Taylor Construction Group Pty Ltd v Adcon Structural Group Pty Ltd

Supreme Court of NSW|2023-06-22|Before: Rees J, Stevenson J

Solicitors: HWL Ebsworth Lawyers (Plaintiff) Roberts Legal (Defendant) File Number(s): 2023/188806

Construction contracts

The parties entered into a construction contract for the Banksmeadow project in December 2021. In June 2022, the parties entered into a second contract for the Ingleburn project. Both contracts were for the supply of structural steel and were in relevantly identical terms.
Clause 17.1(a) of the contracts provided that, if the Subcontractor committed an Event of Default, the Main Contractor was entitled to give the Subcontractor a Default Notice setting out details of the Event of Default and the date by which the Event of Default must be cured. Clause 17.1(b) provided that, if the Event of Default was not remedied by the time specified in the Default Notice, the Main Contractor may terminate the Subcontract.
By December 2022, Adcon was in default under both contracts, having failed to supply steel in accordance with the construction programs. Taylor issued default notices in respect of both contracts. On 20 December 2022, the parties executed a Deed of Settlement and Release, by which Taylor agreed to delay action in relation to the default notices and to pay some of Adcon's suppliers directly; the contract sum payable to Adcon was reduced accordingly. The deed stated that Adcon remained liable to perform its obligations under the contracts. Clause 3.1 of the deed provided: Release of Taylor The Subcontractor acknowledges that it has no accrued entitlement to make a claim against Taylor under the Contracts and indemnifies, releases and forever discharges Taylor … from all such claims.
Adcon accepts that it is not entitled to make a payment claim in respect of any entitlement which had accrued as at 20 December 2022.

Default Notice

On 8 March 2023, Taylor issued further default notices to Adcon in respect of both contracts. Each notice of default alleged that Adcon had breached the relevant contract by failing to program and progress the works and that Adcon was required to pay certain sums to Taylor within five business days, being $2,441,991.94 plus GST in respect of the Banksmeadow contract and $3,904.117.85 plus GST in respect of the Ingleburn contract. These sums were said to be advances made by Taylor to Adcon, at Adcon's request, which were not reflected in work done.
On 15 March 2023, Adcon responded to the default notices. Adcon said the default notices were insufficiently particularised and failed to take account of discussions and all of the circumstances. The amounts claimed were denied.

Termination

On 24 March 2023, Taylor replied, disclaiming that the Default Notice lacked detail, albeit some further detail was given. Taylor maintained that Adcon had failed to respond to the Default Notice as it had not paid the amounts owed nor provided a program to demonstrate how and when it would achieve Completion of the Subcontract Works, either within the five business day period specified by the Default Notice or at all. Further: In the circumstances, in accordance with clause 17.1(b) of the … Contract, Taylor terminates the … Contract. In accordance with clause 17.1(d) of the … Contract, Taylor will now make arrangements for the completion of the Subcontract Works.
On 27 March 2023, Adcon responded, taking issue with each of the matters raised by Taylor. Adcon contended that the Default Notices failed to take into account discussions between the parties on 13 March 2023 and steps which Adcon had taken since those discussions to provide guarantees, financial information and a proposal to provide savings on the remaining works. Further: … Taylor's purported termination is without proper cause and is a repudiation of the agreement. We do not accept such repudiation and assert ou[r] rights under the contract and remain ready, will and able to perform. Adcon gave notice of a dispute under clause 19.2 of the contract and sought to meet in the next seven business days to attempt to resolve the dispute in good faith.
Assuming for the purposes of this application that Taylor's efforts to terminate the contract were, in fact, repudiatory conduct, then the parties agree that Adcon thereby elected to affirm the contracts.
On 4 April 2023, Taylor responded at length. In respect of the suggestion that the Default Notices lacked sufficient detail, Taylor repeated the contents of its letter of 24 March 2023. As to the suggestion that the Default Notices did not take into account discussions between the parties, Taylor went into some detail in respect of meetings which were held on 21 February 2023, 3 March 2023, 13 March 2023 and 19 March 2023, who attended the meetings, what was discussed and whether any agreements were reached at these meetings. Taylor maintained that no agreements were reached. Taylor responded in detail to Adcon's suggestion that it had provided a program of works, a guarantee and was working towards providing financial information. As to the suggestion that Taylor's calculation of the amount owing by Adcon was incorrect, Taylor repeated the contents of its letter of 24 March 2023.
As to Adcon's suggestion that it was continuing to perform works on the site, Taylor said it was undertaking the work following the exercise of step-in rights or by making direct payments to Adcon's suppliers. Taylor concluded: Taylor has taken steps to have the remainder of the work under the … Contract to be performed by others. There is, therefore, no utility in [Adcon] purporting to keep the … Contract on foot, assuming that it has any legal basis for doing so (which is denied). Taylor advised that, as the only dispute was the correctness of Taylor's termination of the contract, there was little utility in meeting.
On 11 April 2023, Adcon replied in respect of both contracts in the same terms: We confirm receipt of your correspondence dated 4 April 2023 reaffirming your purported termination … [Your] actions constitute a wrongful repudiation of the Subcontract, and we now accept that termination …

