Zulform Pty Ltd v Donmar Construction Pty Ltd [2020] VCC 562

2 The parties entered into a subcontract agreement (Exhibit AA0-3) on 21 February 2019 with Zulform agreeing to supply labour, materials, plant and equipment "to complete the bulk of excavation, basement retention and concrete package" for a project at 90 Melbourne Road and 130 Ferguson Street, Williamstown. The contract provided for a fixed price of $1,630,000 exclusive of GST. (Oosthuizen affidavit 24 December 2019, paragraph 7)

3 Clause 13.1 of the subcontract authorised Zulform to submit progress claims on the last day of each month and, in any event, no earlier than the 25th day of the month. Clause 13.3 obliged Zulform, if requested, to submit to Donmar a statutory declaration verifying payment to Zulform employees, subcontractors and suppliers as at the date of the progress claims. This obligation arose "if requested to do so by Donmar".

4 Clause 13.4 provided for Donmar to "assess" the subcontract value of the works "having regard to the proportion of the Works completed and the Subcontract Sum together with the value of adjustments to the Subcontract Sum due under the Subcontract", but only if Zulform's progress claim complied with the requirements of clauses 13.1 - 13.3.

5 Clause 13.4 required Donmar to pay the amount assessed less any amounts it was entitled to deduct under the subcontract within 35 business days after the end of the month following receipt. No interest was payable for late payment. Where a payment schedule was required to be issued, Donmar would issue it on or before 10 business days after receipt of the progress claim. Reductions might be made where the contactor had failed to comply with clauses 13.6, 13.8 and 13.9. (See clause 13.10)

6 On 26 July 2019, Zulform emailed a progress claim described as "Invoice 350" dated 25 July seeking payment of $417,197 inclusive of GST. (Oosthuizen affidavit, 24 December 2019, paragraph 11, Exhibit AA0-4)

7 It was submitted under cover of a transmission addressed to various individuals at Donmar, but specifically to "payables@Donmar.com.au". (Exhibit AA0-5) The invoice included the statement "this payment schedule is under the Building and Construction Industry Security and Payment Act 2002". Presumably, that is a reference to the Building and Construction Industry Security of Payment Act 2002.

8 Section 14 of that Act deals with payment claims, a matter to which I will return in detail hereafter.

9 Section 15 of the Act provides for a person in receipt of a payment claim to "reply to the claim" by providing a payment schedule. No payment schedule was furnished in this case. (Oosthuizen affidavit, 24 December 2019, paragraph 14)

10 On 2 September 2019, Donmar paid $298,218.05 in response to the invoice, leaving $118,978.95 of the monies demanded in the invoice outstanding. No further payment of any of the sum demanded in the invoice has been made. (Ibid, paragraphs 15 and 16)

11 Solicitors acting for Zulform have commenced this proceeding by Originating Motion seeking payment of the amount outstanding, namely $118,978.98, together with interest at the rate fixed pursuant to s2 of the Penalty Interest Rates Act 1983 from 9 August 2019 until judgment.

The Building and Construction Industry Security of Payment Act 2002

12 The Building and Construction Industry Security of Payment Act 2002 establishes in broad terms a regime of "pay now argue later" with respect to payment claims for construction work. The phrase "Construction Work" is defined at some length in s5 of the Act, and the scheme of the statute extends also to what are defined as "Related Goods and Services" in s6.

13 Section 14 provides for the service by a claimant under construction contracts of what are described as "payment claims". Section 15 provides for respondents to these claims to reply with what are described as "payment schedules", which, to be effective, must be served within the time required by the relevant construction contract or within 10 business days after the payment claim is served. Failure to respond or reply with a payment schedule creates a statutory entitlement on the part of the claimant to recover the unpaid amount claimed or serve notice of intention to suspend carrying out work or supplying related goods or services.

14 Section 17 provides a remedy against a party failing to pay in accordance with the payment schedule. Disputes emerging from the service of payment claims and payment schedules may be referred by the claimant for adjudication under s18. Attempts to contract out of this payment regime are prohibited and rendered ineffective by s48 of the statute.

15 The parties remain entitled to have their rights and obligations determined under traditional contractual dispute regimes in court. An obligation to pay the amount of the payment claim is without prejudice to the ability in subsequent litigation to contend that some or all of the amount was not due because, for instance, of defective or incomplete work. A court determining matters on the traditional contractual basis is required to make allowance for the payments which have been made under the summary procedures of the Act: s47.

16 In Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd [2009] VSC 156; (2009) 26 VR 112, Vickery J undertook a survey of the history of the Act and its interstate analogues, the original model for this legislation coming from NSW. His Honour said:

"The principle that the respondent to a payment claim for a progress payment 'should pay now and argue later' is given full effect under the Act: Multiplex Constructions Pty Ltd v Luikens and Anor. This regime promotes the object of the Act, being to facilitate timely payments between the parties to a construction contract and to provide for the rapid resolution of disputes arising in respect of progress claims under construction contracts."

