CWDS Workmen's Liens Act

• application for registered lien to be cancelled pursuant to s.32 - whether contract price, or part thereof, "accrued" due - no moneys due pursuant to architect's certificates - no amount accrued due - lien does not exist - ss.5, 6, 7 and 10 considered - Albert Del Fabro Pty. Ltd. v. Wilckens and Burnside Pty. Ltd. and Anor. (1970) SASR 277 and (1971) SASR 121; Advanced Civil Engineering Pty. Ltd. v. Wyana Pty. Ltd. (N.T. Supreme Court, 25th June 1986, unreported); Leichhardt Development Co. Ltd. v. Pipeline Properties Pty. Ltd. (1989) 62 NTR 1; W. Curl and Sons Regd. v. Buck Industries Pty. Ltd. and Dillingham Constructions Pty. Ltd. (1972) 2 SASR 335 and Metropolitan Brick Company v. Hayward and Anor. [1938] SAStRp 57; (1938) SASR 462 referred to - application granted.

HRNG ADELAIDE, 17 October 1990 #DATE 1:3:1991 Counsel for the Plaintiff: Mr. J.M. Wilkinson Solicitors for the Plaintiff: Norman Waterhouse and Mutton Counsel for the Defendant: Mr. M.N. Rice Solicitors for the Defendant: Floreani Coates and Co.