Payment claims

A couple of hours later, also on 11 April 2023, Adcon served a payment claim in respect of the Banksmeadow project. The parties agree that this was a valid payment claim meeting the requirements of section 13(2) of SOPA. The next day on 12 April 2023, Adcon served a payment claim in respect of the Ingleburn project. The parties agree that this was also a valid payment claim.
On 25 April 2023, Taylor issued a payment schedule in respect of each contract. Contrary to its position at trial, Taylor then asserted that both payment claims were invalid for a variety of reasons which it is not necessary to repeat.
On 31 May 2023, without withdrawing the April 2023 payment claims, Adcon served another payment claim in respect of the Banksmeadow project in the amount of $3,744,790.33 and another payment claim in respect of the Ingleburn project in the amount of $3,699,076.24. The parties agree that, but for the fact that Adcon had already issued a payment claim in respect of each contract in April 2023, the May 2023 payment claims also complied with section 13(2) of SOPA.
On 9 June 2023, Taylor's solicitor wrote to Adcon, contending that the payment claims were issued in breach of the Deed of Settlement and Release. Further, both contracts had been terminated. Adcon was only entitled to make one payment claim after termination, which was served in April 2023. There was no reply. On 13 June 2023, Taylor commenced these proceedings.

Were the contracts terminated?

