Parkview v Fortia

LEGISLATION CITED : Building and Construction Industry Payments Act 2004 (Qld) Building and Construction Industry Security of Payment Act 1999 (NSW)

Bezzina Developers Pty Ltd v Deemah Stone (Qld) Pty Ltd [2007] QSC 286 Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1 CASES CITED : General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (in liquidation) (2005) 64 NSWLR 462 Okaroo Pty Ltd v Vos Construction and Joinery Pty Ltd [2005] NSWSC 45 Olbourne v Excell Building Corp Pty Ltd [2009] NSWSC 349

PARTIES : Parkview Qld Pty Limited (Plaintiff) Fortia Funds Management Limited in its capacity as trustee for Fortia Active Property Fund (Defendant)

COUNSEL : A R R Vincent (Plaintiff) David Harker (Self Represented) (Defendant)

SOLICITORS : Salim Rutherford Lawyers (Plaintiff) Corrs Chambers Westgarth (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST

28 Sepember 2009 (ex tempore - revised 28 Sepember 2009)

55019/09 PARKVIEW QLD PTY LTD v FORTIA FUNDS MANAGEMENT LIMITED IN ITS CAPACITY AS TRUSTEE FOR FORTIA ACTIVE PROPERTY FUND JUDGMENT

1 HIS HONOUR: The plaintiff (Parkview) claims to be entitled to be paid an amount of about $431,000 by the defendant. Parkview's claim arises under the Building and Construction Industry Payments Act 2004 (Qld) (the Act). 2 Parkview says that:

(1) there was a "construction contract" in place between it and the defendant (Fortia); (2) it carried out construction work for, or supplied related goods and services to, Fortia pursuant to that construction contract; (3) it served a payment claim on Fortia on about 27 June 2008; (4) Fortia did not serve a payment schedule, either within the time allowed by the Act or at all; (5) Fortia paid part, but not all, of the amount claimed by the payment claim; and (6) accordingly, pursuant to s 18(5) of the Act, Fortia is liable to pay the balance of the claimed amount - the sum of about $431,000 to which I have referred. 3 This is not the trial of the action. Parkview has moved for summary judgment. Accordingly, Parkview is required to show that the defences advanced by Fortia (which are set out in a verified defence that has been served although not filed) are, in substance, hopeless to the extent that they should not be permitted to go to trial: what is often called the "General Steel Industries" test. (General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125.) 4 In my view, it cannot be said that the substantive defences advanced pursuant to the verified defence are hopeless in the sense to which I have just referred. Accordingly, in my view, the matter should go to trial. 5 There are two principal defences which seem to me to justify that conclusion. I propose to deal with them, and not to deal with all the other matters raised on behalf of Fortia; those other matters are covered in its written submissions, which will remain with the file. 6 The first question is whether there was a construction contract as defined. In the dictionary to the Act, the expression "construction contract" is defined to mean: a contract, agreement or other arrangement under which one party undertakes to carry out construction work for, or to supply related goods and services to, another party.