JUDGE1 MULLIGHAN J. This is an application by the plaintiff, pursuant to s.32 of the Workmen's Liens Act 1893 for an order that a lien registered by the defendant pursuant to the Act be cancelled and for consequential orders. 2. The plaintiff is the registered proprietor of land at the corner of King William Street and South Terrace, Adelaide. The defendant is a building contractor. By a contract in writing dated 29th March 1988 made between the parties, the defendant agreed to execute and complete a building with a basement car park and associated works ("the works") on the land for the contract sum of $19,185,000, together with such other sums as may become due and payable pursuant to the provisions of the contract which include amounts for variations, instructions by the architect, failure of the plaintiff to obtain and maintain adjoining owner consents and provisions, facilities for and protection of the work of separate contractors and damages for delay or reimbursement of costs and expenses ("the adjusted contract sum"). The defendant constructed the works which on or about 27th February 1990 were brought to a stage of practical completion as defined in the contract. The date provided in the contract for practical completion is 31st May 1989 subject to any adjustment in accordance with the contract. It appears that the architect pursuant to the contract, adjusted the time for practical completion by extending the date to 22nd August 1989. He refused claims for further extensions. 3. The architect has, pursuant to the contract, certified various progress claims submitted by the defendant and has also certified amounts of liquidated damages payable by the defendant to the plaintiff. 4. The parties are in dispute as to whether any monies are due by either of them to the other pursuant to the contract. On or about 19th July 1990 the defendant gave notice of a claim to a statutory charge on any monies due to the plaintiff under the contract by the defendant and a notice of demand of payment by the defendant. The amount claimed in both notices is the amount claimed in a document entitled the "Collective Claims Submission". On 20th July 1990 the defendant registered a lien on the land pursuant to the Act. 5. It is unnecessary, for present purposes, to describe in detail the details of the dispute between the parties. It is sufficient to say that the plaintiff's case, briefly expressed, is that the end result of the various certificates issued by the architect pursuant to the contract for progress payments and for provisional assessments of liquidated damages is that no amount is due or was due by the plaintiff to the defendant at the time when the notice of a claim to a statutory charge and the notice of demand of payment were made or when the lien was registered. The defendant contends to the contrary. 6. The terms of the contract provide that the defendant submit claims for progress payments on the last day of each month for the value of work done and for any other amounts payable on account of adjustments where appropriate. The architect is required to assess the value of the progress claims and issue progress certificates within ten days of receipt of the claims. The defendant is required to present each progress certificate to the plaintiff who is obliged to pay the amount due on the last day of the month during which the certificate is submitted. The contract provides for the procedure for recovery by the defendant of amounts due in consequence of variations including those which cause delay and for damages from the plaintiff where such delay is due to the act, default or omission of the plaintiff or the architect. The defendant is also entitled to recover damages or reimbursement of any costs and expenses due to an extension of time not being properly granted. The architect must ascertain any damages, costs or expenses sustained by the defendant, as provided by the contract, and any such amount is added to the adjusted contract sum. The contract provides for the circumstances in which the contract sum may be adjusted. The proper construction of the contract reveals that adjustments to the contract sum may occur only upon the certificate of the architect and that no monies are payable by the plaintiff to the defendant unless the procedures set out in the contract are followed. Eventually the defendant is required to submit a final claim to the architect who must issue a final certificate certifying the adjusted contract sum. The plaintiff is then required to pay any balance due. 7. The defendant has not made a final claim and the final certificate has not yet issued. The contract also provides that the defendant is liable to pay liquidated damages to the plaintiff if it does not bring the works to the stage of practical completion on the specified date. The amount of such liquidated damages is to be certified by the architect. Pending such certificate the architect may issue, along with progress certificates, a provisional assessment of the amount then provisionally due by the defendant for liquidated damages and the plaintiff may deduct any amount so assessed by the architect, from progress payments which the plaintiff is obliged to pay. 8. The architect has made assessments of provisional liquidated damages and of liquidated damages in consequence of which the plaintiff has deducted part of such amounts from progress payments. 9. On or about 2nd July 1990 the defendant submitted a progress claim, No. 30, to the architect in respect of which he issued a certificate on about 17th July 1990. On 6th July 1990 the defendant submitted the Collective Claim Submission which it asserts is a set of claims which have been substantially included in progress claims 27-30 inclusive, but have been disallowed, is a notification of claims pursuant to the contract and, or, is detail in writing of a claim pursuant to the contract. In the Collective Claim Submission the defendant claims $13,651,794. This amount is claimed as part of the adjusted contract sum and includes the liquidated damages, which have thus far been deducted, presumably because the defendant claims that no such damages are payable. The plaintiff asserts that the amount claimed is also, in part, for damages for alleged breach of contract which is disputed by the defendant. The plaintiff asserts that the Collective Claim Submission is not a progress claim. On 31st July 1990 the defendant submitted a progress claim, No. 31, to the architect which, in the main, included the amount referred to in the Collective Claims Submission. The progress claims 27-30 inclusive included claims for damages and costs and expenses for delay, but for a lower amount than the amount claimed in the Collective Claims Submission and progress claim No. 31. On or about 14th August 1990 the architect issued a certificate with respect to progress claim No. 31 which did not allow any of the claim in the Collective Claim Submission which is consistent with his certificates with respect to progress claims 27-30 inclusive of claims for damages and costs and expenses for delay in those claims. 10. The plaintiff contends that there is no proper basis for the registration of the lien and therefore it should be cancelled. The basis of its contention is this. The contract provides for the circumstances in which the contract price or any part thereof becomes due and payable by the plaintiff. No amount is payable until the issue of a progress certificate by the architect, the presentation of it to the plaintiff and the expiration of the time provided in the contract for payment. Also the contract sum cannot be adjusted except upon appropriate certification by the architect. As appropriate certificates have not issued from the architect as to the part of the adjusted contract sum, which forms the basis of the defendant's claim, it is not part of the contract price as defined in the Act and has not "accrued due" as required by s.5 of the Act. Therefore the defendant is not entitled to make a demand pursuant to s.10 of the Act, to a lien or to register a lien. Furthermore, the plaintiff contends that such part of the defendant's claim which represents deducted liquidated damages or damages for breach of contract is not part of the contract price and cannot be the subject of a demand under the Act with the consequence that the defendant is not entitled to a lien or to register a lien. 11. The defendant contends that at any time after making a claim or giving notice of a claim or details in writing of the nature of a claim, whether before or after the issue of a progress certificate, it may make a demand pursuant to s.10(1) of the Act and if the amount demanded is unpaid for seven days after the demand, such amount will be deemed for the purpose of s.10(1) to become due and it is entitled to a lien and to register a lien. The defendant also contends that the deducted liquidated damages form part of the adjusted contract sum and therefore has accrued pursuant to s.5 of the Act thereby entitling the defendant to make a demand pursuant to s.10, to a lien and to register a lien. It further contends that the amount in the claim identified by the plaintiff as damages for breach of contract forms part of the adjusted contract sum, as a claim for damages for delay or reimbursement of costs and expenses and has therefore accrued and may be subject of a demand and a lien and, in respect of which, the defendant may register a lien. It is not a claim for damages for breach of contract as such. 12. The remaining issue between the parties is whether the plaintiff is prejudicially affected by the claim, charge or lien. S.32 of the Act provides:- " 32. Any person alleging that he is prejudicially affected by a

