Parisi Homes Pty Ltd v Plus 55 Homes Pty Ltd

Brodyn Pty Ltd v Davenport [2004] 61 NSWLR 421 Brodyn Pty Ltd v Philip Davenport & Anor [2003] NSWSC 1019 CASES CITED: Cooper v Veghelyi & Ors [2005] NSWSC 602 Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2005] NSWCA 49 Facade Innovations Pty Ltd v Timwin Constructions Pty Ltd [2005] NSWCA 197

PARTIES: Parisi Homes Pty Ltd (Plaintiff) Plus 55 Homes Pty Ltd (Defendant)

COUNSEL: Mr Steele (Plaintiff) Mr Sirtes (Defendant)

1 The Plaintiff, Parisi Homes Pty Ltd ('Parisi') (for whom Mr Steele of counsel appears), is a builder which entered into a building contract with Plus 55 Village Management Pty Limited ('PVM') (for whom Mr Sirtes of counsel appears) for the construction of buildings. The contract was not in writing.

2 In November 2004, Parisi, by way of a 'payment claim', sought payment of $338,850.59 for building work said to have been carried out by Parisi on the contract. PVM, by a 'payment schedule' served upon Parisi, indicated that it would not be paying any money. Parisi then made an application for 'adjudication' of its payment claim. Mr Philip Davenport was appointed to determine Parisi's claim and he did so by an adjudication determination on 17 January 2003. He issued a certificate of adjudication in accordance with that determination. Proceedings were also commenced by Parisi in the Consumer Claims Tribunal but nothing turns on that. A statutory demand under s 459G of the Corporations Act was served by Parisi and PVM took proceedings against Parisi in the Supreme Court to set it aside - in White J's judgment [2005] NSWSC 559 the history of the matter is summarised. Again, nothing turns on the outcome in that case.

3 The payment claim, the payment schedule, and the adjudication, are all part of the statutory scheme established by the Building and Construction Industry Security of Payment Act 1999 (NSW) ('the SPA').

4 Parisi, having obtained the certificate of adjudication, then sought to have the certificate converted into a judgment debt of this Court, again in accordance with the statutory procedures established by the SPA (s25(1)), and on 3 February 2005 this occurred.

5 Before the adjudicator, PVM argued that the payment claim was invalid and that the adjudicator had no jurisdiction to hear the claim, but the adjudicator did not accede to PVM's arguments, although, I was informed, he indicated, as part of his response, that it was not within his power to examine that matter.

6 PVM has filed a notice of motion on 20 May 2005 seeking to set aside the judgment debt. Its reasons for so doing are the same as those put to the adjudicator, and are that: (1) the contract was one caught by the provisions of the Home Building Act ('HBA'), s10 and s92, which preclude any right of action against PVM (or, as the argument was developed, s92 at least does so); (2) as a consequence Parisi can bring no claim against PVM; (3) accordingly, the adjudication is a nullity; and (4) the judgment debt should be set aside.

7 Parisi, relying on s25(4) of the SPA, by a motion filed on 24 June 2005, seeks a stay of PVM's motion pending payment by PVM of the unpaid portion of the adjudicated amount (ie all of the adjudicated claim). PVM read an affidavit of Mr John James of 15 June 2005, although only Exhibit 'JJ4' was tendered (it relates to PVM's claim that the determination was void and that the arguments against its validity were raised with the adjudicator). The affidavit dealt with matters relevant to PVM's claim that the Home Building Act applied to the contract. Parisi read an affidavit of Mr Henrick Isaac to establish that no money has been paid by PVM to Parisi or into Court. There is no dispute that no monies have been paid, but PVM asserts that s25 of the SPA is not applicable, as a matter of construction of the subsection and as a matter of principle, because the adjudication is a nullity.

8 The objects of the SPA are set out in s 3 of the Act as follows: '3 Object of Act (1)The object of this Act is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services. (2)The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to such a payment regardless of whether the relevant construction contract makes provision for progress payments. (3)The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves: (a) the making of a payment claim by the person claiming payment, and (b) the provision of a payment schedule by the person by whom the payment is payable, and (c) the referral of any disputed claim to an adjudicator for determination, and (d) the payment of the progress payment so determined. (4)It is intended that this Act does not limit: (a) any other entitlement that a claimant may have under a construction contract, or (b) any other remedy that a claimant may have for recovering any such other entitlement.'

