Plaintiff v Defendant

Plaintiff v Defendant - [2006] VSC 425 - VSC 2006 case summary — Zoe

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14 On 17 February 2006 Abigroup commenced this proceeding in the Building Cases List claiming that Payment Schedule No 26, provided by WTP as agent for RSD, did not satisfy the requirement in s. 15(3) of the Act that the payment schedule "indicate" why the amount proposed to be paid was "less than the claimed amount" and RSD's "reasons for withholding payment". Accordingly, Abigroup claimed that pursuant to ss. 15(4) and 16(2)(a) of the Act it was entitled to recover from RSD the sum of $4,736,535.97 as a debt due to Abigroup.

15 RSD entered an appearance on 27 February 2006 and delivered a defence on 29 March 2006. Notwithstanding the seven day time limit set out in rule 3.04(1) of the Supreme Court (Miscellaneous Civil Proceedings) Rules 1998, Abigroup did not issue its summons for directions until 31 March 2006 returnable on 7 April 2006. On 6 April 2006 Abigroup issued its summons for summary judgment also returnable on 7 April 2006. The application was supported by an affidavit sworn on 6 April 2006 by Mr David Brotherton, Abigroup's Senior Contracts Administrator. On the return day an order was made giving Abigroup leave to file and serve an amended statement of claim and RSD leave to file and serve an amended defence and giving directions for the filing of further affidavits and the exchange of written submissions in preparation for the hearing of the summary judgment application on 22 May 2006.

16 It should be noted, however, that other events occurred subsequent to WTP's response to Abigroup's Progress Claim No 26. According to the affidavit of Leslie Alan Smith, the sole director of RSD, sworn on 3 May 2006, RSD disputed the amount certified by the Quantity Surveyor, WTP, in Payment Certificate No 26 and the matter was referred to the Superintendent, TMA, pursuant to cl. 42.1(f)(ii) of the Contract. No date was given by Mr Smith as to when that referral took place. There is a reference in TMA's letter of 23 December 2005 to Abigroup to "correspondence from River Street Developments dated 21 December 2005" but there is no specific statement that this correspondence referred to Abigroup's Progress Claim No 26. On 23 December 2005, the Superintendent provided progress certificate No 2 to Abigroup, with copies to RSD, WTP and Capital. It showed that according to TMA the amount payable by RSD to Abigroup was $68,954.12, as at the valuation date of 5 December 2005.

17 Also on 23 December 2005 the Quantity Surveyor, WTP, issued a revised Progress Report No 26 which stated that the amount due from Abigroup to RSD was $14,981. This revised Report was attached to a letter from WTP to Capital with copies to TMA and RSD but not to Abigroup.

18 On 20 December 2005 Mr Smith wrote on behalf of RSD to Abigroup advising that, as the construction loan facility with Capital had been finalised and any further payments to Abigroup would be funded by RSD, there was no requirement for WTP "to be assessing and certifying any future claims". He advised that "in line with the

relevant contract conditions" all future claims would be assessed and certified by the Superintendent.

19 On 30 January 2006 Abigroup faxed to Mr David Stewart of WTP, with copies to Ms Shannon Percy of WTP, Mr Fraser Main of TMA and Mr Frank Mercuri of TMA, Progress Claim No 27 in the sum of $4,019,311.97. The calculation of that amount was summarised in the Trade Summary document accompanying letter dated 30 January 2006 as follows:

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Thus, he would appear to be accepting that RSD indirectly received a copy of Progress Claim No 26 some time after 28 November 2005. Nevertheless, Abigroup's application for summary judgment was squarely based on the proposition that RSD was served on that day by virtue of it being faxed to its agent, WTP. If that proposition is not established to the requisite degree of certainty then Abigroup's application must fail at the outset.

39 Mr Burnside QC, who appeared with Mr Caleo for Abigroup, submitted that, as WTP acted as "the agent" of RSD "in issuing payment certificates and exercising all related functions" (cl. 42.1(k) of the Contract) WTP acted as the agent of RSD in receiving payment claims. Whilst acknowledging that there had to be strict compliance with the Act, Mr Burnside submitted that the Act did not displace the operation of common law principles of agency in relation to the service of payment claims. This was particularly the case, he submitted, where the Contract specifically referred to the Contractor delivering "claims for payment" to the Quantity Surveyor, and the Superintendent, but not the Principal, (cl. 42(1)(b)) and where in providing for the response by the Quantity Surveyor to a payment claim by the Contractor, the parties had specifically referred in the Contract to the time limit stated in s. 15 of the Act (cl. 42.1(e)). Mr Burnside also drew attention to the wording of cl. 42.10 of the Contract, which provided that if a subcontractor notified Abigroup that it was entitled and intended to suspend work pursuant to the Act, Abigroup had to promptly give the Superintendent a copy of that notice. He submitted that this provision fortified the idea that for particular purposes the Quantity Survey or the Superintendent could be the agent of the Principal, even when compliance with the Act was in question.

