West Tankers Pty Ltd v Scottish Pacific Business Finance Limited

The Building and Construction Security of Payments Act 1999 (NSW)

1. The SoP Act contains provisions under which a person who undertakes construction work under a construction contract is entitled to receive, and is able to recover, progress payments. It contains provisions for the making of progress claims and for their adjudication by eligible adjudicators who are appointed by an authorised nominating authority.
2. Under s 24 of the SoP Act, if a respondent to a payment claim fails to pay an adjudicated amount, the claimant may obtain from the authorised nominating authority an adjudication certificate which, under s 25, may be filed as a judgment for a debt in any court of competent jurisdiction and is enforceable accordingly.
3. Section 26A of the SoP Act provides: (1) A claimant who has made an adjudication application for a payment claim can require a principal contractor for the claim to retain sufficient money to cover the claim out of money that is or becomes payable by the principal contractor to the respondent. (2) Such a requirement is made by serving on the principal contractor a request (a payment withholding request) in the form approved by the Director-General of the Department of Services, Technology and Administration. (3) A payment withholding request must include a statement in writing by the claimant in the form of a statutory declaration declaring that the claimant genuinely believes that the amount of money claimed is owed by the respondent to the claimant. (4) A principal contractor for a claim is a person by whom money is or becomes payable to the respondent for work carried out or materials supplied by the respondent to the person as part of or incidental to the work or materials that the respondent engaged the claimant to carry out or supply. (5) A person who is served with a payment withholding request must, within 10 business days after receiving the request, notify the claimant concerned if the person is not (or is no longer) a principal contractor for the claim. Maximum penalty: 5 penalty units.
4. Section 26B provides: (1) A principal contractor who has been served with a payment withholding request must retain, out of money owed to the respondent, the amount of money to which the payment claim relates (or the amount owed by the principal contractor to the respondent if that amount is less than the amount to which the payment claim relates). (2) The amount is only required to be retained out of money that is or becomes payable by the principal contractor to the respondent for work carried out or materials supplied by the respondent to the principal contractor as part of or incidental to the work or materials that the respondent engaged the claimant to carry out or supply. (3) The obligation to retain money under this section remains in force only until whichever of the following happens first: (a) the adjudication application for the payment claim is withdrawn, (b) the respondent pays to the claimant the amount claimed to be due under the payment claim, (c) the claimant serves a notice of claim on the principal contractor for the purposes of section 6 of the Contractors Debts Act 1997 in respect of the payment claim, (d) a period of 20 business days elapses after a copy of the adjudicator's determination of the adjudication application is served on the principal contractor. (4) A part payment of the amount claimed to be due under the payment claim removes the obligation under this section to retain money to the extent of the payment. (5) When the claimant's adjudication application is determined, the claimant must serve a copy of the adjudicator's determination on the principal contractor within 5 business days after the adjudicator's determination is served on the claimant. Maximum penalty: 5 penalty units.
5. Section 26C provides: (1) If a principal contractor discharges the principal contractor's obligation to pay money owed under a contract to the respondent in contravention of a requirement under this Division to retain the money, the principal contractor becomes jointly and severally liable with the respondent in respect of the debt owed by the respondent to the claimant (but only to the extent of the amount of money to which the contravention relates). (2) The principal contractor can recover as a debt from the respondent any amount that the claimant recovers from the principal contractor pursuant to a right of action conferred by this section.
6. Section 34 provides: (1) The provisions of this Act have effect despite any provision to the contrary in any contract. (2) A provision of any agreement (whether in writing or not): (a) under which the operation of this Act is, or is purported to be, excluded, modified or restricted (or that has the effect of excluding, modifying or restricting the operation of this Act), or (b) that may reasonably be construed as an attempt to deter a person from taking action under this Act, is void.

The Contractors Debt Act 1997 (NSW)

1. Section 5 provides: (1) A person (the unpaid person) who is owed money for work carried out for or materials supplied to some other person (the defaulting contractor) can obtain payment of that money in accordance with this Act out of money that is payable or becomes payable to the defaulting contractor by some other person (the principal) for work or materials that the principal engaged the defaulting contractor to carry out or supply under a contract. (2) However, the unpaid person can obtain payment from the principal under this Act only if the work carried out or materials supplied by the unpaid person are, or are part of or incidental to, the work or materials that the principal engaged the defaulting contractor to carry out or supply.
2. Section 6 provides: (1) The following procedure must be followed to obtain payment of the money owed: (a) firstly, a debt certificate must have been issued for the money owed (as provided for by section 7), (b) secondly, the unpaid person must serve a notice of claim on the principal. (2) A notice of claim is a notice in an approved form together with a copy of the debt certificate.
3. Section 7 provides: (1) When judgment is given or entered up in any proceedings relating to the recovery of money owed to a person for work carried out or materials supplied, the court may, by order made on the application of the person in whose favour the judgment is given, issue a certificate (a debt certificate) in respect of the debt under this section. (1A) If an adjudication certificate within the meaning of the Building and Construction Industry Security of Payment Act 1999 has been filed as a judgment for a debt in accordance with section 25 of that Act, the court may, by order made on the application by the person who filed the adjudication certificate, issue a debt certificate in respect of the debt under this section. (2) If the debt concerned consists of daily, weekly or monthly wages, and the debt exceeds 120 days' wages, the amount certified in the debt certificate is not to exceed 120 days' wages. (3) A debt certificate is not to be issued if the court is satisfied that the work was done on something moveable and it would be practicable for the applicant to exercise a lien by retaining the thing in the applicant's possession. (4) A debt certificate is to be in an approved form. (5) In this section, judgment includes a default judgment.
4. Section 8 provides: (1) Service of a notice of claim on the principal operates to assign to the unpaid person the obligation of the principal to pay the money owed under the contract to the defaulting contractor. (2) The assignment is limited to the amount of the unpaid person's certified debt. (3) The assignment is subject to any prior assignment under this Act that is binding on the principal and the defaulting contractor.
5. Section 9(1) provides: After a notice of claim is served on a principal in accordance with this Part, the principal must pay the money owed to the defaulting contractor to the unpaid person.
6. Section 11(1) of the CD Act provides: An assignment effected by operation of this Act is valid at law.