17 Section 14 makes detailed provision for payment claims. Most pertinently, sub-s(2) provides:

"(a) must be in the relevant prescribed form (if any); and

(b) must contain the prescribed information (if any); and

(c) must identify the construction work or related goods and services to which the progress payment relates; and

(d) must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount); and

(e) must state that it is made under this Act."

18 Vickery J remarked in Schiavello's case, speaking in 2009, "there has not, to date, been any prescription of the form under para (a) or of the information under para (b)." [2009] VSC 156; (2009) 26 VR 112, 123 [52] This apparently remains the case.

19 On behalf of Donmar, its counsel, Mr Biviano, contended that invoice 350, which is the subject of the present claim, did not meet the requirements of s14 of the Act. First, it was said that it did not state that it was a payment claim under the Act. Secondly, it was said that it did not precisely identify the works undertaken with sufficient particularity to enable Donmar to produce a payment schedule in response. Thirdly, it was said that it was not served as required by clause 13 of the contract and it was not served with the statutory declaration required by clause 13(3) of the subcontract "in conjunction with clause 2.22 of the Post Tender Evaluation of the contract)".

20 I have already quoted the designation appearing on invoice 350, a designation which apparently had appeared on the invoices served as part of all previous progress claims which had in fact been paid. What the payment claim should have said on this score is, "This is a payment claim pursuant to the Building and Construction Industry Security of Payment Act 2002". Plainly, these precise words have not been used, nor is the divergence merely an abbreviation by the use of initials and the omission of the year of enactment or any other matter which can most readily be regarded as a mere trifle.

21 In his principal submissions on behalf of the plaintiff, Mr A R Morrison of counsel, provided a schedule of decisions from this State and the States of New South Wales and Queensland. The list included a number of decisions of this Court. According to Mr Morrison, at paragraph 24 of his submissions, "A review of the authorities reveals a generally permissive attitude in which errors in the form of the endorsement are typically not held to invalidate the claim".

22 Amongst the schedule of decisions is one of my own in South City Plaster Pty Ltd v Modscape Pty Ltd [2018] VCC 1576, where the endorsement stated "This claim is made under the Securities (sic) of Payment Act".

23 Mr Biviano, on behalf of the defendant, provided brief analyses of each decision in the schedule relied on by his opponent, stating, "The principles which can be distilled from the above authorities are that the courts are prepared to accept compliance with the Act in circumstances where there is a slight misdescription or error as to the name of the legislation on the payment but it is clear as to which legislation applied". (Final Submissions, paragraph 21)

24 He said in many of the cases there had been no dispute between the parties as to the adequacy of the endorsement. In the present case, said Mr Biviano, the invoice described itself as "a schedule" under the Act. Section 15 of the Act provides for schedules but they are, one might think, the antithesis of payment claims in the same way as a Defence filed by a defendant is the antithesis of the plaintiff's Statement of Claim. Mr Biviano said, "even on a broader interpretation it is not compliant with the Act." (Ibid, 22)

25 Mr Biviano referred to a recent analysis by Lyons J in the Supreme Court in the matter of John Beever (Australia) Pty Ltd v Paper Australia Pty Ltd [2019] VCS 126, referring to paras 90-94 and 98 of his Honour's judgment, which are in the following terms:

"90. The position in respect of the July claim is different. For the reasons that follow, I have concluded that the defence advanced by the defendant in respect of the July claim has reasonable prospects of success. This is because I have formed the view that the July claim does not meet the statement requirement.

91. The authorities referred to above relate, for the most part, to the identification requirement, rather than the statement requirement. However, I consider that the general principle that compliance with s 14(2)(c) is not to be approached in an unduly technical manner also applies to the statement requirement in s 14(2)(e).

92. That said, the statement requirement in its terms is clear: it requires that the payment claim 'must state that it is made under this Act'.

93. Further, it is important to acknowledge the significance of the statement requirement. It is of critical importance that the recipient of a claim is aware that the claim is a payment claim for the purposes of the Act. This is so that the recipient may comply with the time requirements imposed on them in respect of the service of any payment schedule under s 15 of the Act. As noted by the Court of Appeal in SSC set out at [47] above, the Act lays down clear specifications of time to be observed, rendering it not difficult to understand that the availability of the rights conferred upon a person seeking payment under the Act should depend upon strict observance of the statutory requirements that are involved in their creation.

94. In the present case, the July claim did not state that it was claim made under the Act. In my view, a purposive and non-technical construction of the statement requirement would authorise a Court to look at the covering correspondence serving the payment claim to determine whether the statement requirement has been met. However, in this case, the 9:47 pm email serving the July claim also did not state that it was claim made under the Act.