40 In support of the submission that the Act did not displace the operation of common law principles of agency in relation to the service of payment claims, Mr Burnside referred me to the decision of Barrett J in Karimbla Construction Services Pty Ltd v Alliance Group Building Services Pty Ltd[8]. In that case, one of the questions for his Honour was whether there was a genuine dispute between the parties about the existence of the debt which formed the basis of a statutory demand (s. 459H(1)(a) of the Corporations Act 2001 (Cth)). That depended in part on whether a document sent on behalf of Karimbla Constructions Services Pty Ltd ("Karimbla") by another company in the same group constituted a payment schedule within the meaning of s. 14 of the NSW Act. His Honour set out the arguments advanced by Karimbla in the course of holding that a genuine dispute as to the existence of the debt did exist. Included in those arguments was the submission that:

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41 Mr Burnside submitted that Barratt J's decision meant that his Honour accepted the correctness of that submission made by Karimbla. I do not agree. As his Honour was at pains to explain, his function at that stage of the case was not "to make any adjudication of the issues raised" by the submissions[10] but simply "to determine whether the contentions of Karimbla in support of the proposition that no debt has arisen under s. 14(4) possess a sufficient degree of cogency to warrant further investigation".[11] In other words, was there a "serious question to be tried"?[12] It therefore seems to me that the most that Abigroup can obtain from the decision is that Barrett J accepted that the agency proposition could not be dismissed as unarguable.

42 Mr Delany submitted that in any event Karimbla Construction was not in point because it was concerned with s.14 of the NSW Act, the equivalent of s.15 of the Victorian Act, which talked in terms of "providing a payment schedule" and not of "serving" such a document. Acceptance that an agent could on behalf of a principal "provide" a payment schedule to the claimant did not mean that an agent could on behalf of the principal be "served" with a payment claim.

43 Mr Delaney also referred me to the decision of Einstein J in Emag Constructions Pty Ltd v Highrise Concrete Contractors (Aust) Pty Ltd[13]. In that case, the question was whether there had been proper service under the NSW Act of an adjudication application. That document had been served on a firm of solicitors acting for Emag Constructions Pty Ltd ("Emag"). His Honour found as a fact that the solicitor had stated that his firm had no instructions to accept service.[14] Further, his Honour held that "there was neither actual authority in the plaintiff's solicitors to receive a copy of the adjudication application nor ostensible authority in that regard".[15] Those findings were sufficient to resolve the dispute.

44 However, his Honour then went on to say by way of obiter dictum that:

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46 Mr Delany submitted that, properly construed, there was nothing in cl. 42(1)(k) of the Contract to suggest that the parties intended that the agency would extend to accepting service of notices under the Act on behalf of the Principal. The exercising of "all related functions" was concerned with the assessing and determining of payment claims so that payment certificates could be issued and possibly even "provided" by the agent, but not with the agent accepting service of the claims. Mr Delany further submitted that if the parties had intended that the Quantity Surveyor or the Superintendent be the agent of the Principal for the purposes of service of payment claims, it would have been a very easy matter to say so.

47 Mr Delany also referred to the fact that under the Side Deed, the Quantity Surveyor acted on behalf of the Financier not the Principal. He submitted that this militated against the proposition that WTP was the agent of RSD for the purposes of s.14 of the Act.

48 Mr Burnside acknowledged that there would have been no issue if Abigroup had also served Progress Claim No 26 on RSD. He submitted, however, that this would unnecessarily increase the amount of paper passing between the parties to achieve the obvious and only imaginable outcome, which was that the second document was handed on to WTP who had to respond to it. Mr Burnside submitted that such a construction of the Act did not sit easily with the stated objects of the Act and would make the Act unworkable.

