Stallion Civil Group Pty Ltd v Tresedar Pty Ltd

CATCHWORDS: BUILDING AND ENGINEERING CONTRACTS - Remuneration - Progress payments - Payment claims - Requirements for - Validity - Need for a payment schedule to dispute claim - Statutory debt for failure to reply with a payment schedule - Whether "construction work" - Meaning of "construction contract" - Arrangement for developer/owner to pay sub-contractor for work carried out under sub-contract with builder - Whether arrangement a construciton contract - Defences to claim - Defence of misleading or deceptive conduct - Relevance of claim not made "bona fide" - Reliance - Loss or damage

Building and Construction Industry Security of Payment Act 1999, ss 3, 4, 5(1), 7, 8(1)(a),9, 10(1), 11(1), 11(2), 13, 14, 15, 22(1) and 32 LEGISLATION CITED: Civil Procedure Act 2005, ss 100 and 101 Trade Practices Act 1974 (Cth), ss 51AB, 51AC, 52 and 87 Uniform Civil Procedure Rules 2005, Sch 5

Bitannia Pty Ltd v Parkline Constructions Pty Ltd (2006) 67 NSWLR 9 Brodyn Pty Ltd t/as Time Cost and Quality v Davenport [2003] NSWSC 1019 Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1 Co-ordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd (2005) 63 NSWLR 385 Grosvenor Constructions (NSW) Pty Ltd (in administration) v Musico [2004] NSWSC 344 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1998) 39 FCR 546; 79 ALR 83; and ATPR 40-850 CASES CITED: Jones v Dunkel (1959) 101 CLR 298 Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950 Legal & General Assurance Society Ltd v Stock (1993) 49 IR 464 Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 Musico v Davenport [2003] NSWSC 977 Okaroo Pty Ltd v Vos Construction and Joinery Pty Ltd [2005] NSWSC 45 Olbourne v Excell Building Corp Pty Ltd [2009] NSWSC 349 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 2 TPR 48; 42 ALR 177

PARTIES: Stallion Civil Group Pty Limited - Plaintiff Tresedar Pty Limited - Defendant

COUNSEL: Mr S Goldstein for Plaintiff Mr DS Weinberger for Defendant

SOLICITORS: Dib Lawyers for Plaintiff Raj Lawyers for Defendant

1 Concern for the payment, and in a timely way, of monies for the carrying out of construction work led to the enactment of the Building and Construction Industry Security of Payment Act 1999 (the Act). As its long title states, it is "An Act with respect to payments for construction work carried out…under construction contracts…"

2 The tenor and operation of the Act may be discerned from its express objects in s 3 which, in presently relevant respects, provides as follows: "(1) The object of this Act is to ensure that any person who undertakes to carry out construction work…under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work…

(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." Context of the dispute

3 This case arose during the construction of a complex of 39 residential home units at a site at 29-33 Dumaresq Street, Gordon by a property developer. The works involved the demolition of three dwellings and the construction of two residential buildings comprising the home units with a basement carpark for 61 vehicles. The developer, as the owner of the site, engaged a builder to perform the works under a contract made on 10 August 2007 for a lump sum price of $11.2 million, included in which was an amount of $46,000 for demolition and $859,941 for excavation work in the total sum in those two respects of $905,941. In turn, by a sub-contract made on 10 November 2007, the builder engaged a sub-contractor to carry out the demolition and excavation work in the lump sum amount of $447,700. The large difference in the two amounts, being about 50 per cent of those in the principal contract, was curious and, although of perhaps passing relevance, caused the sub-contractor some anxious concern on learning of it.

4 The sub-contract work duly commenced on 14 November 2007 and was, in essential respects, completed by May 2008. During that period the sub-contract demolisher/excavator submitted a claim to the builder by a tax invoice for an initial progress payment. After discussions between representatives of the parties concerned, the progress claim was re-directed to the developer, notwithstanding the sub-contract between the builder and the demolisher/excavator, and all future progress claims were so addressed. It was alleged in the proceedings that the agreed process for payment by the developer of progress claims by the sub-contractor constituted an "arrangement" so as to bring it within the coverage of the Act as a "construction contract" between the developer and the sub-contractor. The seed of the present dispute was thereby sown.