Whilst Taylor maintained that it terminated the contracts on 24 March 2023, for the purpose of this application, both parties were content to resolve this issue by reference to Adcon's actions on 11 April 2023. Adcon accepted that if it terminated the contracts, then the May 2023 payment claims fell foul of section 13(1C) of SOPA and could not proceed to adjudication.
Adcon submitted that it elected to affirm the contracts on 27 March 2023, notwithstanding Taylor's repudiatory conduct. On 4 April 2023, Taylor recapitulated its assertions and entitlement to terminate. On 11 April 2023, Adcon took a different position to its earlier election, stating that it elected to terminate each contract. This changed position was said to be of no effect, where an election to affirm or terminate is final, irrevocable and irreversible: Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 (2022) 406 ALR 632; [2022] HCA 38 at [50] (per Kiefel CJ, Edelman, Steward and Gleeson JJ, following Sargent v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40 at 642 per Stephen J, with whom McTiernan ACJ agreed). While a party is not prevented from relying upon an available later breach after previously electing to affirm, it was submitted that this did not occur here, as the later repudiation was indistinguishable from the earlier repudiation: GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1; [2003] FCA 50 at [363] (per Finn J).
Taylor submitted that its letter of 4 April 2023 was a further act expressly evincing an intention no longer to be bound by the contract, itself constituting repudiation of the contract: Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444; [1976] HCA 21.
In Larking v Great Western (Nepean) Gravel Ltd (1940) 64 CLR 221; [1940] HCA 37, Dixon J drew a distinction between a contractual obligation "to do a definite act capable only of a breach once for all and a continuing covenant": at 238. Where a party was obliged to do a definite act and failed to do it within the time allowed, "he has broken his covenant finally and his continued failure to do the act is nothing but a failure to remedy his past breach and not the commission of any further breach": at 236. For obligations to maintain a state or condition of affairs, such as maintaining a building in repair, "a further breach arises in every successive moment of time during which the state or condition is not as promised": at 236.
The implications of this distinction are important in the context of waiver or affirmation. If a contracting party is obliged to do something by a particular time - such as pay the purchase price - but fails to do so and the other party elects not to terminate the contract for breach, then the promisee can, generally speaking, only terminate the contract having given notice requiring performance within a specified reasonable time and after non-compliance with that notice: Carr v J A Berriman Pty Ltd (1953) 89 CLR 327; [1953] HCA 31 at 348-349. However, as Fullagar J also explained in Carr at 349: … a failure to remedy the breach might continue so long and in such circumstances as to evince an intention on the part of the [promisor] to no longer be bound by the contract. In other words … "Not only have I broken my contract by not doing the thing on the due day, but I am not going to do the thing at all" … In this way a right to rescind might arise which is not based on breach of the particular promise as such. … the promisee may nevertheless be able to establish that the contract of the promisor with respect to his promise amounts to a refusal to be bound by the contract …
As put in Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444; [1976] HCA 21, the first breach is a failure to complete on the due date and the later breach is a failure to complete at all: at 459 (per Gibbs, Mason and Jacobs JJ). That is, "although mere delay will be no more than an omission to remedy the past breach which has been waived … the purchaser by further unreasonable delay or by a further act expressly evinces an intention no longer to be bound by the contract. Either the further delay or the further act may constitute a repudiation": Ogle at 459. See likewise Ailakis v Olivero (No 2) (2014) 100 ACSR 524; [2014] WASCA 127 at [115] (Martin CJ) and [159] (Murphy JA).
Turning to the authority relied upon by Adcon, Finn J summarised these principles in GEC Marconi at [362]-[363]: (citations partially omitted) [363] … The effect of an election to affirm is that, once communicated to the other party, the choice made becomes irrevocable and the right to terminate is lost in respect of the breaches of contract or repudiation that required the election to be made … [364] An election to affirm in respect of a breach of contract or of a repudiation does not prevent the elector from relying upon an available later breach: cf Foran v Wight (1989) 168 CLR 385 at 441-442; or repudiation: Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 at 458-459; Carr v J A Berriman Pty Ltd (1953) 89 CLR 327; to terminate the contract provided that there is a later breach or repudiation that is distinguishable from the earlier breach: cf Larking v Great Western (Nepean) Gravel Ltd (1940) 64 CLR 221, at 236ff on the distinction between a "once and for all" and "continuing" breach.
I do not take Finn J's statement that the later breach "is distinguishable from the earlier breach" as imposing a requirement that the later breach is a breach of a different obligation, or breach of the same obligation but by different means. It is sufficient that the promisee fails to perform its contractual obligations on a subsequent occasion, when the time for performance comes again.
His Honour's reference to Foran v Wight makes this plain. In Foran v Wight, Dawson J drew a distinction between anticipatory breach and actual breach; when the time for performance arrives, the anticipatory breach is converted into an actual breach and the remedies available are for actual, rather than anticipatory breach: at 441-2. The contracting party's acts or omissions in respect of both breaches are the same, being a refusal to perform their obligations under the contract. The only thing which has changed is the passage of time; the time for performance has come and gone.
For example, if a purchaser fails to complete the purchase of property on the required date and the vendor affirms the contract, then the vendor is not entitled to terminate until the purchaser fails to complete on another nominated date. The failure in both cases is the same, being a failure to pay the purchase price. The later breach is temporally distinguishable, having occurred on a separation occasion.
Turning to the case at hand, I assume for the purpose of this argument that Taylor's notice of termination of 24 March 2023 was without a proper basis and in breach of its contractual obligations. I also assume (without deciding) that this breach was a "once and for all" breach rather than a continuing breach. Adcon's response to that breach - to affirm the contract - had the consequence that Adcon could not later proceed to terminate the contract on the basis of that breach. On 4 April 2023, Taylor breached the contract again, by again asserting that it was entitled to - and indeed already had - terminated the contract. It matters not whether Taylor made this assertion on the same or a different basis than its first assertion of a right to terminate. The fact was that Taylor did it again. The later breach is temporally distinguishable, having occurred on a separation occasion. This second breach gave Adcon the right to accept this repudiatory conduct and bring the contract to an end, or to affirm the contract. Adcon chose the former. It was entitled to do so. The contract was thereby terminated on 11 April 2023.
If I am wrong about this, then I consider that Taylor's letter of 4 April 2023 made plain that Taylor firmly regarded the contract as at an end. Taylor had taken steps to have the remainder of the work under the contract performed by others. Taylor thereby evinced an intention to no longer be bound by the contract, being itself repudiatory conduct, which Adcon was entitled to accept and did so on 11 April 2023, bringing the contract to an end.
Having issued one round of payment claims in April 2023 following this termination, Adcon was not entitled to issue a second round of payment claims in May 2023: section 13(1C). Service of these payment claims was not effective to enliven the provisions of SOPA: BCFK at [71].