claim, lien, or charge, or by registration under this Act, may at any time apply to the court to have such claim or registration cancelled or the effect thereof modified, and such order may be made as may be deemed just". 13. The plaintiff contends that it is prejudicially effected as the title is "clogged" by the lien and consequently it is fettered in its dealing with the property including from obtaining further advances on mortgage, in the granting of leasehold interests to prospective tenants and it is prevented from selling the property unless the net proceeds of sale are at least the amount secured by existing mortgages and the amount of the lien. The defendant contends that there is no such prejudice and it has offered to consent to registration of leases and to any lease taking priority over the lien. 14. S.5 of the Act provides as follows:- " 5. A contractor ... shall have a lien for the contract price, so far as accrued due, on the estate or interest in land of any owner or occupier in each of the following cases:- (a) Where the work is done, with the assent, express or implied, of the owner or occupier to the land or to any fixture thereon: (b) Where the materials are, with the assent, express or implied, of the owner or occupier, used or intended to be used in or about work done, or intended to be done, to the land or to any fixture thereon". 15. It is convenient to here set out the provisions of ss.6 and 10 of the Act to which reference was made during the course of argument:- " 6. Liens under subsection (1) of section 4 or under section 5 shall not, in cases other than those of workmen employed by the owner or occupier, extend beyond that portion of the contract price payable by the owner or occupier under the

contract for the purposes of which the work or materials are done, furnished, or manufactured and unpaid at the time when the owner or occupier shall receive notice of the lien or of its registration, whichever shall first happen, nor extend at all to cases where there is no such contract binding the owner or occupier to pay a contract price" 16. As reference was made to s.10 during the course of argument, it is convenient to, here, set out its terms:- " 10. (1) A lien under this Act with regard to land shall be available only if registered before the expiration

of twenty-eight days after the wages or contract price in respect of which such lien has arisen shall for the purposes of this section have become due. (2) Any wages or contract price shall for the purposes of this section be deemed to have become due - (a) if unpaid for seven days after the same (being

payable) shall have been demanded by notice in writing, signed by the person claiming the same and given to the person liable to pay the same, or posted in a registered letter addressed to him at his usual or last known place of abode in South Australia: (b) if either before or after the same shall have become payable, the person liable to pay the same shall have called a meeting of his creditors, or committed an act of bankruptcy, or executed a deed of assignment within the meaning of the Bankruptcy Act, 1924-1933, of the Commonwealth, or shall have taken or attempted to take the benefit of any law relating to bankrupts or insolvent debtors, or shall have suffered his goods to be taken in execution or seized under legal process or distress for rent. (3) A lien shall be registered by the person claiming the same lodging in the General Registry Office a notice in the prescribed form or in a form to a similar effect, which notice shall be signed by such person and attested. (4) A lien may be registered after the wages or contract price have become payable, although the seven days mentioned in subsection (2) shall not have commenced to run. (5) Notices of lien under this Act shall state the court in which action will be brought to enforce the same,

and any person to whom notice is given may deposit the amount claimed in such court to abide the event

of such action, and thereupon the lien shall be deemed to cease". 17. The contract price is defined in s.2 of the Act as, inter alia, the money payable to any contractor for any work, or materials furnished or to be furnished in connection with work, under any contract. 18. The contract sum, which is synonymous with contract price, is defined in the contract as follows:- " 1.06.07 The contract sum. The sum of Nineteen Million One Hundred and Eighty Five Thousand Dollars