5 The developer paid, in whole or in part, the various progress claims for the demolition/excavation work until on 18 September 2008 it received a claim, the tax invoice being incorrectly dated as 2 July 2008, from the sub-contractor for $687,518 pursuant to s 13(1) of the Act. This was the disputed amount in the proceedings. It was over and above the amount of $417,000 already paid by the developer against the sub-contract amount of $447,700. It was said also for the developer that this latest claim was "out of the blue" and not valid as nothing in the sub-contract supported it as covering variations to the works, particularly the claim for the cost of "delays" and additional excavation work not included in the original sub-contract drawings. Even so, by letter dated 3 October 2008 the developer advised the sub-contractor's solicitors of the receipt of the subject claim and stating "we accept that there are outstanding monies due"; the developer engaged an independent project manager to assess the works completed on site and who would "be advising on the extent of the claim being the subject of variations."

6 On 14 October 2008, proceedings in the Supreme Court of New South Wales between the builder and the developer in relation to a payment claim by the builder under s 13 of the Act concerning the subject project was settled by a deed between them. Clause 12 of the deed, relevant to the present matter, contained a provision by which the developer indemnified the builder against all claims made against or incurred by the builder as a result of the demolisher/excavator sub-contractor performing part of the site work and the developer also released the builder against all claims made against or incurred by the developer from the sub-contractor performing part of the site work.

7 In the result, the developer did not pay the sub-contractor's progress claim here. Other than the above-stated letter of 3 October 2008, it also did not reply to the claim by providing to the sub-contractor a payment schedule under s 14 of the Act indicating the reasons for non-payment within 10 business days of service of the claim, that is by 2 October 2008, as required by s 14(4)(b)(ii) thereof. Therefore, as relied on by the sub-contractor, s 15(2)(a)(i) of the Act came into operation to make the claimed amount of $687,518 a statutory debt due to it from the developer.

8 The plaintiff, Stallion Civil Group Pty Limited, as the sub-contractor engaged to do the demolition/excavation work on the site put forward a straightforward claim to recover from the developer what was described as the statutory debt under the Act. Given that the sub-contract it had was with the builder, Property Builders (Constructions) Pty Limited, the plaintiff relied on the arrangement it made in December 2007 with the developer, Tresedar Pty Limited as the defendant in these proceedings, and the builder whereby progress claims for the works were to be made to and paid by the defendant. Being an "arrangement", the plaintiff's case was that it became a "construction contract", albeit oral, between it and the defendant to bring their relationship within the scope of the Act. On the payment claim not being met by a payment schedule, within the allotted time of 10 days or at all, the plaintiff said its claim, without more, became due and payable under the Act.

9 For the defendant, the existence of the alleged arrangement was denied or, even if made, that it could be properly characterised as a construction contract for the performance of construction work under the Act as it was, at most, simply a process, to use a neutral term, for the submission of claims and not for work. In any event, any arrangement was as between the defendant and the builder but did not involve the plaintiff. Further, the payment claim issued to the defendant was said not to be such a claim because it did not identify the purported construction work and claimed monies contrary to the sub-contract between the plaintiff and the builder. As there was no valid payment claim, the defendant pleaded there could be no liability on it to serve a payment schedule.

10 Apart from defences arising directly under the Act, the defendant pleaded the plaintiff engaged in misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth) in that it was aware they were not in a contractual relationship and, in any event, claimed amounts to which the plaintiff had no contractual entitlement. It followed, so the submission went, that the plaintiff was not entitled to rely upon or benefit from conduct which was misleading or deceptive so that there was a complete answer to its claim. In other words, the non-service of a payment schedule arose as a result of the plaintiff's breach of s 52 and it should not be able to benefit from that act or omission so that its claim should be dismissed.

11 Sections 51AB and 51AC of the Trade Practices Act also were relied upon in that communication, such as of a payment schedule, could not be sent to the plaintiff because it caused its facsimile machine not to receive documents. This defence, however, and properly if I may say so, was abandoned during the hearing.

12 The defendant filed a cross-claim against the plaintiff re-pleading, in effect, the substance of its defence under s 52 of the Trade Practices Act. The cross-claim was not pursued as being otiose in light of the defence. I agree and will dismiss the cross-claim: see also Bitannia Pty Ltd v Parkline Constructions Pty Ltd (2006) 67 NSWLR 9 at 15-17 in paras [8]-[16] per Hodgson JA, with whom Tobias JA agreed, esp in paras [8]-[9] as to this count being more properly the subject of a defence rather than a cross-claim.