The Payment Claim

49 An issue raised during the course of the hearing was whether Abigroup's Progress Claim No 26 was "a payment claim" within the meaning of s.14 of the Act. Mr Delany submitted that the inclusion of the claim to be paid $685,360 for "Liquidated Damages" meant that the Progress Claim did not satisfy the requirement in s.14(3) that "a payment claim" must "identify the construction work or related goods and services to which the progress payment relates". He submitted that this single line entry did not identify any "construction work" or "related goods and services" to which the progress payment related. Clearly it did not come within the statutory definitions of those terms.[19]

50 It was apparent that this item had been included by Abigroup in an attempt to off-set or reverse the deduction by WTP of $685,360 for liquidated damages which it had previously certified were payable by Abigroup to RTD in Payment Certificate No 25. Mr Delany submitted that this procedure was not contemplated by s.14. Rather, if Abigroup disputed the deduction for liquidated damages in Payment Certificate No 25, it could have made an adjudication application under s.18 of the Act or utilised the dispute resolution provisions in the Contract.[20]

51 Mr Burnside submitted that Progress Claim No 26 did satisfy the requirements of s.14(3) of the Act and accordingly that it was a valid "payment claim". He submitted that all of the construction work and related goods and services to which this claim for payment related were identified in the four documents constituting Progress Claim No 26. Given the method of calculating the amount of the claimed progress payment, it was necessary to include the reversal of the liquidated damages deduction in order to make the arithmetic work. Mr Burnside accepted, however, for the purposes of this application, that if Progress Claim No 26 did include a claim for payment of an amount not within s.14 then it would not be a valid "payment claim".

52 It seems to me that Progress Claim No 26 did identify all of the construction work and related goods and services to which the claim for payment related. The real question, in my opinion, is whether it was permissible for Abigroup, in effect, to reverse the Quantity Surveyor's decision in respect of liquidated damages by claiming back the deduction or whether it was required at the time it received Payment Certificate No 25, if it wanted to challenge that decision, to follow one of the dispute procedures laid down in either the Act or the Contract. An alternative approach may have been for Abigroup to make its progress claim after crediting amounts previously paid and without taking into account the deduction for liquidated damages. Presumably the Quantity Surveyor would then make the deduction in each subsequent payment schedule. What does seem rather incongruous and possibly invalid is that there could be a series of Payment Certificates by the Quantity Surveyor making the deduction for liquidated damages followed each time by a series of Progress Claims in which the Contractor simply reversed that deduction and made a claim for payment of that amount.

A Second Claim

53 The next issue raised was that Progress Claim No 26 was not in accordance with s.14 of the Act because, by substantially duplicating claims previously made, it infringed s.14(2). That provision states:

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55 I was also informed that similar amendments had been proposed for the Victorian Act. The Building and Construction Industry Security of Payment (Amendment) Act 2006 was assented to on 27 July 2006. The relevant sections of the amending Act are yet to be proclaimed. Nevertheless, the amendments to the NSW Act and the proposed amendments to the Victorian Act were relied on by RSD as an indication that there was doubt about whether the Act before the amendment allowed second or more claims, that is including in a payment claim an amount that has been the subject of a previous claim or claims.

56 Mr Burnside submitted that s.14(2) of the Act did not have the meaning attributed to it by RSD. He referred to s.9 of the Act which stated that a person who has undertaken to carry out construction work, or to supply related goods and services, under the contract was entitled to a progress payment on and from each reference date. In this case, that was the 28th day of each month. Thus, Mr Burnside submitted, s.14(2) meant that the claimant could only serve one payment claim in respect of each reference date or period. Progress Claim No 26 did not, therefore, infringe s.14(2) of the Act.

57 Mr Burnside submitted that any contrary view would be unworkable. He illustrated the point by giving the example of a builder who claimed payment for 50% of the cost of a particular item, saying half of the relevant work had been performed. That claim was disputed by the owner and only 10% of the claim was allowed. In the next payment claim the builder sought payment of 75% of the cost of that item, only to be met with the argument that the claim for the first 40% was invalid because it had already been claimed and second claims were not permitted. On this analysis the builder could never receive a progress payment for that 40%. Mr Delany sought to meet this point by arguing that 40% sought in the second payment claim would not be disallowed because the first claim for the 40% had been invalid because the work had not been done.

58 Mr Delany also submitted that the above complication did not arise in this case because it was not a case of extra work being performed. It was simply a repetition of previously rejected variation, extension of time and prime cost item claims.

Entitled to a Progress Payment

59 The next issue raised on behalf of RSD was that Abigroup was not a person who was "entitled to a progress payment under a construction contract" within the meaning of s.14(1) of the Act. This was because virtually all of the claim was based on variation, extension of time and prime cost item claims which had not been approved by the Superintendent and therefore it was submitted that there was no entitlement to payment under the Contract.

60 Mr Delany submitted that Abigroup was not "entitled to a progress payment under the construction contract" because under cl.40.4 of the Contract it was not entitled to an extension of time or extra payment unless the Superintendent had approved the variation. Section 11(1) of the Act referred to construction work being valued "in accordance with the terms of the contract" and s.12(a) referred to payment becoming due and payable "in accordance with the terms of the contract". Therefore, Abigroup had no entitlement to make a payment claim in respect of these claims.