($19,185,000) or such other sum as shall be determined from time to time in accordance with the

provisions of this Agreement". 19. The true construction of ss.5, 6 and 10 has received a good deal of judicial attention but, in my view, it is no simple matter to discern clear principles from the cases which bear upon the issues to be, here, decided. However, considerable assistance is derived from the principles expressed by Bright J. in Albert Del Fabro Pty. Ltd. v. Wilckens and Burnside Pty. Ltd. and Anor. (1970) SASR 277. He said, at p 284:- " A lien exists only after work has been done or materials supplied, not at the time of the engagement to do the work. I construe the words 'are done ... and unpaid' in s.6 as meaning 'have been done and not paid for'. The tense changes from the present tense which is used in ss.5(a) and 5(b) and 6, to the past tense in s.7(3), which deals with charges, but I do not think that this was intended to express a different point of time. A sub-contractor's lien exists only after the point of time when the sub-contract price, or a portion thereof, has accrued due. I interpret the words 'so far as accrued due' in s.6 (it seems His Honour meant s.5) as indicating that a portion only of the price may have accrued due. Note also the words 'being payable' and 'shall have become payable' in s.10(2) These

two phrases connote that the price or a portion thereof has accrued due. The words 'become due' in s.10(2) do not mean the same as the words 'accrued due' in s.5. The sequence is that the sub-contract or a portion thereof has been performed, the sub-contract price or a portion thereof has accrued due, and pursuant to s.10(2) the price or portion thereof which has accrued due has also been deemed to become due. A lien exists when the price or a portion thereof has accrued due, but is 'available' (as mentioned in s.10(1) only after it has also become due. The price accrues due at such time as is provided or implied in the sub-contract", and later:- " I think that if the price becomes due, and is protected by due notice and action, then the lien is 'available', that is to say constitutes a charge on the land, from the date upon which the price accrued due. This seems to me to be the proper construction of ss.6, 7 and 10, but with the limitation that the owner is exonerated in respect of moneys actually paid by him before he receives notice". And at p 286:- " To sum up my views on this topic: the statute is intended to provide security for a sub-contractor to the extent that the owner has not, at the time when notice of the lien or its registration is given to him, discharged his obligations under the head contract. He can of course discharge his obligations only by payment, whether to the head contractor or to an assignee, of the benefit of the head contract. To the extent that he has not in fact done so when he receives notice of the lien he must give effect to the lien". 20. S.7 of the Act is concerned with a workman having a charge or money payable to a contractor or sub-contractor when he is employed. 21. Accepting those principles, as I do, a lien exists when the contract price, or part thereof, has accrued due. If it has not, no lien can exist. If it does exist it only becomes "available" after it has also become due. The deeming provision in s.10 speaks only to the lien becoming available, not to its existence. I do not understand the views expressed in Del Fabro on appeal to be contrary: (1971) SASR 121: see Bray C.J. at pp 125-126 and Zelling J. at pp 138-139. Also Chamberlain J., in a dissenting judgment, did not hold a different view. He said at p 132:- " Section 5, so far as it needs to be quoted, provides that a sub-contractor shall have a lien for the contract price, so far as accrued due, on the estate or interest in land of the building owner. That is to say for so much of his contract price with the head contractor as has 'accrued due', or as I understand it, become immediately payable. By s.6, as I read it, such a lien is not to extend beyond that portion of the contract price payable by the owner (i.e. to the head contractor under the head contract) and unpaid at the time when the owner receives notice of the lien or of its registration". 22. The same view was expressed by Asche J. in Advanced Civil Engineering Pty. Ltd. v. Wyana Pty. Ltd. (25th June 1986; unreported) at pp 22-24. The observations of Rice J., at p 10, and Angel J., at pp 11-12 in Leichhardt Development Co. Ltd. v. Pipeline Properties Pty. Ltd. (1989) 62 NTR 1 accord with this view. 23. It must be accepted that as matters stood at the various times which could be relevant, when each of the progress claims 30 and 31 and the Collective Claims Submissions were made, when the notices were given on 19th July 1990 and the lien was registered, no part of the contract sum, including the adjusted contract sum, as certified by the architect, remained unpaid, allowing for the plaintiff's right under the contract to deduct the provisional assessments of liquidated damages certified by the architect as due by the defendant to the plaintiff. 