Is the claimant entitled to issue further payment claims?

Notwithstanding this, Adcon submitted that Taylor had asserted that the April 2023 payment claims were invalid in its payment schedule of 25 April 2023. Taylor was not entitled to approbate and reprobate: The New South Wales Netball Association Ltd v Probuild Construction (Aust) Pty Ltd [2015] NSWSC 1339 at [31]-[53] (per Stevenson J). Adcon was entitled to accept Taylor's contentions and treat the earlier payment claims as invalid and of no effect for the purposes of SOPA. Taylor should not be permitted to now assert that the same payment claims were valid, when Adcon issued further payment claims, so as to invoke section 13(1C). Taylor submitted that Netball Association v Probuild was distinguishable.
As Adcon accepted, Netball Association v Probuild was not squarely on point. There, Stevenson J was asked to exercise a discretion to grant certiorari where the parties agreed that an adjudicator's determination was invalid. Netball Association argued that the Court should withhold this relief, where Probuild had previously asserted that the adjudicator had jurisdiction but did an volte face when the determination proved unfavourable. His Honour described Probuild's conduct as "opportunist," seeking to approbate and reprobate: at [39]-[40]. This was a powerful factor to be taken into account in the exercise of the Court's discretion: at [45]. Stevenson J referred to the observations of Einstein J "albeit in a different context" in Rojo Building Pty Ltd v Jillcris Pty Ltd [2006] NSWSC 309 at [39]: The scheme of the Act is unforgiving in terms of the technicalities which require to be observed. There is no room for a claimant to approbate and reprobate. There is another party to be considered. There is no room for a claimant to leave a respondent in any form of doubt as to precisely what course is being followed by the claimant. Nor is there room for a respondent to leave a claimant in any form of doubt as to precisely what course is being followed by the respondent.
Einstein J's observation in Rojo Building was in the context of an application by a builder to re-open, which called for application of the principles in Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300; [1993] HCA 6. The fact that SOPA imposed a strict scheme was a relevant factor with Einstein J took into account in exercising his discretion as to whether to grant leave to re-open.
The application of section 13(1C) of SOPA does not involve the exercise of discretion. Section 13(1C) applies on its terms to preclude Adcon from serving a further payment claim after the April 2023 payment claims. There is no room for concepts of "approbation and reprobation" here. A payment claim may be withdrawn and replaced by another payment claim: NC Refractories Pty Ltd v Consultant Bricklaying Pty Ltd [2013] NSWSC 842, [39] (per Hammerschlag J); Kitchen Xchange v Formacon Building Services [2014] NSWSC 1602, [17] (per McDougall J). But SOPA does not permit more than one payment claim to be made after termination of the construction contract, at least without withdrawing a payment claim already made after termination. The May 2023 payment claims fall foul of section 13(1C). Adcon ought be restrained from applying for an adjudication of these claims.

Orders

For these reasons, I make the following orders: 1. Order that the defendant be permanently restrained from making any adjudication application under the Building and Construction Industry Security of Payment Act 1999 (the Act) in respect of: 1. the document dated 31 May 2023 served by the defendant on the plaintiff which purports to be a payment claim made under the Act in the amount of $3,744,790.33 for work performed by the defendant on the Proximity Banksmeadow Project; or 2. the document dated 31 May 2023 served by the defendant on the plaintiff which purports to be a payment claim made under the Act in the amount of $3,699,076.24 for work performed by the defendant on the Stockland Ingleburn Project. 1. Declare that the defendant's right to claim payment under the Act has been exhausted in respect of both: 1. the contract between the plaintiff and the defendant dated 2 December 2021 in relation to work at a site known as 9 Coal Pier Road, Banksmeadow NSW 2019; and 2. the contract between the plaintiff and the defendant dated 23 June 2022 in relation to work at a site known as 35-47 Stennett Road, Ingleburn NSW 2565. 1. Order the defendant to pay the plaintiff's costs of the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 June 2023

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