by Bell CJ (Ward P and Basten AJA agreeing) in Cheng v Motor Yacht Sales Australia Pty Ltd t/as The Boutique Boat Company (2022) 108 NSWLR 342; [2022] NSWCA 118 at [15]-[21]: [15] As has regularly been pointed out in decisions of this court, a grant of leave to appeal generally requires the identification of an issue of principle, a question of public importance or a reasonably clear injustice going beyond something that is merely arguable: see, for example, Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]; Be Financial Pty Ltd as trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32]-[38]; The Age Company Ltd v Liu (2013) 82 NSWLR 268; [2013] NSWCA 26 at [13]; Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 at [28]; PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48 at [6]. [16] In Carolan v AMF Bowling Pty Ltd t/as Bennetts Green Bowl [1995] NSWCA 69, Cole JA noted the desirability that, where small claims are involved, there be "early finality and determination of litigation otherwise the costs which will be involved are likely to swamp the money sum involved in the dispute". In Gurr v Robinson (Court of Appeal (NSW), Kirby P, Hope and Samuels JJA, 10 February 1986, unrep), Kirby P (as he then was) articulated the following justifications for the requirement of leave to appeal where small sums are involved: "One justification is that, where the amount in issue in a case is small, the parties have a special interest in finality. Protracted litigation necessarily involves costs and inconvenience. If the stake is small, the costs may soon become disproportionate to the amount in issue. Secondly, the provision reflects a number of public interests which must be protected by the Court. They include the discouragement of litigation, the principal purpose of which is to recover an order for costs, and the efficient and cost-effective use of court time, which necessarily involves large public costs." [17] The importance of proportionality between the monetary amount at issue in a matter and the costs of proceedings was emphasised in Berry v Nicholls [2016] NSWCA 272 at [7]; see, also, Gaynor v Attorney General for New South Wales (2020) 102 NSWLR 123; [2020] NSWCA 48 at [20]. [18] Consistent with the observations of Kirby P in Gurr, there are "good reasons … for the legislature imposing a requirement for leave where less than a certain amount is in issue": Daily Examiner Pty Ltd v Mundine [2011] NSWCA 126 at [4]. These reasons had the result, in Macfarlan JA's view (with which Basten JA agreed), that "the Court does not ordinarily grant leave where less than $100,000 is in issue unless it considers that the decision at first instance was plainly wrong, that an obvious injustice has otherwise occurred or that a significant issue of principle is involved in the proposed appeal that it is in the public interest for the Court to determine" (at [5]); see, also, M & L Watson Pty Ltd t/as BBR Designs v Rilsung Pty Ltd [2003] NSWCA 36 at [9] where it was observed that "[t]he purpose of the threshold for leave to appeal being imposed is that the Legislature contemplated that relatively small amounts should not come before this Court, save with this Court's leave and in cases warranting appellate intervention". [19] In Ritson v Commissioner of Police, New South Wales Police Force [2019] NSWCA 106 at [39], Gleeson JA, with whom Emmett AJA agreed, observed that: "[39] … It is well recognised that there is a need for restraint in granting leave to appeal in matters such as the present where the amount in issue is below the threshold of $100,000: Daily Examiner Pty Ltd v Mundine[;] Brown v Mundine [2011] NSWCA 126 at [4]-[5]; Carolan … at 2-3; and Be Financial at [37]-[39]. Injustice involves a balancing exercise and the entitlement of parties to justice is not unconditional and must have regard to a number of factors, including the proportionality of the costs involved to the amount in dispute. In this case, the costs of an appeal would be disproportionate to the relatively modest amount in issue of approximately $43,000." [20] The need for and desirability of there being proportionality between the value of the matter or amount in issue, and the costs of litigating that matter or issue is also reflected in s 60 of the Civil Procedure Act 2005 (NSW), which provides that "[i]n any proceedings, the practice and procedure of the court should be implemented with the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute." It was in the context of s 60 of the Civil Procedure Act that Basten JA, in Be Financial at [37], observed that: "[37] … the entitlement of the parties to justice is not unconditional, but is dependent upon the resources of the court made available by the government and the appropriate allocation of resources by the parties, which may depend upon their individual assessments of the importance of the issues in dispute." See, also, Condensing Vaporisers Aust Pty Ltd t/as RJ Tinker & Son v FDC Construction & Fitout Pty Ltd (No 2) (2014) 86 NSWLR 360; [2014] NSWCA 89 at [24]; and Burrows v Macpherson & Kelley Lawyers (Sydney) Pty Ltd [2021] NSWCA 148 at [44], where it was observed that "litigation where the costs exceed the amount in issue is not unfamiliar." Leeming JA was correct to observe in that case that "[s]uch litigation is a poor candidate for a grant of leave". As noted above, the proceedings before the primary judge ran for some four days, and it is plain that the costs of both parties would have approached, if not exceeded, the total amount in issue. [21] Section 101(2) of the Supreme Court Act is an important mechanism which equips the Court of Appeal with a measure of control over the range of cases that compete for its attention. Section 101(2)(r) identifies $100,000 as the threshold value of the matter(s) at issue that must be satisfied before a right of appeal to the Court of Appeal may be enjoyed. Where the value of the matter(s) at issue falls below that amount, an applicant for leave must meet the criteria which have been identified in the cases referred to above. In this context, s 101(2) is also concerned with notions of proportionality; the importance of the issue or the gravity of the error of principle relied upon to justify leave will influence the likelihood of leave being granted. This is the reason for the insistence in the authorities that the points sought to be raised on appeal, if leave is granted, must be more than "reasonably arguable".