61 Mr Delany referred to the NSW Act where s.13, the equivalent of s.14 in the Victorian Act, had been amended, by the addition of the words "or who claims to be", to read:

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"A payment claim and a payment schedule are, in many cases, given and received by parties who are experienced in the building industry and are familiar with the particular building contract, the history of construction for the project and the broad issues which have produced the dispute as to the claimant's payment claim. A payment claim and a payment schedule must be produced quickly; much that is contained therein in an abbreviated form which would be meaningless to the uninformed reader will be understood readily by the parties themselves. A payment claim and a payment schedule should not, therefore, be required to be as precise and as particularised as a pleading in the Supreme Court. Nevertheless, precision and particularity must be required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute.

A respondent to a payment claim cannot always content itself with cryptic or vague statements in its payment schedule as to its reasons for withholding payment on the assumption that the claimant will know what issue is sought to be raised. Sometimes the issue is so straightforward or has been so expansively agitated in prior correspondence that the briefest reference in the payment schedule will suffice to identify it clearly. More often than not, however, parties to a building dispute see the issues only from their own viewpoint: they may not be equally in possession of all of the facts and they may not equally appreciate the significance of what facts are known to them. This will be so especially where, for instance, the contract is for the construction of a dwelling house and the parties are the owner and a small builder. In such cases, the parties are liable to misunderstand the issues between them unless those issues emerge with sufficient clarity from the payment schedule read in conjunction with the payment claim.

Section 14(3) of the Act, in requiring a respondent to 'indicate' its reasons for withholding payment, does not require that a payment schedule give full particulars of those reasons. The use of the word 'indicate' rather than 'state', 'specify' or 'set out', conveys an 'impression that some want of precision and particularity is permissible as long as the essence of 'the reason' for withholding payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication."

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68 Mr Delany further submitted that the reasons did not have to be "indicated" with "excessive detail".[25] The test was whether the response to the claim indicated reasons "with sufficient particularity" to enable Abigroup to understand what the reasons were.[26] For that purpose, he submitted, the earlier communications in relation to each item repeated in Progress Claim No 26 needed to be reviewed. It was apparent on review of this material that Abigroup well knew the reasons for rejection of Progress Claim No 26.

69 Mr Delany referred to the process of walking around the site discussing the Progress Claims, which had been described by Shannon Percy of WTP and Frank Mercuri in their affidavits. He accepted, however, that there was no such procedure followed in respect of Progress Claim No 26, no doubt because Ms Percy was on leave. Nevertheless, Mr Delany argued that given the repetition of earlier claims that had been discussed and rejected, that procedure was not required in order for Mr Brotherton of Abigroup to understand from his accumulated knowledge why Payment Certificate No 26 only provided for payment of a small amount of the payment claim.

70 Mr Delany further submitted that when one looked at the wording of Payment Certificate No 26 it was obvious that the reason why the claim was largely rejected was because the variation, extension of time and prime cost item claims had not been approved by the Superintendent. Approved variations and prime cost sum adjustments allowed by WTP were set out in one of the documents constituting Payment Certificate No 26. He submitted that the same applied to the treatment of the claim for reversal of the liquidated damages deduction because the dash indicated that the adding back of that amount was not accepted.

71 Finally, Mr Delany submitted that the requirements in relation to payment schedules should be "applied in a common sense, practical manner"[27] which recognises that payment claims and payment schedules are exchanged in the course of a busy construction project without the opportunity for detailed drafting.

72 Mr Burnside submitted that it was quite clear from the wording of s.15 of the Act that the payment schedule must indicate the reason why the scheduled amount was less than the amount claimed. He accepted that the indication could be brief and limited in detail. But, he submitted, it must exist and here there was simply no indication at all. The indication had to be sufficient to identify the area of dispute between the parties because the payment claim and the payment schedule set the ground for what could be considered by the adjudicator. As was said by the New South Wales Court of Appeal in Clarence Street Pty Ltd v ISIS Projects Pty Ltd:[28]

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Estoppel

73 The next issue raised by RSD was that it would be contrary to equity to allow Abigroup to re-submit its claims for variations, extensions of time and prime cost items (claims which it knew had been rejected previously) and then to seek to rely on the Act by alleging non-compliance with s.15, when the course of dealing between the parties in respect of the earlier Progress Claims showed that Abigroup was prepared to follow the walk around the site and discussion procedure and to accept the wording of subsequent Payment Certificates as providing sufficient detail of the reasons why claims had not been accepted. Mr Delany submitted that Abigroup, having permitted and encouraged RSD to proceed on the basis that there was no non-compliance with the Act, should be estopped from alleging that Payment Certificate No 26 was not a valid payment schedule.

