Witron Australia Pty Ltd v Turnkey Innovative Engineering Pty Ltd

Legal principles

1. The requirements for a payment schedule are set out in ss 14(2) and (3) of the Act: (2) A payment schedule - (a) must identify the payment claim to which it relates, and (b) must indicate the amount of the payment (if any) that the respondent proposes to make (the scheduled amount). (3) If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent's reasons for withholding payment.
2. The main requirement at issue in this case is that in subs (3). It is somewhat oddly worded. There appears to be substantial, but perhaps not complete, overlap between the notions of the amount of the payment the respondent proposes to make being "less" than the claimed amount, on the one hand, and the respondent "withholding payment" on the other. The overlap between the two notions is perhaps not complete because, for example, it might be said that the respondent is not withholding payment if their answer is that they will pay less than claimed because the claimant has simply added up the integers of its claim incorrectly, or that the amount claimed has already been paid. Hodgson JA gave the latter example in John Holland Pty Ltd v Roads and Traffic Authority of New South Wales (2007) 23 BCL 205; [2007] NSWCA 19 (John Holland v RTA) at [34]. His Honour also said that that category of non-overlap could "possibly [include] excuses for non-payment falling short of alleged justification, such as inability to pay". It is not necessary to consider here whether that would be a relevant reason for the purposes of s 14(3).
3. Regardless of what sorts of issues are not covered by the overlap, it is difficult to see what the reference to indicating "the respondent's reasons for withholding payment" adds to the requirement to indicate "why the scheduled amount is less". Explaining why some step has been taken involves giving reasons for it. Here, those reasons must be ones addressed to why the respondent asserts that the amount claimed is not payable in whole or part. And there is no particular significance to the plural "reasons" being used in relation to withholding payment, as that obviously does not require that more than one reason be given if there only is one reason. The plural includes the singular: Interpretation Act 1987 (NSW), s 8(c).
4. Thus it does not appear necessary to focus on the distinction drawn in s 14(3). Ordinarily courts strive to give meaning to every word in a statute: Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 at [71]. Sometimes, however, drafters employ excess words in seeking to express a requirement: Western Australian Planning Commission v Southregal Pty Ltd (2017) 259 CLR 106; [2017] HCA 7 at [55].
5. The reference to a scheduled amount being "less" than a claimed amount - such that the respondent is required to give reasons - extends to where the respondent is not prepared to pay any amount: note Barclay Mowlem v Tesrol Walsh Bay [2004] NSWSC 1232 at [15]; Style Timber Floor Pty Ltd v Krivosudsky (2019) 100 NSWLR 133; [2019] NSWCA 171 at [48]. That understanding is consistent with the requirement in subs (2)(b) that the respondent indicate the amount of the payment if any that the respondent proposes to make.
6. There are thus three criteria for a document to be characterised as a payment schedule: 1. that it identifies the payment claim to which it relates; 2. that it indicates the amount of the payment (if any) that the respondent proposes to make; 3. that it indicates why the payment that the respondent proposes to make is less than the amount claimed, that is, the reason or reasons for the amount claimed not being payable in whole or in part.
7. The significance of these requirements must be understood in the context of the statutory scheme. If a response to a payment claim does not satisfy the requirements then it is not a payment schedule within the meaning of the Act (which in some cases has been described as not being a "valid" payment schedule). A failure to provide a payment schedule in response to a payment claim within the requisite time means that the respondent becomes liable to pay the claimed amount to the claimant on the due date for the progress payment: s 14(4). The claimant may take steps to recover the amount claimed in a court of competent jurisdiction without the need to go to adjudication: s 15. The claimant may also take steps to suspend carrying out construction work or the provision of related goods and services if the amount claimed is not paid: ss 15(2)(b) and 27.
8. If the dispute goes to adjudication, then under s 20(2B) the respondent cannot include in their adjudication response any reasons for withholding payment unless those reasons were included in the payment schedule. The section presupposes that there has been a payment schedule within the meaning of the Act. Under s 22(2)(d), an adjudicator is required to consider "all submissions … that have been duly made by the respondent". A submission in an adjudication response will not have been duly made if it does not comply with s 20(2B): John Holland v RTA at [31]. Whether or not a submission is duly made is a matter for the adjudicator to determine: Ceerose Pty Ltd v A-Civil Aust Pty Ltd [2023] NSWCA 215 at [31]. The payment schedule, by joining issue with what is claimed, "sets the parameters for the matters that may be contested if an adjudication under the Act ensues": Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448; [2005] NSWCA 391 at [30]; see also Style Timber at [45] and [73]-[74].