24. On Mr. Rice's argument the contract price, or at least part of it, had become due at the relevant time, regardless of the various certifications of the architect, because of the provisions of s.10(2). He contended that upon the conditions in s.10(2) being fulfilled, namely the contract price being unpaid and for seven days, and it having been demanded by notice in writing in the required form and sent to the plaintiff in the required manner, all of which he says has here occurred, the contract price is deemed to have become due. The contract price is the adjusted contract sum. Further, once a demand is made and is unpaid, it is deemed to be due and payable and, for present purposes, it is impermissible to look behind the claims which are the subject of the demand. On Mr. Rice's argument, it is nothing to point out that the architect has refused to certify a claim of the defendant. Once a claim is made, it becomes due and payable by virtue of s.10(2) of the Act, if the procedure under that section is envoked and the claim is unpaid after seven days. The disputes between the parties as to these claims have been referred to arbitration. It is for the arbitrator to resolve these disputes and to conclude what amount, if any, is due by one of the parties to the other. That does not mean that the money found by the arbitrator to be due to the defendant by the plaintiff was not now due and payable when the demand was made. It is due and payable at that time but not determined to be such until the arbitration is completed. 25. Mr. Rice developed his argument in the following way. The purpose of the Act is to provide a floating security in two situations. First, where money is due in praesenti, such as where the architect has certified a particular amount as due, the time has expired for payment and it remains unpaid. Secondly, where money allegedly due, and the subject of a claim, is in dispute and is the subject of the litigation process and may become due when the dispute is resolved by a court or arbitration, whichever is the appropriate procedure according to the contractual relationship between the parties. Here, he submitted, the architect was in error. He should have certified amounts due by the plaintiff to the defendant and the arbitrator, if he resolves the issues in favour of the defendant, will substitute his decision for the certification of the architect. 26. In support of this argument, reliance was placed upon the decision of Hogarth J. in W. Curl and Sons Regd. v. Buck Industries Pty. Ltd. and Dillingham Constructions Pty. Ltd. (1972) 2 SASR 335 which was concerned with a charge claimed by a sub-contractor, the plaintiff, upon any money payable by the head contractor to one of its sub-contractors, the defendant, who had in turn contracted some of the work to the sub-contractor claiming the charge. There was no dispute that the plaintiff had performed the work and money was due to it under the sub-contract at the relevant time and remained unpaid. Whether any money was due to the defendant by the head contractor at the relevant time could not be ascertained without the taking of complex accounts. Consequently, the case proceeded on the basis that it was not known whether any such amount was due and the issue was whether it was necessary that a debt payable in praesenti must exist at the time when it is claimed that the charge arose, in order to found the charge. 27. Ss.7(2) and (3) are concerned with a charge on any money payable to a contractor or sub-contractor with whom a sub-contractor has contracted and only attaches to money payable under the contract for the purposes of which work or materials have been due or supplied by the sub-contractor claiming the damage. Hogarth J. held that for there to be money payable it was not necessary that there should be money due in praesenti and it was sufficient if it was merely a debt payable in futuro. He adopted the reasoning of Napier J. in Metropolitan Brick Company v. Hayward and Anor. [1938] SAStRp 57; (1938) SASR 462 as to the true construction of "payable" in s.6 of the Act, at p 466:- "The first question argued was the meaning of 'payable' in this context. The plaintiffs contend that it refers to the sum stated in the contract as the consideration for the completed work, without regard to its being earned or not. That is to say, that the price fixed by the contract is 12,132, of which 2,250 has been paid, and, therefore, that the lien would extend - if necessary to 9,882, in spite of the fact that a quantum meruit - if it were available - would not exceed, say, 621. I think that this is an impossible construction. The natural sense of 'payable' is 'that must be paid', and money is not 'payable under' a contract until the contract binds the party to pay it, i.e. until the conditions precedent have been satisfied or excused (Sumpter v. Hedges, (1898) 1 QB 673). There is a sense in which it can be said that money is 'due' or owing before it becomes payable - debitum in praesenti, solvendum in futuro - but it is difficult to see how the converse can be true. When we speak of money as due or payable in the future, or upon the happening of an event, we are using an ellipsis. The full sense is money which will become payable, or may become payable, but the latter is a secondary meaning, and is not to be assumed. It requires a context to support it, and I can see nothing in the context which justifies any departure from the literal meaning. I cannot agree with Mr. Ligertwood's argument upon the juxtaposition of 'payable ... and unpaid'. I think that the explanation of these words is that they refer to two distinct limitations of the lien. The security is for a sum which cannot exceed the amount which (1) is or becomes due from time to time, and (2) was unpaid when the owner received notice". 