7 The primary case for Parkview is that there was an "arrangement" within that definition. 8 The owner and developer of the land in question was a company known as Bruce James and Partners Pty Ltd (the developer). Fortia says that it was in effect an investor in the project and that from time to time it (and other financiers) paid amounts owing by the developer to Parkview. 9 Parkview's case is that it was engaged, in about April or May 2007, once the developer had got into a financial position that meant it was unable to continue with the development. In substance, Parkview says, it entered into an agreement or arrangement with Fortia whereby Fortia effectively took over the project from the developer, and Parkview carried out construction work, or supplied related goods and services, for the benefit of Fortia. That arrangement is said to have been evidenced in conversations and emails, and to be consistent with a pattern of dealings in which Parkview dealt only with representatives of Fortia, and negotiated for the relevant work with those representatives. Further, Parkview says, that arrangement is consistent with events that occurred later on, when progress claims were paid by Fortia. 10 The relationships between Parkview, Fortia and the developer were documented in two agreements. One is a "Construction Management Agreement" made on 29 May 2007 between the developer and Parkview. The other is a "Deed of Guarantee and Indemnity" made between Parkview and Fortia a fortnight or so later, on a date which does not, I think, appear on the face of the document. 11 According to the scheme established by those documents, Parkview agreed to provide construction management services to the developer, to enable the project to be completed; and the developer agreed to pay Parkview remuneration in accordance with the terms of the agreement. Separately, by the deed of guarantee and indemnity, Fortia guaranteed to Parkview all present future and contingent obligations of the developer to Parkview (clause 30) and agreed separately to indemnify Parkview against all losses and expenses that it might suffer in relation to the obligations of the developer. 12 Further, by clause 32, the obligations of Fortia were expressed to be "primary obligations". The meaning of that was expanded upon: the clause said that Parkview "is not obliged to proceed against or enforce any right against any other person or demand payment from any other person before making a demand for payment on" Fortia. 13 Parkview put in evidence a number of payment claims, or tax invoices, that it said were generated, for work done and services provided, after the agreements or arrangements to which I have referred were put in place. In terms, those documents were addressed to "the Superintendent". That was a Mr Craig Pearsall. Parkview says that he was an employee of Fortia. Fortia appears to accept that he was (or at least, has not said that he was not). However, Fortia says that Mr Pearsall was the superintendent appointed under the construction management agreement, and thus, for these purposes, a representative of the developer. Nonetheless, those documents were addressed to Mr Pearsall, care of the group of companies of which Fortia forms part, at the Sydney address of that group. 14 Fortia's case is that the only construction contract is the one evidenced by the construction management agreement, and that its only contract or arrangement with Parkview is that established by the deed of guarantee and indemnity. For Parkview to be entitled to summary judgment, it must show, as I have said, that this aspect of the defence is in effect hopeless, and should not be permitted to go to trial. 15 Parkview may very well be right in saying that, over and above the written agreements to which I have referred, there is some over-arching arrangement under which it agreed to do work for or provide services to Fortia, and under which Fortia agreed to pay for that work or those services. If Parkview does show this, then it may very well succeed in showing that there is an arrangement of the relevant kind. As to the width of the expression "arrangement": see the judgments of Nicholas J in Okaroo Pty Ltd v Vos Construction and Joinery Pty Ltd [2005] NSWSC 45 and Rein J in Olbourne v Excell Building Corp Pty Ltd [2009] NSWSC 349. Further, since this case arises under an Act of the State of Queensland, I note that the analysis of Nicholas J in Okaroo was followed by Douglas J in Bezzina Developers Pty Ltd v Deemah Stone (Qld) Pty Ltd [2007] QSC 286. 16 I accept that the approach to the concept of "arrangement" is as discussed by their Honours in the cases to which I have referred, and that in substance it is a wide term, capable of extending to transactions or relationships which are not enforceable at law. That construction is consistent both with the wording of the definition, in which contract or arrangement are opposed, and with the beneficial construction to be given to remedial legislation of this kind. 17 Nonetheless, it seems to me, when negotiations that of themselves might have given rise to an arrangement capable of being a construction contract are formalised in written agreements that do not of themselves amount to a construction contract (as between Parkview and Fortia), there is a triable question as to whether there is any continuing or supervening arrangement. 18 Thus, accepting for the purposes of this application the evidence on which Parkview relies (which includes the evidence of one of its directors, Mr Touma, to the effect that Parkview said that it would not have anything to do with the project unless satisfied that it could recover from Fortia if the developer were unable to pay) I do not think that the material shows that there is no issue to go to trial on the point of "construction contract". 19 The other issue which in my view should go to trial relates to the existence of a valid payment claim. 20 By s 19 of the Act, where a respondent becomes liable to pay the claimed amount because it has not served a payment schedule within the time allowed, the claimant may (as one alternative) commence proceedings to recover the unpaid portion of the claimed amount as a debt. By subs 4(a), the claimant is not to get judgment "unless the court is satisfied of the existence of the circumstances referred to in subsection (1)". 21 Subsection (1) requires that the respondent has become liable to pay because it has not served a payment schedule, and that in fact it has not paid the whole or some part of the claimed amount. In this case there is no doubt that the respondent has not paid all the claimed amount. 22 However, a respondent - in this case, Fortia - can only be liable for the debt if, being under an obligation to provide a payment schedule (or suffer the consequences) it did not do so. That then turns attention to the question of whether the document that was served on about 27 June 2008 is capable of being a payment claim for the purposes of the Act. The threshold test is a relatively undemanding one. It was considered (in the context of an appeal from a summary judgment application) in Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (in liquidation) (2005) 64 NSWLR 462. 23 The Court of Appeal was comprised by Hodgson, Santow and Ipp JJA. Their Honours gave separate reasons. It is a little difficult to find the common thread. However, I think, when one reads together what Hodgson JA said and what Ipp JA said, the relevant test emerges. 24 At 474 [34], Hodgson JA said that a document purporting to be a payment claim "does not fail to be a payment claim, within the meaning of the Act, merely because it can be seen, after a full investigation of all the facts and circumstances, not to successfully identify all the construction work for which payment is claimed".

25 That meant, his Honour said at 475 [36], that a payment claim could not "be treated as a nullity for failure to comply with s 13(2)(a) of the Act, unless the failure is patent on its face; and this will not be the case if the claim purports in a reasonable way to identify the particular work in respect of which the claim is made". His Honour reinforced that analysis at [37]. 26 I hasten to add that the Court of Appeal was concerned with the Building and Construction Industry Security of Payment Act 1999 (NSW). There is no relevant (if indeed any) distinction between s 13(2)(a) of that Act, to which Hodgson JA referred, and s 17(2)(a) of the Act with which I am concerned. 27 I put aside, with respect, the reasons of Santow JA because it seems to me that his Honour took a somewhat different approach. 28 Ipp JA gave very brief reasons. At 484 [76] his Honour said that "for the reasons given by Hodgson JA I would construe the [NSW Act] as follows. Provided that a payment claim is made in good faith and purports to comply with s 13 (2) of the Act, the merits of that claim, including the question whether the claim complies with s 13(2), is a matter for adjudication ...and not a ground for resisting summary judgment....[i]n particular, if no adjudication is sought summary judgment cannot be resisted on grounds that could have been raised by way of a payment schedule leading to adjudication".