9. The contents of a payment schedule have potential significance to a number of actors under the statutory scheme: 1. to the claimant, who faces a decision whether or not to take a matter to adjudication or, if the response is not properly characterised as a payment schedule, to take action to enforce the debt and/or suspend work; 2. to the authorised nominating authority, which receives any adjudication application, as it may affect which adjudicator is nominated (note ss 17(3)(b) and 19); 3. to the adjudicator, first in considering whether to accept the nomination (where identifying the issues of the dispute might be significant to considering whether they can complete the adjudication in the very short time period allowed under the Act), then secondly in considering whether the respondent's submissions are duly made taking account of ss 20(2B) and 22(2)(d).
10. A payment schedule "need not be a formal document": Vanella Pty Ltd v TFM Epping Land Pty Ltd [2019] NSWSC 1379 at [135] per Henry J; see also Minimax at [21]. It need not identify itself as a payment schedule: Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd (2016) 337 ALR 452; [2016] VSCA 247 at [262]. The requirements in s 14 are "undemanding" (Style Timber at [49]), although "vague, generalised objections to payment" will not suffice (ibid at [1]).
11. The nature of what is sufficient was discussed by Palmer J in Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140, in terms subsequently approved in this Court: Clarence Street at [31]; Style Timber at [1] and [46]-[47]; Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWCA 211 at [13]. His Honour's discussion included the following (emphasis added): [76] A payment claim and a payment schedule are, in many cases, given and received by parties who are experienced in the building industry and are familiar with the particular building contract, the history of construction of the project and the broad issues which have produced the dispute as to the claimant's payment claim. [A] payment claim and a payment schedule must be produced quickly; much that is contained therein in an abbreviated form which would be meaningless to the uninformed reader will be understood readily by the parties themselves. A payment claim and a payment schedule should not, therefore, be required to be as precise and as particularised as a pleading in the Supreme Court. Nevertheless, precision and particularity must be required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute. [77] A respondent to a payment claim cannot always content itself with cryptic or vague statements in its payment schedule as to its reasons for withholding payment on the assumption that the claimant will know what issue is sought to be raised. Sometimes the issue is so straightforward or has been so expansively agitated in prior correspondence that the briefest reference in the payment schedule will suffice to identify it clearly. More often than not, however, parties to a building dispute see the issues only from their own viewpoint: they may not be equally in possession of all of the facts and they may not equally appreciate the significance of what facts are known to them. This will be so especially where, for instance, the contract is for the construction of a dwelling house and the parties are the owner and a small builder. In such cases, the parties are liable to misunderstand the issues between them unless those issues emerge with sufficient clarity from the payment schedule read in conjunction with the payment claim. [78] Section 14(3) of the Act, in requiring a respondent to "indicate" its reasons for withholding payment, does not require that a payment schedule give full particulars of those reasons. The use of the word "indicate" rather than "state", "specify" or "set out", conveys an impression that some want of precision and particularity is permissible as long as the essence of "the reason" for withholding payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication.
12. Thus the sufficiency of reasons in satisfying the requirements of s 14(3), and in informing consideration of what matters were raised for the purposes of ss 20(2B) and 22(2)(d), is to be assessed in a purposive manner, taking account of the significance of the payment schedule in the statutory scheme.
13. As noted above, the primary judge in this case held that it was not sufficient that a document purporting to be a payment schedule takes issue with part of the claim made in the payment claim but without addressing the balance, relying upon the decision of Chesterman J in the Queensland Supreme Court in Minimax. The appellant argued that Minimax was "in tension" with the decision of McDougall J in Barclay Mowlem, and should not be followed. To illustrate the significance of the point, the appellant argued that if a payment claim was issued identifying distinct charges for the painting of two houses, and the response indicated that no payment would be made because one of the houses had been painted the wrong colour, then that would be a sufficient reason to make the response a payment schedule for the purposes of s 14. That would be so even though the response only gave a reason not to pay with respect to one distinct component of the claim.