13 The fundamental question is whether there was a construction contract between the plaintiff and the defendant: if no, then the plaintiff's action must fail; but, if yes, then the issue is whether the payment claim was one within the meaning of the Act to require the service of a payment schedule so as to make, in the absence of such a schedule, the claimed amount a statutory debt due to the plaintiff from the defendant. Even if the answers to those issues favour the plaintiff, there then arises the defence under s 52 of the Trade Practices Act to justify the dismissal of the claim.

14 The provisions of the Act in terms have been recited in the very many cases concerning its operation and I do not propose to repeat them. It is convenient to deal with the statutory scheme established by the Act in summary form.

15 The Act is based upon the carrying out of "construction work" which, among other things, is defined to include the construction, demolition or dismantling of buildings or structures or any works forming part of land: s 5(1)(a) and (b). The definition extends to cover any operation forming an integral part of or preparatory to such work, including site clearance, earth-moving and excavation: s 5(1)(e). The work so performed to attract the Act must be done under a "construction contract" which is defined to mean "a contract or other arrangement under which one party undertakes to carry out construction work…for another party": s 4. The Act is made to apply to any construction contract, whether written or oral, or partly so: s 7(1). The Act expressly does not apply to a construction contract under which the agreed consideration is to be calculated otherwise than by reference to the value of the work: s 7(2)(c).

16 Once the Act has application, the rights of a person who has carried out construction work under the contract entitle the person to a progress payment: s 8(1)(a). A "progress payment" is defined to include the final payment for the work: s 4. The amount of any progress payment is that calculated in accordance with the terms of the contract or, if no express provision be made, the amount based on the valuation of the construction work carried out under the contract: s 9. Valuation of construction work is to be in accordance with the contractual terms or, if no express provision be made, having regard to the contract price for the work, any other rates or prices in the contract and any variation thereto: s 10 (1). A progress payment becomes due and payable on the date in accordance with the contractual terms or, if no express provision be made, on the date being 10 business days after a payment claim is made: s 11(1). Interest is payable on any unpaid amount after a payment claim is made at the rates prescribed under section 101 of the Civil Procedure Act 2005: s 11(2).

17 The procedure for recovering progress payments by a claimant who has performed construction work under a construction contract is relatively undemanding. The person concerned is able to serve a payment claim on the person who is or may be liable to make the payment: s 13(1). The payment claim must identify the construction work to which it relates, the amount claimed and that it is made under the Act: s 13(2). The payment claim may be served only within the period being the later of that determined under the construction contract or 12 months after the construction work to which the claim relates was last carried out: s 13(4). A respondent to a payment claim may reply to it by providing to the claimant a payment schedule: s 14(1). The schedule must identify the payment claim to which it relates and indicate the amount (if any) the respondent proposes to make: s 14(2). If the amount is less than the claim then the schedule must state a reason: s 14(3). Where a claimant serves a payment claim and the respondent does not provide a payment schedule within the time required by the construction contract or 10 business days after service of the claim, whichever is the later, then the respondent becomes liable to pay the claimant the claimed amount on the due date: s 14(4). If the respondent becomes so liable to pay by failing to provide a payment schedule then the claimant has an option to either recover the unpaid portion as a debt or make an adjudication application under s 17(1)(b) for an adjudicator to determine under s 22(1) the amount of the progress payment (if any) to be paid, the date for payment and any interest payable: s 15(2)(a).

18 It is to be noted that in s 15(4) it is provided that where a claimant commences proceedings under s 15(2)(a)(i) to recover a claimed amount as a debt then the court may not give judgment in favour of the claimant unless the respondent's liability arises from failure to provide a payment schedule within the 10 business days allowed and to pay the whole or any part of the amount by the due date. In such proceedings, a respondent is not entitled to bring any cross-claim or to raise a defence in relation to any matters arising under the construction contract.

19 Section 32 of the Act is concerned with its operation as not otherwise affecting any rights of a party to a construction contract to take any civil proceedings in relation to a matter arising under a construction contract. Where so taken, the court or tribunal concerned must allow for any amount paid under a construction contract, such as satisfaction of a debt due under s 15(2)(a)(i), and may make appropriate orders for the restitution of any amount so paid or such other order as is considered appropriate.

20 The concept and operation of the Act has been dealt with in the authorities over the years and has been variously described as "a fast track interim progress payment adjudication vehicle" (Brodyn Pty Ltd t/as Time Cost and Quality v Davenport [2003] NSWSC 1019 in para [14] per Einstein J) and the scheme being that of "pay now, argue later" (Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 in para [96] per Palmer J). And, as Einstein J observed, with perhaps some apparent sympathy, in Grosvenor Constructions (NSW) Pty Ltd (in administration) v Musico [2004] NSWSC 344 in para [13] by repeating the words of McDougall J in Musico v Davenport [2003] NSWSC 977 that "the Act provided for fairly rough justice."

