Quickway Constructions Pty Ltd v Electrical Energy Pty Ltd

THE MERITS OF THE PROPOSED APPEAL

On appeal Quickway contended that declarations that the adjudication determinations were invalid should have been made at first instance. In support of its contention it argued that the purported payment claims upon which the determinations were based were not payment claims within the meaning of s 13 of the Act.
Quickway argued first that the invoices were not claims made by Electrical. Quickway relied in this regard on the fact that the invoices required payment to Scottish. That is so, but it does not in my view lead to the conclusion for which Quickway contended. Clearly, the invoices purport to be claims by Electrical: they are expressed to be tax invoices issued by Electrical to Quickway. Quickway's first argument should accordingly be rejected.
Quickway next argued that the invoices were not payment claims within s 13 because they required payment to Scottish, rather than to Electrical. However, s 13 does not contain an express requirement that a payment claim must demand payment to the claimant. Further, I do not consider that there is any basis for implying such a requirement. If a claimant wishes to have its debt paid to a third party, there is no reason why it should not state this in its payment claim. Doing so would not deprive the payment claim of its character as such.
Thirdly, Quickway argued that the invoices were not payment claims within the meaning of s 13 because Electrical's entitlements to payment had been assigned to Scottish. The assumption upon which the parties proceeded at first instance and in this Court was that assignments at law of the underlying contractual debts were completed by Electrical giving notice of the assignments to Quickway by means of the invoices (see s 12 of the Conveyancing Act 1919 (NSW)).
Subsection 8(1) of the Act requires a claimant to be "[a] person referred to in s 8(1)" (which Electrical clearly was because it had undertaken construction work). It also requires a claimant to be a person "who is or claims to be entitled to a progress payment". The assumption that the assignments were completed by delivery of the invoices means that Electrical was not then a person who was "entitled to a progress payment" (emphasis added). Nevertheless, on the face of it, the second limb was satisfied because Electrical claimed to be entitled to a progress payment.
Quickway submitted however that, because Electrical's claims were without foundation, the purported claims in the invoices were not in truth claims. It did not argue that this result would follow whenever it could be shown that claims in purported payment claims were baseless. Rather, Quickway's argument was that this result would only follow if the claims related to debts that had been assigned. The rationale for this apparently arbitrary distinction was presumably that if payment claims always fell outside the section when the debts they claimed were not in fact owing, there would likely be a multiplicity of litigation challenging the validity of payment claims. This would thwart the Act's obvious objective of facilitating prompt progress payments to contractors, including by speedy adjudication of disputes.
Quickway sought to justify its position by contending that the contrary conclusion would give rise to the possibility that a respondent for whom work was performed may be liable to pay the same debt twice, once to the contractor (who had assigned the debt due to it) and the other to the assignee of that debt.
However, in my view, there is no realistic prospect of this occurring. If a payment claim directs payment to an assignee and the respondent pays the assignee, the respondent will be discharged from liability to the assignee in respect of the amount paid and the claimant/assignor will not be able to pursue its claim for payment because the subject debt was assigned. In any event, if there is any doubt about the validity of the assignment, the debt will have been paid to the assignee at the claimant's direction and with its authority, precluding any further claim by the claimant. Likewise, the assignee will not be able to claim again because it will have received payment of the assigned debt.
This observation applies whether the respondent pays before the time to lodge a payment schedule under the Act arrives, after it has lodged a payment schedule (and before adjudication), or after an adjudication determination but before judgment. The possibility of a requirement to make double payment only arises for consideration if the claimant/assignor enters judgment before payment is made. Quickway's argument is that in such a situation the respondent will have both a liability to satisfy the claimant/assignor's judgment and a liability to pay the assigned debt to the assignee. Two variants on this situation must be considered separately.
The first is where the claimant has assigned the liability and then seeks to obtain judgment after the respondent fails to lodge a payment schedule. In that circumstance, the claimant/assignor is not entitled to obtain judgment against the respondent for the assigned debt because the debt is not "unpaid" in the sense referred to in s 15(2), and s 15(4) states that a judgment may only be obtained in relation to an unpaid portion of a claimed amount. In my view, the word "unpaid" in this context refers to the debt still being owing, that is, it has not been extinguished by any means by which a debt may be discharged or satisfied. As a matter of ordinary English the word "pay" (and its derivatives) is capable of so extending. Further, the context supports adoption of that meaning because the evident purpose of s 15(2)(a) (and of the similar provision in s 16(2) and (4)(a)) is to ensure that claimants only obtain judgment for debts that are still owing.
Upon a legal assignment of a debt by a creditor, the debt ceases to exist as between the original creditor and the debtor, although the debtor becomes liable to the assignee for the amount of the debt. The extinguishment of the creditor/debtor relationship between the assignor and the debtor amounts to payment of the debt as between those persons because it is no longer owed by the debtor to the assignor. The assignor will have received satisfaction of the debt by way of such consideration, if any, as it has bargained for with the assignee. As a result, the debtor/respondent will only be liable to pay the assignee, and not to pay the assignor, and the assignor will be unable to obtain judgment against the debtor.