Applying those principles here, the monetary sum at stake is approximately $30,000. Such a relatively modest amount highlights the heavy onus carried by the applicant in demonstrating that its application satisfies the criteria for a grant of leave.
I will now explain why I consider that this onus has not been discharged.
I do not consider that the application raises an issue of principle or question of public importance of the kind asserted by the applicant regarding whether Linx's set-off was in substance a cross-claim which was caught by the prohibition in s 15(4)(b)(i) of the SOP Act.
After noting at PJ[26] that "there is no actual cross-claim unless a claim for relief separate from that sought by the plaintiff or another defendant is made", the primary judge saw it as important that Linx's case, as conducted in the Local Court, did not involve any claim for independent or additional relief. Thus there was no cross-claim to attract the prohibition in s 15(4)(b)(i). In the Local Court, the payment by Linx to Civilcast was not the subject of a formal cross-claim but was raised as part of Linx's factual contention directed to the level of debt which was outstanding under the May payment claim. KCC bore the legal onus of proving the amount of the unpaid portion of the May payment claim. Linx's core contention, recorded at PJ[29], was that "as a factual matter" the amount paid by Linx to Civilcast reduced the "'unpaid portion of the claimed amount' as Mr Kennedy's evidence established".
The legal position is not as straightforward as Linx's core contention suggests. That is because its liability to pay the May payment claim in the circumstances prescribed in s 14(4) is a liability to pay that amount to the claimant (ie, KCC) on the due date. Linx's failure to pay the claimed amount to KCC also provides the basis for KCC's right under s 15(2)(a)(i) to commence proceedings against Linx in a court of competent jurisdiction to recover the unpaid portion of the claimed amount. The legal position is clouded in this case, however, by Mr Kennedy's evidence in which he accepted that the May payment claim would be reduced by the payments to Civilcast (see at [38] above). It was open to both the Magistrate and the primary judge to act upon that evidence.
Having regard to these matters, the proceeding involves somewhat unusual facts and circumstances, including the way in which the case was conducted in the Local Court and the acceptance of Mr Kennedy's evidence. This is sufficient reason to refuse leave to appeal because this case does not present a suitable vehicle for determining the scope of the prohibition in s 15(4)(b)(i).
Another reason relates to the concession which was made by KCC in the Court below relating to the prohibition in s 15(4)(b)(ii). As the primary judge noted at PJ[45], KCC conceded that reliance on a payment which reduced the "unpaid portion" did not amount to "raising any defence in relation to matters arising under the construction contract" which would be prohibited under s 15(4)(b)(ii). Viewed in the light of the facts and circumstances of this proceeding, this concession reinforces the point that no issue of principle or question of public importance is raised by KCC's application.
KCC's concession is also relevant to its complaint that the primary judge erred in not addressing its reliance upon Stehar. The particular passage relied upon is in the judgment of Hutley JA at [35]. In a different statutory context, his Honour stated that he was of the opinion that "claiming to set off a sum of money is commencing a proceeding against the company, and this is by statutory force prohibited. The fact that it is done by way of defence is immaterial. It is still a claim."
These observations were made in the context of there being a scheme of arrangement between the respondent (Southern) and its unsecured creditors, which was approved by the Court under s 181 of the Companies Act 1961. Southern had brought proceedings to recover a debt owing to it by Stehar. The issue was whether the defence of set-off was not available to Stehar in circumstances where cl 6 of the scheme of arrangement stated that "[n]o creditor shall commence or continue any action, proceeding, suit or arbitration against [Southern]".
Having regard to KCC's concession referred to above, it was unnecessary for the primary judge to address Stehar.
Nor am I persuaded that the primary judgment produces a reasonably clear injustice which goes beyond something which is merely arguable. As mentioned, the amount at stake is relatively modest and the applicant has failed to identify any sufficiently arguable error by the primary judge which would warrant a grant of leave to appeal.
There may be some limited force in the respondent's submission that leave to appeal should not be granted where the appeal would not finally determine the true contractual entitlements of the parties under the contract between KCC and Linx. As mentioned, no copy of that contract has been adduced at any stage of the proceedings and its contents are unknown. Furthermore, the statutory scheme of the SOP Act does not affect any right that a party to a construction contract may have under that contract, as is made clear in s 32. The rights, duties and remedies arising under a construction contract are acknowledged and preserved by ss 3(4) and 32, as stated by the High Court in Probuild at [18].
This submission is only of limited force because it will always be the case that the parties' contractual rights are so preserved.
It is unnecessary to determine Linx's belated challenge as to whether KCC's appeal below truly raised a question of law.