21 From the statutory scheme, the following aspects should be emphasised in presently relevant respects - o A construction contract is a transaction under which construction work is carried out by one person for another. o A construction contract includes an "arrangement." o A construction contract may be written or oral, or partly written and partly oral. o A person carrying out work under a construction contract is entitled to progress payments. o A payment becomes due and payable 10 business days after a payment claim is made, and interest accrues thereon. o A payment may be recovered by the service of a payment claim in the requisite form. o The claim may be served only within 12 months after the construction work was last carried out. o The claim may be replied to by the provision of a payment schedule. o If a schedule is not provided within 10 business days after service then liability arises to pay the claimed amount on the due date. o Where the claimed amount is not so paid then it may be recovered as a due debt. o In recovery proceedings no cross-claim may be brought and no defence may be raised in relation to matters under the construction contract. o The debt effectively is a statutory debt which is payable once there be a failure to provide a schedule. o The Act does not limit any right of a party to a construction contract to bring civil proceedings arising under the contract, including the restitution of any amount required to be paid under the Act.

22 It was common ground that the work performed by the plaintiff on the Gordon site was construction work being demolition and excavation preparatory to the erection phase.

23 The principal and a director of the plaintiff, Fred Fram, on 10 November 2007 submitted a quotation for demolition and excavation work at the subject site to Aris Michael (Chris) Evanian, a director of the defendant. This was done at a meeting between Mr Fram, Mr Chris Evanian and Michael Phantos (who was the principal of the builder) and followed discussions Mr Fram had had since June 2007 with Mr Chris Evanian and his son, Hovig Evanian who was managing the site work for the defendant, relating to the scope of works and contract price. The same day a sub-contract was made between the plaintiff and the builder for the plaintiff to execute the works for the contract sum of $447,700; work was to commence on 13 November 2007 with a completion date of 21 December 2007. Work in fact commenced on 14 November 2007.

24 The plaintiff submitted a progress claim by a tax invoice dated 21 November 2007 addressed to the builder, consistent with the sub-contract, but which was given on site to Mr Hovig Evanian who, apparently according to Mr Fram, said it should be addressed to the defendant. Mr Fram then arranged for an amended invoice in the name of the defendant which was duly sent to it. At the same time, Mr Fram gave a copy of the invoice to the builder's foreman/project manager on the site, Harry Costas, who said it should be addressed to the builder not to the defendant. Some confusion seemed to develop about this aspect until in early-December 2007 a meeting was held on the site between Mr Fram, Mr Costas, Mr Chris Evanian and Mr Hovig Evanian during which meeting Mr Hovig Evanian allegedly said, according to Mr Fram's affidavit: "Tresedar is going to take responsibility for all Stallion invoices. Please address all invoices to Tresedar as Property Builders has nothing to do with the invoices, Tresedar will be paying Stallion Civil Group from now on."

25 Mr Costas gave evidence consistent with Mr Fram and added that Mr Hovig Evanian at the meeting said to him when he queried the process: "Listen Harry, Tresedar is in charge of payments to Stallion. The invoices have nothing to do with you or Property Builders so do not get involved. You do not have [to] worry about payments, follow ups or anything of that nature regarding Stallion as we will fix them up."

26 Mr Chris Evanian in his affidavit did not reply to what Mr Fram alleged at that December 2007 meeting regarding invoices. However, in oral evidence he disagreed with what Mr Fram said and maintained he made it clear that "this arrangement is not agreeable to us" and explained that the plaintiff's invoices always went to Mr Costas for approval and then were transferred to the defendant for payment. The concern the defendant had, as Mr Chris Evanian acknowledged, was that there was a problem between the defendant and the builder who was insolvent so that the defendant paid the plaintiff. However, as to the process for invoices and the payment of them I found Mr Chris Evanian's evidence to be equivocal and somewhat quibbling - on any view, the defendant was to pay the plaintiff the invoice amount regardless of to whom the invoice was addressed and Mr Chris Evanian himself even referred to this as the "arrangement." In any event, Mr Hovig Evanian, who was present in court during the whole of the hearing, did not give any evidence. One may properly draw, which I do, the Jones v Dunkel (1959) 101 CLR 298 inference that his evidence would not have assisted the defendant. I accept Mr Fram's evidence as to the agreed process for the payment of the plaintiff's invoices. All future invoices, including that on which the present action was based, were addressed to the defendant; apart from that present invoice and an amount of $30,700 from earlier invoices, the defendant has paid the plaintiff.