9 The legislation provides a scheme whereby builders and subcontractors can obtain payment for work that is adjudicated as performed and for which money is found to be owing, in advance of often lengthy court or arbitration hearings. The adjudication has no status as a final order - it is simply a means by which early payment can be obtained pending ultimate determination by a Court or arbitration process. It was described in the following terms by Hodgson JA in Brodyn Pty Ltd v Davenport [2004] 61 NSWLR 421 at pp 440-441: '[51] ... The Act discloses a legislative intention to give an entitlement to progress payments, and to provide a mechanism to ensure that disputes concerning the amount of such payments are resolved with the minimum of delay. The payments themselves are only payments on account of a liability that will be finally determined otherwise: ss 3(4), 32. The procedure contemplates a minimum of opportunity for court involvement: ss 3(3), 25(4). The remedy provided by s 27 can only work if a claimant can be confident of the protection given by s 27(3): if the claimant faced the prospect that an adjudicator's determination could be set aside on any ground involving doubtful questions of law, as well as of fact, the risks involved in acting under s 27 would be prohibitive, and s 27 could operate as a trap. [52] However, it is plain in my opinion that for a document purporting to an adjudicator's determination to have the strong legal effect provided by the Act, it must satisfy whatever are the conditions laid down by the Act as essential for there to be such a determination. If it does not, the purported determination will not in truth be an adjudicator's determination within the meaning of the Act: it will be void and not merely voidable. A court of competent jurisdiction could in those circumstances grant relief by way of declaration or injunction, without the need to quash the determination by means of an order the nature of certiorari,'

see also Brodyn Pty Ltd v Philip Davenport & Anor [2003] NSWSC 1019 at [14] per Einstein J (this was not the decision appealed from in Brodyn) and Cooper v Veghelyi & Ors [2005] NSWSC 602 per Patten AJ at [9].

10 Section 24 provides the mechanism of obtaining the adjudicator's determination and s 25 deals with the mechanism of enforcing the determination: '24 Consequences of not paying claimant adjudicated amount (1)If the respondent fails to pay the whole or any part of the adjudicated amount to the claimant in accordance with section 23, the claimant may: (a) request the authorised nominating authority to whom the adjudication application was made to provide an adjudication certificate under this section, and (b) serve notice on the respondent of the claimant's intention to suspend carrying out construction work (or to suspend supplying related goods and services) under the construction contract. (2)A notice under subsection (1) (b) must state that it is made under this Act. (3)An adjudication certificate must state that it is made under this Act and specify the following matters: (a) the name of the claimant, (b) the name of the respondent who is liable to pay the adjudicated amount, (c) the adjudicated amount, (d) the date on which payment of the adjudicated amount was due to be paid to the claimant. (4) If any amount of interest that is due and payable on the adjudicated amount is not paid by the respondent, the claimant may request the authorised nominating authority to specify the amount of interest payable in the adjudication certificate. If it is specified in the adjudication certificate, any such amount is to be added to (and becomes part of) the adjudicated amount. (5) If the claimant has paid the respondent's share of the adjudication fees in relation to the adjudication but has not been reimbursed by the respondent for that amount (the unpaid share ), the claimant may request the authorised nominating authority to specify the unpaid share in the adjudication certificate. If it is specified in the adjudication certificate, any such unpaid share is to be added to (and becomes part of) the adjudicated amount. 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.'

11 On the question of whether the determination was valid or not, both sides relied on the Court of Appeal's decision in Brodyn (supra), and I heard full argument on this question against the possibility that I would accept Mr Sirtes' argument that the failure of PVM to pay money into Court did not preclude its motion from proceeding.

12 The argument on the operation of s 25(4) centred upon two matters: (1) PVM asserted that s 25(4) did not apply because the notice of motion did not amount to 'commencement of proceedings'; (2) since PVM was attacking the validity of the adjudication, a requirement to make payment of money into Court would itself be based on an assumption as to the validity of the adjudication, the very matter which was before the Court. Hence, said Mr Sirtes, consideration of Parisi's motion was 'putting the cart before the horse'.

13 Mr Steele argued that it was Mr Sirtes' approach, not his, that started from the wrong point, and he said that to consider PVM's motion first would be to deprive Parisi of the protection that the Act gives builders (and subcontractors), because should the Court reject PVM's claim that the adjudication was not properly obtained, PVM would have had the advantage of a hearing of the issue of the validity of the determination without having to pay into Court the money which on Parisi's case the legislation required to be paid.

14 I was initially attracted to Mr Sirtes' second argument - if I came to the view that the adjudication determination was void, it would seem odd to require that monies which the adjudicator determined should be paid, on a wrong basis, should be paid into Court. On further reflection, however, and particularly having regard to the terms of s 25 itself, it seems to me clear that the first question which must be addressed is not whether the determination is void but rather whether s 25 requires payment into Court as a prerequisite to hearing the proprietor's application or not.