[16]

Endnotes

(2022) 108 NSWLR 342; [2022] NSWCA 118 at [15]-[21] (Ward P and I agreeing).
[1980] 2 NSWLR 514.
See, generally, JD Heydon, MJ Leeming, PG Turner, Meagher Gummow & Lehane's Equity Doctrines and Remedies (5th ed, 2015, Lexis Nexis Butterworths), Ch 39.
See, chronologically, Building and Construction Industry Security of Payment Act 2002 (Vic), s 17(4)(b)(i); Building and Construction (Security of Payment) Act 2009 (ACT), s 17(3)(b)(i); Building and Construction Industry Security of Payment Act 2009 (SA), s 15(4)(b)(i); Building and Construction Industry Security of Payment Act 2009 (Tas), s 19(8)(a); Building Industry Fairness (Security of Payment) Act 2017 (Qld), s 100(3)(a); Building and Construction Industry (Security of Payment) Act 2021 (WA), s 27(3)(b)(i), which mirror s 15(4)(b)(i) of the NSW Act in barring a respondent from bringing a cross-claim. The Construction Contracts (Security of Payments) Act 2004 (NT) lacks an equivalent provision.
See for example, Maaz v Fullerton Property Pty Ltd [2021] NSWCA 79 at [33], [89].
K Mason, JW Carter, GJ Tolhurst, Mason & Carter's Restitution Law in Australia (4th ed, 2021, Lexis Nexis Australia).
Mason & Carter, [843].
Alexander v Vane (1836) 1 M&W 511; 150 ER 537, applied in Re Chetwynd's Estate [1938] Ch 13.
Mason & Carter, [845] (footnotes omitted).
(2008) 232 CLR 635; [2008] HCA 27 at [80] (Gummow, Hayne, Crennan and Kiefel JJ); a proposition reiterated in Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; [2014] HCA 15 at [47] and described at [48] as "uncontroversial" (Crennan, Kiefel, Bell, Gageler and Keane JJ).
Some construction contracts make provision for direct payments by principals to subcontractors, but as noted above, neither party put the relevant construction contract before this Court. 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: 10 October 2024

Parties

Applicant/Plaintiff:

Kennedy Civil Contracting Pty Ltd (subject to deed of company arrangement)

Respondent/Defendant:

Linx Constructions Pty Ltd

Legislation Cited (14)

Building and Construction Security of Payment Act 1999(NSW)

Building and Construction (Security of Payment) Act 2009(ACT)

Building and Construction Industry Security of Payment Act 1999(NSW)

Civil Procedure Act 2005(NSW)

Contractors Debts Act 1997(NSW)

Local Court Act 2007(NSW)

Supreme Court Act 1970(NSW)

Uniform Civil Procedure Rules 2005(NSW)