27 There may be no doubt that there was a construction contract between the plaintiff and the builder being the written sub-contract made on 10 November 2007. But that sub-contract, in itself, could not support the present claim against the defendant because it was not a party to it. What, then, was the relationship between the plaintiff and the defendant?

28 On the evidence, there was no "contract" in the sense of a legally recognised and enforceable transaction. For the purposes of the Act, of course, there need not be. For a construction contract to exist, it may arise from an "arrangement" other than a contract and be written or oral or partly each. In Legal & General Assurance Society Ltd v Stock (1993) 49 IR 464 at 480-481 a Full Bench of the Industrial Court of New South Wales had occasion to consider the meaning of an "arrangement" by reference to a learned paper by Mr PM Hall QC, as his Honour then was, and the Industrial Court cited other authorities in that Court, the Supreme Court and the High Court of Australia. The proposition was formed that an "arrangement" was a word of much wider import than the word "contract" and existed where there was a multilateral plan or concerted action to bring about a particular result. Recognising that an arrangement may envisage a transaction in the nature of a bargain which may not be legally binding or enforceable, their Honours held it to be something in the nature of an understanding between two or more persons. In Okaroo Pty Ltd v Vos Construction and Joinery Pty Ltd [2005] NSWSC 45, Nicholas J considered what constituted an arrangement under the Act by reference to authorities in the High Court, Federal Court, Supreme Court and Industrial Court and similarly found (in para [41]) it encompassed transactions or relationships which are not legally enforceable agreements so that (in para [42]) "in deciding whether a contract or other arrangement is within the definition of construction contract the only matter for consideration is whether it is one under which one party undertakes to carry out construction work…for another party." That view received support from Rein J in Olbourne v Excell Building Corp Pty Ltd [2009] NSWSC 349 in para [26].

29 In the present case, the relationship between the plaintiff and the defendant, in my view, may be seen to be one whereby or under which, and despite the sub-contract between the plaintiff and the builder, the defendant required progress payment claims from the plaintiff in respect of construction work done under the sub-contract to be addressed to it and it would take responsibility to pay the plaintiff such claims; the plaintiff accepted that process. I conclude that that is clearly an arrangement. Is it an arrangement under which the plaintiff undertook to carry out construction work for "another party", that is either the defendant or the builder, within the meaning of the definition of construction contract in the Act?

30 Counsel for the defendant, Mr DS Weinberger, vigorously resisted any such arrangement as being between the plaintiff and the defendant for the carrying out of construction work. The work, so counsel submitted, was done by the plaintiff for the builder under the sub-contract and the arrangement meant only that it was to be paid for by the defendant. Therefore, there was no construction contract between the plaintiff and the defendant as would support a claim for a progress payment. In any event, if the arrangement be a construction contract it was excluded from the application of the Act by s 7(2)(c) because it was one the consideration for which was calculated otherwise than by reference to the value of the work carried out, that is, by no more than a convenient payment process.

31 Mr S. Goldstein, counsel for the plaintiff, submitted the arrangement was between the plaintiff and the defendant as the plaintiff performed the construction work on the basis it would be paid for by the defendant.

32 I am satisfied, on the facts as found, that an arrangement existed between the plaintiff and the defendant under which the plaintiff carried out construction work for the defendant and, to the extent necessary, also for the builder. The builder was necessarily involved due to Mr Costas' participation for it at the December 2007 meeting. The whole purpose of the arrangement plainly was for the plaintiff to perform the construction work and be paid for it, such construction work being that as set out in the sub-contract as emanating from the principal contract between the defendant and the builder for the development of the site.

33 Therefore, I find there was a construction contract within the meaning of the Act between the plaintiff and the defendant as constituted by the oral arrangement made in December 2007.

34 Mr Weinberger submitted that the maximum exposure of the defendant was to an amount of $30,700 outstanding from previous tax invoices from the plaintiff where it had paid $417,000 of the total sub-contract price of $447,700. Counsel explained that that balance had not been paid because the excavation work had not yet been completed and there was still about 2 per cent to be done. Counsel challenged the validity of the subject tax invoice for $687,518 as a payment claim under the Act on the basis that it was - (a) a claim for damages in respect of variations to the sub-contract; (b) a claim for damages due to delays during the work so as not to be construction work; and (c) included a component for a job on another site.