98. In all the circumstances, I have concluded that the July claim does not meet the statement requirement. This is because of the failure of each of the July claim or the 9:37 pm email by which it was served to contain the statement requirement: that the claim was made under the Act. This is notwithstanding the terms of the 6:36pm email particularly given the differences between the form of the May and June claims on the one hand and the July claim on the other. Viewed objectively, I do not consider that the statement requirement has been met: there was real doubt that a reasonable recipient in the shoes of the defendant would have reasonably concluded that the July claim was a payment claim under the Act."

26 I respectfully adopt the formulation by Lyons J as the most authoritative recent analysis of this issue in Victoria. His Honour, it will be seen, decried approaching this issue "in an unduly technical manner" but stressed the need that the special advantages given to a plaintiff under the statute required an element of strict compliance. As is evident from paragraph 98, his Honour approached the matter on the basis that the effect of the designation, whether it should be regarded as compliant or not, needed to be judged objectively.

27 Approaching the issue objectively, I ask: What would an experienced operator in the building and construction industry, which Donmar clearly was, make of invoice number 350? Its designation is uncertain and, perhaps to some extent, illiterate. In my view, however, the meaning is plain. A statute of this importance in force in Victoria since 2002 must be thoroughly notorious in the building and construction industry. The phrases "building and construction" and "security" appear, and no recipient, including this defendant, would have been uncertain or in any doubt as to what was intended. The reference to a "schedule" in what was plainly an invoice objectively would be regarded as bizarre and inappropriate; but no experienced operator in the industry, and certainly not this defendant, would have been misled. The requirements of s14(2)(e) have been made out.

28 In accordance with s2(c) of the Act, to be a valid payment claim the document must "identify the construction work ... to which the progress payment relates". On behalf of Donmar, Mr Biviano contended that invoice 350 did not meet this requirement. He referred to the decision of Finkelstein J in Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248, where his Honour referred to the "privileged position" in which a payment claimant was placed by the statute. Mr Biviano said that his Honour stated the test for compliance with s14(2)(c) was "objective", the payment could be read in context, including the history of the project and any issues which may have arisen between the parties previously. The test, according to his Honour, was not overly demanding and should not be approached in a technical manner. Nevertheless, sufficient detail was required to enable the recipient to understand the basis of the claim. In that case, his Honour concluded that assuming the payment claim was valid, the responding schedule was not. His Honour declined to combine a number of documents to find the basis for a valid schedule. Mr Biviano then referred to the John Beever Australia case [2019] VSC 126 [83], where Lyons J approached the matter in a similar manner. Mr Biviano conceded that there was an Excel spreadsheet included, with details of percentages of work said to be completed. He said there was no detailed or particularised description of the works undertaken and how the percentages were arrived at. This was particularly so, having regard to the following:

(a) completion date for the works was 19 June 2019 and there were delays;

(b) defects having been identified with the works and notified to the plaintiff; and

(c) chargebacks for works and labour that ought to have been supplied by the plaintiff.

29 Mr Biviano's contentions on these matters are more by way of assertion than the provision of a pathway of reasoning to the conclusion of inadequacy. As to the specific matters referred to, namely delays, defects and "chargebacks", when these matters are traced to the affidavit of Mr Donagan (paragraph [19], [20] and [24]-[27]), they will be seen to fall within the "pay now argue later" principle which is at the heart of the statute. What the defendant's critique appears to amount to is a requirement that a valid payment claim in these circumstances should engage with all of the complaints which the plaintiff as principal under the subcontract had relative to Zulform's performance. There is nothing in the statute which would justify such a requirement. To accept such a requirement would be totally subversive of the principle embodied in the statute.

30 Mr Biviano referred to s50 of the Building and Construction Industry Security of Payment Act 2002, which provides:

"Service of notices

50(1) Any notice or document that by or under this Act is authorised or required to be given to or served on a person may be given to or served on the person -

(a) by delivering it to the person personally; or

(b) by lodging it during normal office hours at the person's ordinary place of business; or

(c) by sending it by post or facsimile addressed to the person's ordinary place of business; or

(d) in such manner as may be prescribed for the purposes of this section; or

(e) in any other manner specified in the relevant construction contract.

(2) The giving of, or service of, a notice or document that is sent to a person's ordinary place of business, as referred to in subsection (1)(c), is taken to have been effected -

(a) in the case of posting - 2 business days after the day on which the notice or document was posted;

(b) in the case of a facsimile - at the time the facsimile is received.

(3) If a facsimile is received after 4.00 p.m. on any day, it must be taken to have been received on the next business day."