28. Also in that case there was no dispute that with respect to the sub-contractor claiming the lien the contract price, or part thereof, in his contract had "accrued due". The court was concerned with what was meant by the extent of a lien which clearly existed, the extent being restricted by s.6 to the portion of the contract price payable at the time when relevant notice is received. 29. In Metropolitan Brick Company (supra) Napier J. concluded that, upon the true construction of the contract, there was nothing payable unless so certified by the architect as such a certificate is a condition precedent to payment: see p 468. 30. Here, the true construction of the contract leads to the same conclusion. The certification of the architect is a condition precedent to payment. Adopting the words of Napier J. at p 470:- " ... the architect's certificate is necessary not only for determining when a payment is due. Subject to arbitration, it is a condition precedent to any money being payable at all". 31. However, he concluded that the lien subsisted and the action should be kept alive in order that the lien may be enforced, if and when any money became payable under the contract. 32. I do not think these decisions assist in the resolution of the issues in this matter. In both cases the court was concerned with the meaning of payable. In Curl and Sons (supra) Hogarth J. had to construe s.7 of the Act. Here the issue is not whether money is "payable" which may include both in praesenti or in futuro, but whether a lien exists under s.5 which provides that a lien exists for the contract price, or part thereof, so far as accrued due. Here certification has occurred and no amount is payable. The contract between the parties requires certification as a condition precedent to the contract price or any part thereof being accrued due. Whilst it is true that the arbitrator may decide some time in the future that the plaintiff must pay some amount to the defendant, the position at the relevant times is that no amount had accrued due. The process for resolution of whether any amount is payable or has accrued due had been completed. That is the process to which the parties agreed to be bound and at the relevant time was concluded. It remains concluded unless the arbitrator says otherwise. Consequently, it cannot be said that, at the relevant time, the contract price, or part thereof, had accrued due. 33. The deeming provisions in s.10(2) do not assist. As Bright J. pointed out in Del Fabro (supra), in the passage of his judgment to which I first referred, a lien exists when the contract price, or part thereof, has accrued due but is available after it has also become due as required by s.10(1). That was also the view expressed by Zelling J. in that case, on appeal, at p 138. The deeming provision in s.10(2) relates to when a contract price, or part thereof, becomes due, i.e. to when a lien becomes available and not to its existence. 34. The linch-pin for the existence of a lien under the Act is that the contract price, or part thereof, shall have "accrued due" and in the circumstances here present, certification by the architect is required before that situation arises. Kearney J. took that view in Jennings Construction Ltd. v. Burgandy Royale Investments Pty. Ltd. (1986) 43 NTR 1 at p 13. As that condition precedent has not been fulfilled, no part of the contract price had "accrued due" or was payable and the defendant did not have a lien pursuant to s.5 of the Act. 35. Mr. Rice was argued that the flaw in this conclusion is that a builder could suffer damages or incur loss or expenses due to delays caused by the architect or the proprietor or both and upon his claim being rejected by the architect his certificate will show no amount payable. The builder's only recourse is to arbitration which takes time. If, meanwhile, the property is sold, the builder may be left without recourse. That situation is not contemplated by the Act. 36. There is, of course, another side to the coin. If Mr. Rice's argument was correct, a builder could make fallacious claims and demand payment. Upon rejection by the architect the builder could register a lien with possible serious consequences to the owner which could be exacerbated by delay in awaiting conclusion of the arbitration. 37. In my view Parliament has struck a balance between the competing disadvantages, by requiring that at least part of the contract price must be accrued due and remain unpaid before a lien exists and can be registered. The Act does not indicate an intention that there may be a lien in favour of a contractor and registered in case some dispute is resolved in his favour at some future time. 38. It remains to consider whether the plaintiff is entitled to an order under s.32 of the Act. I think the plaintiff has demonstrated that it is prejudicially affected by the lien and its registration for the reasons advanced. In my view the plaintiff is entitled to have the registration of the lien cancelled and I shall hear the parties as to the terms of the orders which I should make.