DECISION

1. The following matters are common cause: 1. there is nothing colourable about the Discounting Agreement or its operation. It was a bona fide commercial financing transaction intended to operate according to its tenor and under which the financier gave proper consideration for the finance it extended to Ealwin; 2. by 31 March 2016, the debt owed by the joint venture to Ealwin had been assigned to GE in equity and on 31 March 2016 it was assigned in law; 3. nothing turns on the fact that the legal assignee is GE and not Scottish Pacific. Scottish Pacific stands in GE's shoes.
2. GE became legal owner of the Ealwin debt on 31 March 2016. If s 8(1) of the CD Act operated to assign to West Tankers the obligation of the joint venture to pay Ealwin, that occurred on 5 May 2016. On ordinary principles, GE would prevail because its assignment had already occurred by 5 May 2016. Faced with this difficulty, West Tankers put that: 1. from the time it made its payment withholding request, the obligation of the joint venture to pay Ealwin became incapable of assignment until the payment withholding request ceased to have effect for one of the reasons set out in s 26B(3) of the SoP Act; 2. the payment withholding request ceased to have effect under s 26B(3)(c) when, on 5 May 2016, West Tankers served its notice of claim; 3. at that time, the obligation of the joint venture to pay Ealwin was assigned to West Tankers; 4. that assignment prevails over GE's earlier assignment.
3. I reject this submission.
4. The obligation on the joint venture under s 26B was to retain money and no more, until any of the events described in s 26B(3) occurred. The SoP Act does not restrict the respondent referred to in s 26A (Ealwin) from lawfully dealing with its property including choses in action, whether after the service of a payment withholding request or at all. The words of the SoP Act do not impose any such restriction either expressly or by necessary implication.
5. It is to be observed that it is a matter entirely for the claimant referred to in s 26A (West Tankers) whether or not to serve a notice of claim under s 6 of the CD Act, and thereby to work an assignment and that the obligation to retain money otherwise lapses on the occurrence of three specified events including the mere effluxion of time. Section 26A of the SoP Act, to the extent that it requires a withholding, is an interference with the respondent's property rights in any event and further interference is not to be inferred without clear words to that effect.
6. Ealwin was, at the material times, relevantly powerless, because the Discounting Agreement had been signed years earlier. That instrument operated later according to its tenor, first to work an equitable, and then a legal assignment to GE of the debt owed by the joint venture to Ealwin. There is no suggestion of any transaction intended to defraud creditors: cf Conveyancing Act 1919 (NSW) s 37A.
7. Service on 17 March 2016 on the joint venture of the payment withholding request under s 26A of the SoP Act, did not create any obligation on the joint venture to pay West Tankers or create any charge over the money which the joint venture, as principal contractor, was obliged under s 26A of the SoP Act to hold; see NSW Land and Housing Corporation v DJ's Home and Property Maintenance Pty Ltd (in liquidation) [2013] NSWSC 1167 at [58] - [68].
8. Whatever its status prior to 31 March 2016, on that date, upon service of the notice of assignment, GE became the legal owner of Ealwin's chose in action against the joint venture and Ealwin no longer had any interest, legal or beneficial in it. Thenceforth Ealwin had no legal entitlement to payment.
9. Put another way, and to use the terminology of s 8(1) of the CD Act, from that time there was no obligation on the principal to pay the money owed under the contract to the defaulting contractor.
10. Thus, at the point at which s 8(1) of the CD Act would have operated to bring about an assignment of that obligation, there was no longer any such obligation.
11. The parties addressed submissions with respect to the effect of the equitable assignment of the debt to GE brought about by the Discounting Agreement before notice of assignment was given to the joint venture. It is not necessary to consider that issue for resolution of the present contest.
12. I record that it was put on behalf of West Tankers that the provisions of the Discounting Agreement, to the extent that they worked an equitable and then legal assignment, had the effect of excluding, modifying or restricting the operation of the SoP Act, or purporting to do so. I reject this submission. The SoP Act has operated in its terms and nothing in or brought about by the operation of the Discounting Agreement has subverted or purported to subvert its operation.
13. It follows that the assignment to Scottish Pacific was effective and there was no assignment to West Tankers. Scottish Pacific therefore wins.
14. Submissions were addressed on the possible effect on the outcome of this contest of the Personal Property Securities Act 2009 (Cth). The parties were agreed that there is none.

Conclusion

1. The monies standing in the District Court are forthwith to be paid out to Scottish Pacific.
2. I provisionally order that West Tankers is to pay the costs of Scottish Pacific of the proceedings. This order will take effect unless within 7 days either party notifies my Associate in writing that some other order is sought and states the ground replied upon, in which event the parties are to make arrangements with my Associate to relist the matter.

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: 19 May 2017