15 The question of what was the appropriate forum to set aside proceedings was discussed in Brodyn. At paragraphs [40]-[43] Hodgson JA expressed the view that the remedy of setting aside the judgment in the Court in which judgment had been entered was more convenient than Supreme Court proceedings in the nature of a prerogative writ. In Cooper (supra), Patten AJ at para 11 said 'the Master did not consider the caveat referred to by Hodgson JA in Brodyn that such an application should in truth properly be made in the Local Court'. Patten AJ held that proceedings commenced in the Supreme Court were proceedings to have the judgment set aside within s 25(4).

16 Here, the proceedings are the bringing of a notice of motion to set the judgment aside pursuant to Part 31 Rule 12A of the District Court Rules. Mr Sirtes acknowledged being unable to find any authority on the meaning of the phrase 'commences proceedings' used in s25(4) of the SPA but he submitted that filing a notice of motion within existing proceedings is not 'commencing proceedings'. He submitted that Parisi 'commenced' the proceedings by entering the adjudication determination in accordance with s 24 of the SPA, not PVM.

17 In Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2005] NSWCA 49, Handley JA (with whom Santow JA and Pearlman AJA concurred) at [19], said: '[19] The respondent may commence proceedings to have the judgment set aside, but s 25(4) prevents him raising any cross claim or defence under the construction contract or challenging the adjudication determination on the merits. He must also pay the adjudicated amount into court. If the proceedings to have the judgment set aside fail one would expect that the money in court would normally be paid out to the builder.'

18 There are really only two ways in which the judgment entered in the District Court by the terms of s 24 of the SPA can be set aside - on the one hand by seeking a declaration or injunctive relief or a prerogative writ in the Supreme Court, or on the other by notice of motion in the District Court. In my view, particularly given the Court of Appeal's approach in Brodyn that the application to the court in which judgment was entered is an appropriate or even preferable step, an interpretation of 'commences proceedings to set aside the judgment' (and that is the relevant phrase for consideration, not 'commences proceedings') which excludes proceedings by way of notice of motion would be an overly narrow construction. Mr Steele submitted that the legislature could not have intended to put such a restriction on the requirement to pay the adjudication sum into court. I agree. Having regard to the purposes of the legislation as described by Hodgson JA in Brodyn and by Einstein J in the earlier Brodyn case, and to the approach indicated by Handley JA to s 25(4) in Falgat, I do not think it is appropriate to exclude from commencement of proceedings to set aside judgment, notices of motion for that purpose. In my view, the legislature requires that if PVA wishes to seek to have a judgment on its face obtained in accordance with the requirements of the Act set aside, it must pay the money into Court.

19 Facade Innovations Pty Ltd v Timwin Constructions Pty Ltd [2005] NSWCA 197 is a recent case in this area which was not referred to by either party. Although the case was dealing with a different situation, the comments of Hodgson JA (sitting alone) reinforce, I think, the view I take of the way the legislation should be viewed. In that case, the contractor had paid $500,000 into Court at the time of seeking a declaration that the determination was invalid, and Palmer J had declared that the determination was void, and ordered repayment of the $500,000 to the contractor. Hodgson JA stayed the order for repayment pending the appeal from Palmer J's decision, noting: '[7] There have not yet commenced any proceedings which in terms seek to set aside the judgment to which I have referred. The proceedings before McDougall J were separate proceedings. However, the judgment until set aside is a judgment of the Supreme Court, capable of being enforced even if the decision of McDougall J establishes that it has no basis. [8] In those circumstances, where the proceedings before McDougall J were, as a matter of substance, directed towards attacking the judgment, it seems to me that the policy behind s 25 really requires that the amount paid into court remain in court unless and until that judgment is set aside. It will be open to Timwin to apply to set aside that judgment on the basis that it is based on a void determination. If that application is acceded to, then the effect of s 25 would be spent and the money could then be paid out of court' (my emphasis).

20 No argument was advanced by PVM that even if the Court was of the view that the adjudicated amount should be paid in accordance with s25(4) of the SPA, the stay should not, on discretionary or other grounds, be granted, nor was there any dispute that s156 of the District Court Act gives the Court the power to order a stay. Accordingly, I do not think I need to consider the effect in this regard of Cooper, which was dealing with proceedings in the Supreme Court, and whether the approach taken in that case is consistent with Falgat and Facade (which were both cases in which proceedings were taken in the Supreme Court, although in Facade judgment had been entered in the Supreme Court and in Falgat judgment had been entered in the District Court).

21 In my view, the legislation requires payment into Court by PVM of the sum of $338,850.59 as a condition, or part of the process, of seeking to have the judgment set aside and, pursuant to s 156 of the District Court Act, an order staying PVM's motion until it is paid should be made by this Court.

22 I shall hear the parties as to the appropriate date to which PVM's motion should be stood over, pending payment of the adjudicated sum and on the question of costs of Parisi's motion.

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.