Building and Construction Industry Security of Payment Act 2002(Vic)

Building and Construction Industry Security of Payment Act 2009(SA)

Building and Construction Industry Security of Payment Act 2009(Tas)

Building Industry Fairness (Security of Payment) Act 2017(Qld)

Building and Construction Industry (Security of Payment) Act 2021(WA)

Construction Contracts (Security of Payments) Act 2004(NT)

Cases Cited (41)

Solicitors: Chamberlains Law Firm (Applicant) Memcorp Lawyers (Respondent) File Number(s): 2024/170798 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Common Law Citation: [2024] NSWSC 366 Date of Decision: 11 April 2024 Before: Wright J File Number(s): 2023/330174

JUDGMENT

BELL CJ: I have had the benefit of reading the reasons of Basten AJA and Griffiths AJA and agree that leave to appeal should be refused with costs. Not only does the application involve a dispute over a claim falling under $100,000, and thus require leave to appeal, it is for a sum (approximately $30,000) which falls significantly below that threshold amount. That is a relevant factor, as is the fact, as observed by Basten AJA, that this case differs from most cases where leave to appeal is sought in that there have already been two substantive hearings. This is a consideration which has implications for proportionality of costs which in turn informs the exercise of the discretion to grant leave to appeal, as I pointed out in Cheng v Motor Yacht Sales Australia Pty Ltd t/as The Boutique Boat Company (2022) 108 NSWLR 342; [2022] NSWCA 118 at [15]-[21] which Griffiths AJA has set out in his reasons for judgment at [81].
This Court has considered the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act) on many occasions, and its underlying policy and the operation of many of its provisions is very well-established. Wright J, from whose decision leave to appeal is sought, was dealing with a single question of law which arose in a distinct factual and forensic context, the latter being that the Applicant chose to frame its case on appeal to Wright J solely by reference to its argument that what was pleaded by the Respondent as a defence was in fact a cross claim of the kind proscribed by s 15(4)(b)(i) of the SOP Act. Given the way that the matter was argued and the key issue framed before Wright J, his Honour's decision was well open to him and the case that the Applicant sought to advance on the concurrent hearing before this Court did not, in my opinion, give rise to "a question of public importance or a reasonably clear injustice going beyond something that was merely arguable": see, for example, Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]; Be Financial Pty Ltd as trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32]-[38].

Cited By (1)

Hynash Constructions Pty Ltd v BRP Industries Pty Ltd

BASTEN AJA: This case potentially raises two important issues as to the operation of s 15 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Security of Payment Act), as to how a contractor can properly resist a claim brought by a subcontractor based on a payment claim, when the contractor has filed no payment schedule in response. Nevertheless, I agree with Griffiths AJA that leave to appeal from the judgment in the Division should be refused for three reasons, which it is convenient to summarise at the outset. 1. Leave is required because the amount in issue is $30,000 and thus well below the threshold for an appeal without leave pursuant to s 101(2)(r) of the Supreme Court Act 1970 (NSW). The reasons why the Court is reluctant to grant leave in such cases were recently explained by Bell CJ in Cheng v Motor Yacht Sales Australia Pty Ltd t/as The Boutique Boat Company [1] in a passage set out by Griffiths AJA at [81] below. The size of the amount in issue is not necessarily determinative: it is sometimes necessary to have regard to the significance of the amount for the parties concerned. In the present case the amount appears to have represented approximately one per cent of the payments due under the construction contract between the applicant and the respondent which included a price of some $3 million. In that circumstance, the amount in issue weighs heavily against a grant of leave to appeal. 2. Unlike many appeals under the Security of Payment Act which come to this Court, this claim involves not the first, but the second layer of appellate review, the matter having been commenced in the Local Court from the judgment of which an appeal was taken to the Common Law Division. That is of course in part a function of the relatively small amount in issue, but the fact that the decision of the magistrate has already been reviewed by a judge of the Supreme Court is a factor militating against a grant of leave to appeal to this Court. 3. Although the case potentially raised more than one issue of general importance as to the construction of the statute, the case is not an appropriate vehicle for determining those questions. For reasons which will be explained below, the manner in which the case was run, both in the Local Court and in the Division, did not involve a full consideration of the operation of the statute; the construction contract was not in evidence; some points were abandoned by concessions and the challenge to the defence was presented on a limited basis.