This approach to the concept of payment derives support from the Macquarie Dictionary's multiple definitions of the word "pay" in which the broad concept of discharge or satisfaction of a debt is prominent. Usually, discharge or satisfaction of a debt will occur as a result of some act of the debtor, whether a payment to the creditor directly or at its direction. However, discharge or satisfaction, and therefore "payment", can equally occur by an act of the creditor, such as a legal assignment of the debt or a release of it under seal.
The second situation to consider is where the respondent lodges a payment schedule disputing the payment claim, either solely on the basis that the debt has been assigned, or on other bases as well. If the respondent is unsuccessful in the subsequent adjudication and pays the determined amount to the assignee, there will be no prospect that the respondent will have to pay twice because, as I have said above, the claimant/assignor has authorised and directed it to pay the amount to the assignee.
If the respondent does not pay the adjudicated amount to the claimant/assignor (because it has paid it to the assignee or it simply does not pay at all) and the claimant/assignor seeks judgment, the claimant/assignor will encounter the insurmountable barrier provided by s 25(2), which requires a claimant/assignor to file an affidavit stating that the debt has not been paid. As indicated in [28] above, the effect of the assignment of the debt is, so far as the claimant/assignor is concerned, to discharge the debtor from liability to it. This means that the debt between the assignor/claimant and the respondent has been "paid" in the sense in which that word is used in s 25(2) of the Act. In those circumstances, no representative of the claimant/assignor could honestly depose that the debt had not been paid. The claimant/ assignor could not therefore obtain judgment against the respondent.
In light of these considerations, there is no reason to give a strained meaning to the expression "claims to be entitled" in s 13(1). On its natural and ordinary meaning, it refers to the assertion of a right, whether or not that assertion is well-founded. In its invoices Electrical clearly claimed to be entitled to the amounts described. That it was not in fact entitled to them did not mean that its invoices did not constitute "payment claims" pursuant to s 13 of the Act.
I add in conclusion that Quickway has put itself in a potentially difficult position because it consented to the payment out of Court to Electric of the money that Quickway paid into Court in respect of the Canterbury adjudication. Even after the adjudication, Quickway should have paid that money to Scottish pursuant to Electrical's notice of assignment contained in its invoice. That would have discharged the assigned debt which was now due to Scottish. As follows from the above reasons, Electrical would not have been able to obtain judgment against Quickway for the debt because it would not have been able to satisfy the Court that it remained "unpaid", that is, owing to Electrical (see s 15(2) and (4)(a) and [27] above).
Even if the assumption that the invoice completed a valid assignment at law were incorrect, the invoice constituted at least a direction and authority for Quickway to pay Scottish. On this basis also the debt owing to Electrical would have been discharged by the payment to Scottish.
For these reasons, I propose the following orders: 1. Grant leave to appeal. 2. Dismiss the appeal. 3. Order the applicant to pay the respondent's costs of the leave application and appeal.
GLEESON and LEEMING JJA: We have had the advantage of reading the judgment of Macfarlan JA in draft. We agree with his Honour that Quickway's submission raises a point of general significance, and that there should be a grant of leave. That grant should be confined to the Canterbury determination: appeals only lie from orders which are adverse to the appellant: Lewis v Condon; Condon v Lewis (2013) 85 NSWLR 99; [2013] NSWCA 204 at [117]. However, we would respectfully conclude that the appeal should be allowed. In light of his Honour's reproduction of the factual background and statutory provisions, and the narrow way in which this litigation has been conducted, we can be quite concise. We shall use the same abbreviations.
Electrical, for valuable consideration, promised to assign all future debts, including debts arising under the construction contract, to Scottish. As soon as the particular debts the subject of this litigation materialised, they were accordingly assigned in equity to Scottish. Upon the giving of notice to Quickway of that assignment, the assignment became effective at law. It was accepted by Electrical that the relevant debt in question had been the subject of a valid legal assignment with effect from the service of the tax invoice with the notation, "This invoice has been assigned to Scottish Pacific (BFS) Pty Ltd", and that before that notice was received, there had been a valid assignment of the debt in equity. Thereafter, Scottish repeatedly sent "Customer Statements" to Quickway, requiring payment, and advising that "All existing and future invoices have been assigned to Scottish Pacific (BFS) Pty Ltd" and "All payments must be made out and forwarded to Scottish Pacific until such time that the notice is withdrawn in writing by Scottish Pacific."
Thus, at the moment of receipt of the tax invoice said to constitute a payment claim, Electrical Energy ceased to be a creditor of Quickway.