14. Minimax considered s 18 of the Building and Construction Industry Payment Act 2004 (Qld), which is equivalent to s 14 of the NSW statute. An invoice had been issued which contained claims for three separate amounts, the first being for identified labour, and the other two related to an adjustment for overtime rates. The email in response was found to have given sufficient reasons for a refusal to pay the first item but did not deal at all with the other two items. Chesterman J upheld the adjudicator's determination that the email did not constitute a payment schedule, stating: [29] … By s 20 a respondent who does not pay the amount its payment schedule proposes to pay can suffer summary judgment in a court of competent jurisdiction and enforce the amount as a judgment debt. The machinery for prompt payment and enforcement of payment would break down if a document, said to be a payment schedule, took issue with part only of a claim but was silent as to what it proposed to pay in respect of the balance. The contractor could not enter judgment. The respondent's reticence could frustrate the operation of the Act.
15. The decision was referred to with apparent approval by Leeming JA in Style Timber at [51]-[52]. The issue in that case was something of the converse to the situation in Minimax and here. Seven payment claims had been issued relating to five sites. The closest the response came to giving a reason was that the "damages you done [sic] is more than what you claimed". This response was held not to give sufficient reasons to be a payment schedule under the Act, Leeming JA explaining: [73] It is to be borne in mind that [the claimant] had supplied unpaid invoices from five separate sites, and [the respondent's] response identified no site whatsoever. One point of the provision of a payment schedule is to permit the statutory mechanism of adjudication to take place. It is impossible to express any views as to the limits of the adjudication if the 30 November email is to amount to reasons which engage s 20(2B). [74] These concerns may be tested practically. What was the scope of the dispute which might be adjudicated in December 2017? Was there a dispute about all five of the properties throughout Sydney? Or just one property? Or a number of properties? What material would [the claimant] have to supply to an adjudicator if this email were a valid payment schedule? Would [the claimant] have to make submissions about the condition of the concrete floors at Freshwater? About what had occurred at the North Sydney property? How many of the matters raised in October and November had been resolved by 30 November?
16. Style Timber is thus consistent with Minimax in emphasising the need for a response to address the substance of what is claimed, given the nature of the statutory scheme, although it does not address precisely the same point.
17. The decision of McDougall J in Barclay Mowlem concerned a payment claim which sought payment, amongst other things, for certain variations. Those variations were of two identified types: "agreed variations" and "variations to be agreed" (see at [22]). The respondent's response "referred directly to twelve (out of more than 100) in the first category and to eleven (out of 19) in the second" (see at [23]). The claimant argued that this response was not a payment schedule because by not referring to all of the variations some were implicitly accepted, and the respondent had given no reason for not paying those claims. His Honour rejected the argument: [26] I think that there are two answers to that submission. The first is that s 14(3) requires in substance that the respondent to a payment claim indicate in its payment schedule its reasons if it proposes to pay less than the claimed amount. The subsection is not concerned with the adequacy or sufficiency of those reasons. (There may be a limiting case where what is indicated cannot in any real sense of the word "reasons" be described as reasons, but this is not such a case, and I therefore do not propose to consider that question.) If the reasons are inadequate, the claimant will no doubt proceed to adjudication. In that event, the respondent will be limited, in its adjudication response, to the reasons given in the payment schedule (s 20(2B)). [27] The second answer is that it is clear from the payment claim that some variations have been paid. The adjusted contract sum was $8,044,000. The amount paid was $8,484,454. The difference, $440,454, represents paid variations. Thus, it is not clear as a matter of fact that the 18 May letter does not deal with all disputed variations.
18. The appellant submitted that the first paragraph was in tension with the decision in Minimax. The suggestion was that McDougall J indicated at [26] that so long as some reason in response had been given that sufficed, even if it did not address all of the components of a payment claim. The argument misapprehends the decision. His Honour was correct in stating that s 14(3) is not concerned with the adequacy or sufficiency of the reasons given, in the sense of making out a good answer to the claim: note also Façade at [258]. That is a matter for the adjudicator, if the dispute progresses that far. That does not mean that issues of whether reasons have been given sufficiently for the purposes of satisfying s 14(3) of the Act cannot be considered by a court. And his Honour did not say that a failure to address a distinct component of a payment claim would not matter. Thus, at [27], his Honour went on state that it was not clear, as a matter of fact, that the response had failed to address all of the variations.