29 Their Honours' views were considered by Palmer J in Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1. His Honour at [33] referred to the reasoning of Hodgson JA in Nepean. He said that the corollary of what Hodgson JA said in Nepean at 474 [34] and 475 [36] was "that a payment claim can be treated as a nullity if it does not on its face reasonably purport to comply with s 13(2)(a)".

30 I agree with that analysis. 31 At [39], Palmer J took from the judgment of Ipp JA in Nepean Engineering the proposition "that if a payment claim does not purport to comply with s 13(2) then its validity is not a matter for adjudication: the payment claim is a nullity for the purposes of the Act".

32 At [40] Palmer J summarised this in his own words as meaning that "if the payment claim does not purport to comply with s 13(2) ...the nullity of the payment claim could be set up as a defence to an application for summary judgment".

33 Again, I agree with his Honour's analysis. 34 That then leads to the particular payment claim. It comprises a letter dated 27 June 2008 and four attached progress claims known as claims 11, 12, 13 and 14. In effect, what Fortia has done is pay the amount referable to claims 12, 13 and 14. It is crystal clear that the dispute is as to the amount claimed by claim 11. On the evidence, that claim was structured as follows:

Original Contract Value $877,353.27 Approved Variation's (refer to attached schedule) $391,824.46 ______________ Revised Contract Value $1,269,177.73 Works completed up to and including 31 March 08 $877,353.27 ______________ Sub Total $1,269,177.73 Less Previously Paid $877,353.27 ______________ This Claim $391,824.46 GST Amount $39,182.45 Balance Owing This Claim $431,006.91

35 As will be seen, the document did not in itself identify the "Approved Variation's [sic]". Nor did the covering letter. To understand what they were, the reader (or recipient) was required to "refer to attached schedule". The difficulty in this case is that although there was attached to the claim something called "preliminaries estimate", comprising two pages, there was not attached anything that could possibly be construed as a schedule setting out "Approved Variation's" (or, indeed, any variations). 36 Section 17(2)(a) requires that a payment claim identify the construction work or related goods and services to which the progress payment relates. In this case, although the subject matter of the claim in question was identified as approved variations, there was no identification whatsoever of the work (or related goods and services) comprised in those approved variations. In this regard, payment claim 11 stands in sharp contrast to payment claims 12, 13 and 14. Each of those was in substantially the same format (although confusingly the "original contract value" varied from each one, in a way that I find rather difficult to follow). Each of them was in substance if not entirely a claim for "Approved Variation's". Each of them did attach a schedule by which those variations could be identified. 37 In my view, there is a question to be tried as to whether, in respect of the unpaid amount, the payment claim in question does comply with s 17(2)(a). 38 Mr Vincent of counsel, for Parkview, submitted that it was sufficient to refer to "approved variations". I am not sure that this can be accepted: at least, at the level required to indicate that the contrary contention is so hopeless that the case should not go to trial on this issue. In my view, when the statute talks of identification of the construction work or related goods and services to which the progress payment relates, it has to be taken as requiring some identification of the particular work and not just of the heading under which it might fall. To say that a description as "approved variations" which does not identify any of the variations or the amount claimed for them so clearly identifies the construction work or related goods and services in question that the contrary contention is hopeless seems to me to be a very ambitious proposition indeed. 39 I should note also that Mr Vincent sought to tender an e-mail (from his client to Mr Pearsall, sent about two months before the payment claim was submitted to the defendant) to which some sort of schedule was attached. It was not shown that that e-mail had come to the attention of Fortia. The evidence proving the e-mail and the circumstances in which it was sent had not been notified to Fortia until, in submissions, Mr Vincent sought leave to re-open his case. Fortia was represented by its director, Mr Harker. In those circumstances, the minimum requirements of procedural fairness seemed to me to require that the tender be rejected. In this context, I note that Mr Vincent objected to an affidavit, putting in issue service, on the basis that it had been provided late; and that objection was upheld. Although the maxim that "sauce for the goose is sauce for the gander" is not a proposition of law, it does seem to me to be something which is not entirely irrelevant when considerations of procedural fairness arise for examination. 40 However, leaving that digression aside, for the reasons that I have indicated I do think that there is a question to be tried as to whether the payment claim complies with s 17(2)(a) of the Act. 41 Accordingly, Parkview's application for summary judgment (brought by notice of motion filed in the District Court on 28 November 2008) is dismissed. 42 I order that the exhibits remain with the file. 43 I stand the proceedings into the directions list on 2 October 2009. 44 I order Parkview to pay Fortia's costs of the application for summary judgment.

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