It is clear, for the reasons given most recently in All Seasons Air Pty Ltd v Regal Consultancy Services Pty Ltd [2017] NSWCA 289 at [34]-[45], that the service of a payment claim under s 13(1) is an essential pre-condition to taking subsequent steps in the procedure set out in Pt 3 of the Act, as had been noted in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd [2016] HCA 52; 91 ALJR 233 at [44]. Senior counsel for Electrical acknowledged that it followed that Electrical was not a person "who is entitled to a progress payment" within the meaning of s 13(1). To the extent there is any tension between that concession and what was said in Southern Han at [59]-[60], that is not a matter determined by this appeal. The narrow question which divided the parties, and on which this appeal falls to be decided, is whether Electrical was a person who "claims to be entitled to a progress payment".
First, any such claim is, at least for the purpose of these proceedings, one that is bad in law. That is not dispositive of itself. It is clear that a person who claims to be entitled to a progress payment but who, as it turns out, is not so entitled (because the work has not been done properly, or at all, or because the principal has a defence) nonetheless is not precluded from engaging the mechanism of Part 3 of the Act. That is central to the operation of the regime: progress payments may be claimed and must be paid, promptly, but without prejudice to the parties' rights to a final hearing in due course.
Secondly, one purpose, and probably the primary purpose, of extending the entitlement in s 13(1) to serve a payment claim to persons who "claim" to be entitled to a progress payment is the probability that there will be or may be a dispute to some if not all of the claimed entitlement. But there is no dispute in the present case. To the contrary, it is asserted by the claimant that there has been a assignment.
True it is that the tax invoice was sent on Electrical's letterhead. But the invoice did not merely direct payment to be made to Electrical's financier (which is what in fact occurs, strictly, when a creditor requests payment by electronic funds transfer to the creditor's bank). The invoice asserted, unequivocally, that "This invoice has been assigned to Scottish (BFS) Pty Ltd", and required that "All payments must be made payable and sent to Scottish Pacific (BFS) Pty Ltd".
In other words, this was not a case where there was a disputed claim that Electrical was owed money. This was a case where Electrical by the very document contended to be a payment claim asserted, correctly, that it was no longer a creditor.
We would not read the tax invoice as asserting that Electrical claimed itself to be owed money. That is contrary to what the invoice expressly states.
Thirdly, the foregoing is consistent with what McDougall J said (albeit in a different context) in Grave v Blasivic Holdings Pty Ltd t/as Cross Building Services (2010) 79 NSWLR 132; [2010] NSWCA 324 at [23]: "It is no part of [the object of the Act] to give a party to a construction contract a right to receive progress payments from someone who is not a party. The object is limited to operating between those who are parties to a construction contract."
Fourthly, argument on the appeal proceeded by reference to the statutory liability created by s 14(4), which both parties treated as separate and distinct from the underlying contractual liability following the performance of work under the construction contract. The parties were correct to proceed on that basis, as is best illustrated by the consideration that the mechanisms for enforcing that statutory liability do not affect the parties' contractual rights: s 32.
The statutory liability created by s 14(4) is a liability to "pay the claimed amount to the claimant". If a person who has granted a valid legal assignment to the debt is nonetheless a person entitled to serve a payment claim under s 13(1), then one possible outcome is that the principal may become liable under statute to pay the claimed amounts to that person, thereby separating the legal ownership of the underlying debt (which has passed to the assignee) and the statutory liability created by s 14(4) (which remains with the assignor). True it is that the Act somewhat radically alters the position at law between the parties to a construction contract, but we do not consider that it goes that far. Indeed, the appeal illustrates what we regard as the peculiarity of the position for which Electrical contends, for at the same time Electrical accepts that it has no entitlement in law or equity to the debt, it maintains that it was entitled to enforce the debt under Part 3 of the Act.
Nothing in what has been said above determines the position where there has been an assignment effective only in equity, or some other form of security granted by the claimant. The foregoing also passes over some other matters which were not the subject of argument (including issues relating to s 13(7) and (8) which required the provision of a supporting statement which was not to be knowingly false or misleading in a material particular, or, more generally, whether satisfaction of s 13(1) turns on any question of the making of a bona fide claim). It will be clear from the foregoing that the analysis turns on the fact that the document asserted to be a payment claim itself denied that any money was owed to Electrical.
It follows that we would grant leave to appeal, allow the appeal, quash the Canterbury determination, set aside orders 2(a) and 3 made on 28 September 2017, order that the amount paid to Electrical be repaid with interest, and that Electrical pay Quickway's costs at first instance and on appeal.
The formal orders we propose are:
Grant leave to appeal from orders 2(a) and 3 made on 28 September 2017.
Direct that the appellant Quickway file a notice of appeal in the form of the draft notice of appeal but confined to the Canterbury determination.
Appeal allowed.
Quash the adjudication determination of the second respondent dated 28 July 2017 with reference number 2017-TASC-059.
Set aside orders 2(a) and 3 made on 28 September 2017, and in lieu thereof, order that the amount paid to the respondent Electrical be repaid with interest.
Order that the respondent Electrical pay Quickway's costs at first instance and on appeal.

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