35 In the result, Mr Weinberger put, the whole claim was tainted so as to be invalid and to have no effective operation under the Act as would require a reply by the defendant to serve a payment schedule.

36 Mr Goldstein said the subject claim satisfied the requirements for a payment claim. It was made by the plaintiff as a person who carried out construction work: ss 8(1) and 13(1); it contained the necessary details: s 13(2); and it was served within 12 months after the construction work was last carried out, having in mind the work commenced on 14 November 2007 and the claim was served on 18 September 2008: s 13(4). Counsel submitted that all of the challenges to the claim by the defendant were only properly by way of a payment schedule under s 14, which the defendant failed to serve, so that the defendant's arguments were irrelevant for present purposes. If the defendant persisted in resisting the claim it should make payment and seek restitution in appropriate proceedings under s 32 of the Act.

37 The argument of Mr Weinberger against the acceptance of damages in respect of variations and delay, in that such matters were outside the definition of "construction work" in s 5(1), relied upon the decision in Co-ordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd (2005) 63 NSWLR 385. There, Hodgson JA (at 397 in para [41]), with whom Ipp JA and Basten JA agreed, was of the opinion that any amount truly payable as damages for breach of contract is generally not an amount due for the construction work concerned. However, his Honour considered a particular amount may be characterised as "damages" by a contract but that cannot be conclusive as to whether it is for construction work carried out. In the result in that case, it was held that delay damages could be claimed to be due for construction work within the definition of that term in the Act. For myself, the same reasoning, perhaps with even greater strength, would as here bring damages for variations to the contract within the definition also, that is, as payment for construction work carried out under the varied contract.

38 In any event, as Mr Goldstein pointed out, such challenges do not affect the validity and effect of a payment claim as was stated as follows by Hodgson JA in Bitannia (in paras [2]-[3]): "2 On the question of good faith, I agree with Basten JA that the requirement of s 13(1)(a) of the Building and Construction Industry Security of Payment Act 1999 that a person 'claims to be entitled' does not import a requirement of genuine belief, and in particular does not import such a requirement as to each and every item included in the payment claim.

3 If there were such a requirement, then the onus of proof of it, in court proceedings pursuant to s 15(1) of the Building and Construction Industry Security of Payment Act, would be on the person serving the claim; and although there would probably be an evidentiary onus on the other party to lead or point to evidence of lack of genuine belief, the availability of that kind of contest would be contrary to the objects of the Act. Consistently with those objects, all challenges to claims made in a payment claim should be made by way of the payment schedule."

39 As to the inclusion in the payment claim of work performed at another site, that is at 183 Burns Road, Turramurra, I think the same approach must apply so that any challenge should be by a payment schedule. To a similar effect, Palmer J in Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1 in para [48] held that the scheme of the Act required such defences to be "raised in a timeously served payment schedule. If it is not, then the defence may not be relied upon to set aside or restrain enforcement of the adjudication determination as a nullity, nor may it be relied upon as a defence to entry of judgment under s 15(4) of the Act."

40 It follows, I am satisfied, that the payment claim served by the plaintiff on the defendant on 18 September 2008 was a payment claim within the meaning of the Act.

Failure to reply with a payment schedule and consequences thereof

41 It was conceded by the defendant that it failed to reply to the payment claim with a payment schedule by the required date of 2 October 2008. That failure under s 15 has immediate and drastic consequences for it. As Hodgson JA commented in Bitannia (in para [4]), if a payment schedule is not served "the Act can work harshly; and this would be particularly so in the case of an extravagant payment claim." Nevertheless, the Act, having in mind its objects as given effect by the statutory scheme, must be applied. In my view, a court should be extremely slow in moving to deny a party relief now where to do so would, on the facts as presently available in this case, frustrate the evident intention of the legislative scheme. It is true that any payment the plaintiff may achieve from judgment here may only be provisional in the sense that the defendant may move through other proceedings for final entitlements to be determined. However, if the statutory requirements be met then the plaintiff should have the benefit and the matter should be allowed to take its course.

42 It must be had in mind that even though the defendant did not serve a payment schedule, but nevertheless challenged the whole claim, evidence disclosed it considered some amount was due to the plaintiff. I have mentioned earlier the defendant's letter dated 3 October 2008 to the plaintiff's then solicitors in which it accepted there were outstanding monies due as to the subject payment claim, albeit to be assessed "on the extent of the claim being the subject of variations." No such assessment or any payment occurred in favour of the plaintiff.