74 Mr Burnside submitted that there was no requirement on Abigroup to point out to RSD that the Payment Certificate issued on its behalf by WTP did not constitute "payment schedules" within the meaning of the Act. He further submitted that there was no evidence that Abigroup was aware that RSD was acting on this false assumption about the validity of the Payment Certificates. In the circumstances, he submitted, no estoppel could arise.

Set Off

75 The penultimate issue was whether RSD was entitled to a set off of $979,750 pursuant to TMA's progress certificate No 5 dated 13 April 2006. Mr Delany submitted that this certificate had been issued by the Superintendent pursuant to cl. 42.1(f) of the Contract. He argued that the Court should not ignore subsequent certificates and determinations following the one sued on by the Contractor.

76 If, contrary to all of RSD's submissions, Abigroup was held to be entitled to summary judgment, then Mr Delaney submitted, the amount of that judgment should take into account the fact that under the Superintendent's progress certificate No 5 there was also an amount owing to RSD "on account" and the two amounts should be set off against each other. Thus, the judgment should be in the sum of, not $4,568,787.94 plus GST and interest but that amount less $979,750, or $3,589,037 plus GST and interest. Alternatively, he submitted that, if the subsequent certificate gave rise to a counterclaim rather than a right of set off, then there should be a stay on an equivalent portion of the judgment.

77 The short answer by Abigroup to this issue was that as the progress certificate relied on by RSD was given by the Superintendent and not the Quantity Surveyor, it was a nullity. Mr Burnside submitted that the circumstances contemplated by s.42(1)(f) of the Contract had not arisen. This, of course, was disputed by RSD.

78 The longer answer was that the right of set off claimed by RSD did not exist. Apart from the set off procedure within the certifying process itself, the Act did not contemplate any right of set off with respect to progress payments, which were after all only provisional. Mr Burnside submitted that the approach was not altered by the fact that in the time taken to issue the proceeding and bring on the application for summary judgment other payment claims had been made and different responses provided. He submitted that Abigroup's entitlement to recover the full amount of Progress Claim No 26 plus GST and interest was not affected by these subsequent developments.

A Superseded Payment Claim

79 A related issue which was touched on by the parties but not really developed was:

(a) whether Abigroup could sue on Progress Claim No 26 when it had served Progress Claim No 27, before it commenced this proceeding; alternatively

(b) whether Abigroup could sue on Progress Claim No 26 when it had served Progress Claim No 27 for a lesser amount than that claimed in Progress Claim No 26, before it commenced this proceeding; alternatively

(c) whether Abigroup could sue on Progress claim No 26 when it had served Progress claim No 27 for a lesser amount than that claimed in Progress claim No 26 and the Superintendent, TMA, had responded by progress certificate No 3 which stated that the amount payable by RSD to Abigroup was the sum of $167,748.03, all of which occurred before it commenced this proceeding.

80 Another way of describing the issue was whether, in the circumstances, Progress Claim No 26 had been superseded by Progress claim No 27 and was therefore no longer relevant. Given the developments that had occurred in the nine or so weeks between the provision by WTP of Payment Certificate No 26 and the commencement of the proceeding and the fact that, very early on in the seven or so weeks between that step and the issuing of the application for summary judgment, RSD had paid to Abigroup the full amount certified as owing in TMA's progress certificate No 3, could it be submitted that it was arguable that the amount of any debt owed by RSD to Abigroup at the time of the summary judgment application was a real question to be tried?

Consideration of the Issues

81 Having carefully considered each of the issues discussed above, I have concluded that it is not possible to say that I am left in no doubt on the whole of the material that there are no real questions to be tried. In particular, I consider that each of the issues of "Service", "The Payment Claim", "No Payment Schedule" and "A Superseded Payment Claim" definitely raises a real question to be tried. In reaching that conclusion I have borne in mind Mr Burnside's exhortation not to overlook that any judgment, whether summary or not, is only provisional pending the final determination of the right of the parties. Nevertheless, this does not seem to me to be an appropriate case for summary judgment. Given the well established principle that "the nature of the summary judgment procedure makes it undesirable, if a court is going to give leave to defend, that it give detailed reasons for doing so",[29] I do not propose to say any more about why I consider that there are real questions to be tried in this proceeding. My reasons are to be found in some of the relevant submissions made by RSD, which I have set out above.

82 Subject to hearing from counsel, the order which I propose making is that the defendant have leave to defend the plaintiff's claim.

At a glance

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Judgment (66 paragraphs)

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Legislation Cited (10)

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