19. The decision illustrates that questions of fact and degree may arise. That is not surprising given that whether or not a response satisfies the requirements of a payment schedule under the Act involves a question of characterisation. And that point supplies the answer to Witron's argument that accepting the correctness of Minimax would mean that even failure to address a trivial component of a claim would lead to the response not being regarded as a payment schedule. A failure to address some component of a payment claim may not be significant when viewed in context, such as not to be determinative of the question of characterisation. In such circumstances it might still be possible to say that in substance the response had given reasons indicating why the scheduled amount was less than the amount claimed, "sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication" (quoting Luikens at [78]).
20. However, in general a failure to provide any reason or reasons directed to a distinct and substantial component of a payment claim will constitute a failure sufficiently to indicate why the scheduled amount is less than the amount claimed for the purposes of s 14(3) of the Act. Such an omission would fail to identify the parameters of the dispute, impeding the claimant being able to make an informed decision as to how to proceed, and impeding the adjudicator in being able to identify what reasons could be raised in the adjudication response.
21. The appellant's argument that a response can be characterised as a payment schedule if it addresses just one component of a payment claim, without addressing other distinct and substantial components, is thus rejected.

The email response

1. The question then is whether the email sent by Witron on 3 May 2023 fulfilled the requirements of a payment schedule under s 14(2)(b) and (3) of the Act, which involves parsing what the email communicated. It is useful to set out the email again: As discussed during our meeting on 18/4 with Cameron and Juergen, we will review your variations and your new pricing after we see real progress on the handing over of GCs. This approach is also in line with our meeting from last week in Redbank with our 2 CEOs. Based on this you can claim progress for April based on the original contract price minus the 5 deducted GCs. Please adjust your claim accordingly and resubmit for approval.
2. It is convenient to consider the issues raised by Turnkey's notice of contention before addressing Witron's arguments. Turnkey contended first that the primary judge erred in concluding that the email communicated that Witron did not agree to pay any amount. It said that his Honour should have concluded that the email failed to satisfy s 14(2)(b) of the Act because it did not indicate the amount of the payment (if any) that Witron proposed to make.
3. The email is not pellucid. Its tone is that the Witron executive was managing an ongoing dispute with Turnkey about pricing, timing and performance. The author did not seem to realise the significance of the fact that progress claim 9 had been stated to be made under the Act. Even so, it is relatively clear that Witron communicated it did not propose to pay either the amount claimed or any other particular amount in response to this progress claim. The first paragraph communicated that both the variations and the new pricing would be reviewed at some time in the future, "after we see real progress on the handing over of GCs". The second paragraph implies that Witron would be prepared to consider and pay a progress claim "based on the original contract price". But it did not identify any particular amount in that regard. It was, rather, suggesting that Turnkey submit a different progress claim.
4. Turnkey complains that "[n]o figure is identified". The suggestion that it is necessary to identify some particular numeric figure is formalistic, where no particular form is required. Turnkey also submits that Witron's email "was ambiguous as between two positions: 'no progress payment has accrued', and 'a progress payment has or may have accrued, but we are not prepared to consider your claim for that payment yet'". Either way, Witron was indicating it was not proposing to make any payment on the progress claim served. The primary judge was thus correct to construe the email as communicating that Witron would pay none of the amount claimed, thus satisfying s 14(2)(b).
5. The second ground in Turnkey's notice of contention is that the primary judge erred in finding that the claim did indicate why the scheduled amount it proposed to pay (ie nothing) was less than the claimed amount in relation to the base contract works. Conversely, Witron submits that his Honour erred in concluding that the email only communicated a reason in relation to the base contract works. It submits that the reason given sufficed to answer the whole of the payment claim.
6. The first paragraph of the email states that Witron "will review your variations and your new pricing after we see real progress on the handing over of GCs". The email thus acknowledges that the progress claim had two components, being a contractual claim, which was based upon the new prices, and a claim for variations. As noted, the second paragraph communicates that Witron would be open to considering and paying a progress claim based upon the original contract pricing. Thus Witron implied that it would not pay a claim based upon the new prices because it had not agreed to those prices. This may not be the only way of reading the email but it seems the most reasonable understanding of what it communicated. Thus the email did give a reason for not paying the claim insofar as it was based on the base contract works. I reject Turnkey's contention to the contrary.