43 In the result, considering the terms of the Act itself and the defences raised, my view is that the plaintiff is entitled to the relief it sought pursuant to s 15(2)(a)(i) and nothing in s 15(4)(a) operates to prevent that. However, it is necessary to consider the defence of misleading or deceptive conduct raised under the Trade Practices Act.

44 Bitannia is authority for the proposition that s 15(4)(b)(ii) of the Act, in denying a defence in relation to matters arising under the construction contract where a payment schedule has not been served, does not preclude a party from raising the defence of misleading or deceptive conduct under s 52 of the Trade Practices Act. Such a defence was found not to be in relation to such matters arising under the contract. If made out, this defence would result in the dismissal of the plaintiff's claim.

45 The impugned representation was that the plaintiff was entitled to the amount claimed as set out in the payment claim served on the defendant and such representation was misleading and deceptive in that the plaintiff was not so entitled. Thereby, the defendant said it would suffer loss and damage if judgment were entered in these proceedings. Indeed, the defendant went further by pleading that the service of the payment claim itself was misleading and deceptive in that it represented that the plaintiff was entitled to an amount to which it was not in fact entitled so that the present proceedings should be dismissed under s 87 of the Trade Practices Act.

46 For the purposes of these proceedings only, the plaintiff agreed that the payment claim amounted to a representation that it was entitled to the monies sought but otherwise denied the alleged misleading or deceptive conduct.

47 It should immediately be noted that the mere service of a payment claim cannot, in my view, be misleading or deceptive in itself because the Act expressly gives a statutory right to do so and where a respondent to a claim is able to reply by a payment schedule setting out the basis for any resistance to the claim. The real issue is whether the contents of the payment claim amounted to misleading or deceptive conduct.

48 Mr Weinberger, cogently in my view, relied on what Hodgson JA said in Bitannia (at 15 in para [8]), namely, that it would not be in accordance with the legislative intention disclosed in s 52 of the Trade Practices Act to permit a corporation to obtain a judgment against a defendant "on a cause of action one essential element of which has been created by that corporation's misleading conduct against that defendant." That approach, as I would understand it, does not attend to the service of a payment claim itself but rather to the contents of it which may be characterised as misleading or deceptive by reason of the claimant's conduct.

49 Mr Weinberger furthered his case by identifying the misleading and deceptive conduct on the plaintiff's part as stemming essentially from the description of items as variations when in truth they were damages for which the sub-contract did not provide. For instance, counsel relied as misleading conduct the claim on the defendant by the plaintiff for $333,190 for extra excavation work done using the working drawings under the sub-contract instead of the sketch drawings on which the original quotation was based because, as Mr Fram admitted, the builder "tricked" him by including the working drawings in the sub-contract. I have to say, and even given Mr Fram may have been so misled by the builder, it is difficult to accept the inclusion of such an item in the payment claim was misleading or deceptive of the defendant in that the claim particularised it as "extra over excavation from the architectural drawings…additional material removed in excess of the original allowable material…" Mr Weinberger's submission that the claim was misleading as it did not correctly represent the true state of affairs was not, it seems to me, made out. Similar submissions were made as to other items which I find unnecessary to deal with individually. Suffice it to say, my view is that the payment claim did indeed sufficiently particularise the various items. I find nothing misleading or deceptive about it.

50 True it may be that one or more of the items claimed, on a proper examination of the merits, may not justify a payment to the plaintiff. But that is a different question to the one presently in issue. After all, a payment claim under s 13(1) may be served by a person "who is or who claims to be entitled to a progress payment." An unsuccessful claimant is not necessarily to be seen as acting in bad faith. In Bitannia, Hodgson JA (at 12 in para [2]) agreed with Basten JA that for a valid payment claim it was not necessary for a claimant to have a bona fide belief in its entitlement to the monies sought. As Basten JA explained (at 27 in para [58]): "…However, s 13 should not be read in isolation: rather, consideration must be given to the whole of the procedure envisaged under Pt 3…Thus, a proprietor who seeks to resist a payment claim is entitled (and required) to provide a payment schedule in reply. A claimant who makes a patently unsustainable or untrue claim is thus likely to be met by a payment schedule. If the claimant wishes to pursue the claim in that event, it must be referred to and determined by an adjudicator, who is very likely to disallow so much of the claim as is patently false or unsupportable. Accordingly, as the respondent argued, the 'bona fides' of the claimant should not be treated as a separate criterion of a valid claim: rather, as with any other issue going to the merit of the claim, the scheme of the legislation was to require that an assessment be made by an adjudicator."

