Romeo v TQM Design and Construct Pty Limited

Judgment (Ex tempore - revised 16 April 2013) 1BATHURST CJ: This is an appeal from the judgment of Judge Levy SC of the District Court of New South Wales, in which his Honour entered summary judgment in favour of the respondents against the appellants in an amount of $159,176.88. The judgment was entered as a consequence of the primary judge striking out a defence filed by the appellants on 27 June 2011. 2The proceedings arose out of building work which the respondents had agreed to undertake on behalf of the appellants. The original building contract was entered into on 12 May 2005 and it was not an issue between the parties that it was a contract to which the Building and Construction Industry Security of Payments Act 1999 ("the Act") applied. 3Disputes arose between the parties as to the work involved and the liability to pay and, as a consequence, the parties entered into a deed of settlement and release dated 23 November 2007. Relevantly, the deed provided as follows: "2.1 In consideration of TQM/Taouk entering into this Deed, The Romeos jointly and severally agree to make the following payments (without admission as to liability) to TQM: (a) $137,500.00 (inclusive of GST) to be paid upon the execution of this Deed, provision of documents in Schedule 2 and commencement of rectification of the front façade awning; (b) $137,500.00 (inclusive of GST) to be paid within 7 days of TQM notifying the Romeos of completion of the Rectification Works and those works actually having been completed; and ..." 4The first payment was apparently made. The second payment was not made and as a consequence, the respondents served a notice on the appellants under the provisions of the Act requiring payment of the amount due. The appellants did not, in accordance with the provisions of the Act, raise dispute by serving a payment schedule. As a consequence, if the Act applied liability to pay the amount claimed was incurred. 5The respondents sued to recover the amount and the primary judge held they were entitled to do so, striking out the appellants' defence. The defences that were raised may be briefly summarised in three categories. The first was that the contract was not a contract to which the Act applied. In that regard, reliance was placed in particular on s 7(2)(c) of the Act which provides that the Act does not apply to a construction contract where it is agreed that the payment is not to be calculated by reference to the value of the work to be carried out. The second argument relied upon was that the work had been completed prior to twelve months before the issue of the claim for payment. The third argument was that the claim had not been served in accordance with the Act. 6The primary judge determined that none of those defences could arguably be made out and as a consequence entered summary judgment against the appellants. 7The appellants appealed against each of the findings of the primary judge. Because this is a decision from a judgment which did not finally determine the issues, it would be inappropriate for this Court in my view to go any further than to consider whether each or any of the matters raised by the appellants in their defence is arguable. In my opinion, at least the first two matters raised in the appellants' defence were arguable. 8So far as the first matter is concerned, namely whether the contract was a construction contract for the purposes of the Act, it is arguable that the payments required to be made were not made by reference to the value of any work performed. This is so clearly in respect of the first $137,500, which related to the settlement of an existing dispute. In relation to the second payment, the payment was conditional upon certain work being completed. However, it does not on its face at least appear to bear any resemblance to the value of the work. 9The primary judge disregarded those consequences primarily because he took the view that the deed of settlement and release was merely a variation of the initial contract. His Honour reasoned that if the initial contract fell within the Act, so too did the contract of 23 November 2007. With respect to his Honour that is an incorrect analysis. The question of variation of contract and whether it constitutes a new contract has been dealt with most recently by the High Court in Commissioner of Taxation v Sara Lee Household & Body Care (Aust) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520. At par [22] of the judgment of Gleeson CJ and Gaudron, McHugh and Hayne JJ, their Honours dealt with the effect of a second contract. They indicated that in those circumstances ex hypothesi there were two contracts, and further, that it may be material to determine whether the effect of the second contract was to bring the first contract to an end and replace it with the second, or whether the effect was to leave the first standing, subject to the alteration. 10In the present case what is crucial is that there are two contracts. It seems to be fairly clear as a matter of construction that the second contract was to replace the first. In those circumstances, it is at least arguable that the basis on which the primary judge reached the conclusion was incorrect and the appellants should have an opportunity to argue the point at the trial. 11So far as the second matter is concerned, the primary judge disregarded evidence of Mr Peter Sukkar to the effect that the work was done more than twelve months prior to service of the payment claim. His Honour said that the conflict between Mr Sukkar's affidavit evidence was simply an error. Whether it was error or not, the evidence was such that it was certainly arguable that the work was completed outside the twelve month period. The explanation for the so-called error was that the work had been commenced between March and May 2008 and not completed until May 2009. As the appellant pointed out in its supplementary submissions, it would be unusual that one of the items of work, a relatively small item of paintwork, was in fact commenced in March 2008 but not completed until 2009. That of itself gives rise to some doubt as to whether or not the so-called correction to May 2009 could be accepted. Whether it should or not is a matter of course to be determined at the trial but it should not have been dealt with on a summary basis. 12In those circumstances it is not necessary to deal with the third matter, namely the question of service by post. 13The respondents opposed costs and in particular submitted that any separate costs of the unnecessary application for leave to appeal should be borne by the appellants. 14As to costs generally, in my opinion there is no reason in this case that costs should not follow the event. So far as the cost of the application for leave to appeal is concerned, it seems to me in the circumstances of the present case that no additional costs were incurred as a result of that procedure being undertaken and in the circumstances no special order need be made. 15Having regard to those matters, in my opinion, I would make the following orders: 1.Appeal allowed. 2.The orders made by the primary judge in paras 1 - 5 of his Honour's orders should be set aside and in lieu thereof the matter should be remitted to the District Court for hearing on the merits. 3.The respondents should pay the appellants' costs of the appeal and the costs of the application for summary judgment in the Court below. 16McCOLL JA: I agree with the Chief Justice's reasons and the orders his Honour proposes. 17WARD JA: I agree with the Chief Justice's reasons and the proposed orders.