7. As for Witron's arguments, it suggested that its email gave three reasons why the entire claim was objected to, as follows: (a) The applicable or "starting" contract price was $11.4 million and not about $14.14 million; (b) The adjusted contract prices was less than $11.4 million by reason of the omission of 5 GCs from the scope of the works under the Contract; and (c) The works were behind schedule and Witron had rights under the Contract in relation to same.
8. As for the first two supposed reasons, nothing in those terms is stated or implied in the email. Nor does anything in Turnkey's response, quoted above at [12], suggest anything to the contrary (and nor does it support the third supposed reason). No doubt Witron's email was communicating that the new prices that had been proposed by Turnkey were not accepted by Witron. And the email did suggest that, at least until any new prices had been agreed, any further progress claim should be based upon the original contract price and should reflect the fact that 5 GCs had been "deducted". These points are not at the level of detail claimed by Witron. And the email does not suggest or imply that progress claim 9 encompassed claims in relation to the five omitted GCs
9. In any event, the problem with Witron's arguments in this regard is that a reason or reasons relating to departure from the agreed pricing, and the need to reflect the reduced scope of works, at most were responsive to that component of the claim relating to "base contract works". They did not relate or respond to the amounts claimed for "contract variation works". These were two clearly distinct categories of claim made - the former in the sum of $499,924.63, the latter in the sum of $304,230. That latter aspect was a significant part of the claim. A claim for a variation, of its nature, involves a departure from the scope of works and capped pricing set out in the contract.
10. As for the third supposed reason, there is perhaps an implication in the email that the works were behind schedule, manifest in the expressed desire to see real progress on the handing over of GCs. That is understandable as a complaint, but by itself it does not express a reason why the amount proposed to be paid is less than what is claimed. That work was done late does not necessarily mean there is no entitlement to be paid for it. Indeed, that very point is reflected in the second part of this supposed reason, namely the claimed suggestion that "Witron had rights under the Contract in relation to same". In oral submissions it was said that these rights were the ability to seek liquidated damages for lateness under cl 10 of the contract. But there is no hint in the email that Witron was invoking that clause, nor that any such claim would offset the amounts claimed in whole or in part.
11. Witron sought to emphasise that reasons given need not be ones which would withstand later scrutiny. That is not the issue here. The problem for Witron is it gave no reasons which can reasonably be seen as answering the distinct component of the claim relating to variations. Witron's answer to that part of the claim was to say that "we will review your variations" once progress had been achieved. In other words, Witron would not even consider the variations yet. It would only do so later. Saying as much does not constitute an indication of why it was not prepared to pay the amount claimed, in the sense required by s 14(3) of the Act.
12. At one level of characterisation to say "we are not going to consider paying this until you do X" can perhaps be said to be a reason why payment will not be made - namely, we want you to do X first. In Luikens the respondent to the claim had simply said of one item that it was "rejected". Palmer J rejected the argument that this statement constituted a sufficient statement of reasons for the purposes of s 14(3), saying (at [70]): "For a respondent merely to state in its payment schedule that a claim is rejected is no more informative than to say merely that payment of the claim is 'withheld': the result is stated but not the reason for arriving at the result". That statement illustrates that the issue is to be assessed purposively, that is, taking account of the fact that the purpose of giving the reason/s is (as Palmer J said at [76]) to "apprise the parties of the real issues in the dispute".
13. To say "we are not going to consider paying this until you do X" is, of itself, to refuse to grapple with the claim made. It is not saying that the claim is not payable. It is simply declining to consider whether or not that is so, let alone giving reasons for rejecting the claim, until some other condition is met. That does not serve to apprise the parties of the real issues in dispute. Insofar as it is a reason at all, it does not constitute a reason of the kind required by s 14(3). It is no more a relevant reason than saying "I will explain our reasons if you come and see me" constitutes a reason (note Style Timbers at [10] and [78]), or any more than "we do not intend to pay your claim" or "we will not pay your claim until …" are relevant reasons (see Joye Group at [18] and [32]). It would be different if the respondent said "we are not going to consider paying this until you do X because under the contract X is required before such a claim is made". That would be to give a reason why the claim is not payable.
14. In sum, the primary judge correctly construed and characterised the email, which did not satisfy the requirements of s 14(3), and thus did not constitute a payment schedule for the purposes of the Act.

Orders

1. The orders of the Court should be as follows: 1. Appeal dismissed. 2. Appellant to pay the respondent's costs.

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: 13 December 2023