51 I should mention a specific submission by Mr Weinberger which, in a sense, went beyond the good faith concept referred to in Bitannia. Counsel put that "the payment claim was trumped up and out of the blue. The fact that it was made earlier in late April 2008 is not to the point. When first made in April 2008 it was out of the blue." That submission responded to a submission by Mr Goldstein to the effect that 9 of the 11 items in the payment claim had been the subject of a claim to the defendant by a tax invoice on 22 April 2008; one of the items was for $30,700 being the balance outstanding from the original sub-contract; and the remaining item, to which I have referred already, related to the Burns Road, Turramurra job but which itself was the subject of a payment claim on the defendant on 28 May 2008. None of those items have been paid in whole or in part and no payment schedule has been served in respect of them. Even so, in its letter to the plaintiff's solicitors of 3 October 2008 concerning the claim it was conceded some monies were due and the defendant was doing an assessment of the position. Further, it is to be noted as to at least the 9 items in the claim that the evidence of Mr Fram and Mr Costas was that in April 2008 they met with Mr Hovig Evanian and reached an agreement - I repeat, Mr Hovig Evanian did not give evidence.

52 In those circumstances, Mr Weinberger's description of the subject claim being "out of the blue" cannot be accepted. Indeed, I found the evidence of Mr Chris Evanian to be unsatisfactory in those respects. He obfuscated and prevaricated in answering questions but I consider he was aware of and understood the details of the plaintiff's payment claim. On the other hand, I found Mr Fram a frank and open witness who readily made admissions to state the position as it was, such as signing the sub-contract without checking it as to the drawings to be used for the work, and who simply sought payment for the work he said was required to be done.

53 For conduct to be misleading or deceptive it has been held that the representee must thereby labour under some error or to somehow be induced to do or not to do something which otherwise would not have occurred: see Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 2 TPR 48; 42 ALR 177. In other words, relief under the Trade Practices Act has the element of reliance by the person receiving the representation so as to be induced to do or not to do something which gives rise to the loss or damage: see also Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950 per Lockhart J and Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1998) 39 FCR 546; 79 ALR 83; and ATPR 40-850. There is no evidence in the proceedings to even suggest the defendant relied on the payment claim by labouring under some error to act any differently from what it did. In fact, Mr Chris Evanian agreed in evidence he was aware of the obligation to reply with a payment schedule disputing any unsupportable claim and that he agreed with the contents of the letter of 3 October 2008, drafted by Mr Hovig Evanian, to the plaintiff.

54 On the evidence overall, I am not satisfied the plaintiff engaged in any misleading or deceptive conduct in serving the payment claim on the defendant. I consider the defendant was well aware of the details of the items claimed but nevertheless failed to reply with a payment schedule and was content to admit part liability for the items subject to an assessment. Certainly, it could not be said the defendant relied on the representation of the payment claim to adversely affect its interest, only that it itself failed to comply with the statutory requirement on it to respond with a payment schedule.

55 The defence under the Trade Practices Act must fail.

56 The plaintiff agreed to carry out construction work at the Gordon site of demolition and excavation works under a construction contract being a sub-contract made with the builder. During the performance of the works, an arrangement was made between the plaintiff and the defendant, to which the builder was a party, whereby the plaintiff's tax invoices for progress payments as to the works were to be submitted to and paid by the defendant. The arrangement was a construction contract within the meaning of the Building and Construction Industry Security of Payment Act.

57 The subject payment claim by the plaintiff on the defendant for $687,518 was a valid and effective claim for the purposes of the statute. The defendant failed to reply to the claim with a payment schedule and otherwise made no payment of any part of the claimed amount. Accordingly, the claimed amount is a statutory debt due to the plaintiff by the defendant. The defence under the Trade Practices Act to obviate that result was not made out and should be dismissed.

58 Notices of motion by each of the parties as to future proceedings in this dispute remain to be dealt with.

59 The plaintiff is entitled to a verdict against the defendant in the amount of $687,518. Interest and costs were claimed. I see no reason why interest should not be allowed, having in mind the terms of s 11(2) of the Act, from the date the debt became due and payable on 2 October 2008 to today, pursuant to s 100 of the Civil Procedure Act, at the rates prescribed under s 101 as specified in Sch 5 to the Uniform Civil Procedure Rules 2005 - that calculates at an amount for interest of $45,790.91. However, I will hear the parties on this and on costs before making final orders, together with the hearing of the notices of motion.

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