31 Here, the document was forwarded by email; but email is not an authorised form of service under s50. He noted that s109X of the Corporations Act 2001 did not authorise service of documents on the company by email either. Next, Mr Biviano referred to clause 13.30 of the subcontract conditions which specifically prohibited the service of "notices" under the "Security of Payment Act" by email. He said that invoice 350 served as the purported payment schedule fell within the definition of "a notice" under the statute. He referred to Taylor Projects Group Pty Ltd v Brick Pty Ltd [2005] NSWSC 439 and Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd [2006] NSWCA 259. Insofar as Mr Morrison, on behalf of Zulform, sought to rely on clause 2.22 of the "Post Tender Evaluation", he said that clause 1.4 and 1.5 of the subcontract conditions and clause 2.2 of the Post Tender Evaluation set out an order of precedence where there is a discrepancy or inconsistency. That order of preference gave the subcontract conditions precedence over the Post Tender Evaluation. He said the fact that Donmar had made payments against emailed invoices previously was "not relevant to the issue of non-compliance with the Act".

32 In the Taylor Projects Group case, Einstein J considered whether, for the purposes of s31(1) of the New South Wales Act, which is the equivalent of s50(1) of the Victorian Act quoted above, a payment claim was to be regarded as a "notice". His Honour referred to a number of considerations and rejected a contention on behalf of Taylor which would have required, in effect, "personal" service upon a company. In the Falgat Constructions case, Hodgson JA, with whom Handley JA concurred, approved what Einstein J had said in Taylor Projects, adding "in my opinion also, a payment schedule is also such a notice". These New South Wales authorities, in my view, establish that, for the purposes of the Act, the purported payment claim is to be regarded as a "notice".

33 Clause 1.5 of the subcontract conditions established an order of precedence as between various contractual documents. The subcontract conditions themselves were given third precedence behind the front page of the subcontract and the subcontract schedule. The "Post Tender Review Minutes" were given eighth precedence behind all other documents. Clause 2.2 of the document styled "Subcontract Post Tender Evaluation" established a precedence not, it would seem, identical to the order of precedence in the contract conditions. For present purposes, however, both seem to place the subcontract post-evaluation document as having the lowest precedence.

34 There might be some doubt as to whether the "Subcontract Post Tender Evaluation" is synonymous with what the subcontract conditions in the precedence laws describe as "the Post Tender Review Minutes". The document-styled Subcontract Post Tender Evaluation, however, is in the form of a set of Minutes with answers or agreements relative to the various clauses as being "agreed", "not applicable" et cetera. The evaluation is in the form of a set of Minutes. Accordingly, I believe the "Subcontract Post Tender Evaluation" can be regarded as synonymous with the "Post Tender Review Minutes" referred to in clause 1.5 of the subcontract conditions.

35 Clause 2.22 of the Post Tender Evaluation which is dated, in its heading, 4 February 2019 and by definition must post-date the subcontract conditions, states: "Progress claims must be submitted by either; post, hand delivered or email to "payables@Donmar.com.au. Any claims received to other Donmar emails will be rejected".

36 Viewed in purely contractual terms, Mr Biviano's contention that service by email is "out", appears to be correct. Nor can it be said that the prohibition on contracting out of the operation of the Act established by s48 of the statute affects this conclusion. Section 50 does not authorise service of "notices" by email. If it did, the prohibition in the subcontract conditions would be overridden.

37 As a fallback position, Mr Morrison on behalf of Zulform contended that Donmar should be "estopped" from contending that invoice 350 had not been properly served as a payment claim. He did not develop this contention or cite any authority.

38 In Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 428-9, Brennan J (as he then was) said:

"... to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed or expected that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise."

39 In the present case, these requirements seem to be met. Having committed Zulform to subcontract conditions which prohibit the service of payment claims by email, in the boilerplate clauses, Donmar, as part of a form of consultation post tender, led Zulform to believe that service of an invoice as a payment claim by email at a particular address would be effective. Having accepted payments under that regime for most of the period of the contract, Donmar now seeks to invalidate the expectation which Zulform had and defeat its claim under the Act on that basis. In the circumstances, therefore, I conclude that Donmar is estopped from relying on clause 13.30 of the subcontract conditions. Since this is a purely contractual clause, none of the difficult issues which attend to attempts to rely on estoppels against the operation of statutes arise.

40 Mr Biviano said a further reason for rejecting the plaintiff's claim was that the plaintiff had not furnished the statutory declaration referred to in clause 13.3 of the subcontract conditions and also required by clause 2.22 of the "Post Tender Evaluation". Mr Biviano said, "there is no doubt that [Zulform] was obliged to provide the statutory declaration with the Invoice but did not do so". Clause 13.3 of the subcontract conditions required Zulform to provide the statutory declaration, along with its payment claim "if requested to do so by Donmar Construction". In his primary submission, Mr Morrison on behalf of Zulform said that no request was made by Donmar for the provision of the statutory declaration, hence the requirement to provide it in clause 13.3 of the contract conditions was not engaged. Mr Biviano, as will be recalled, said that there was "no doubt" that the statutory declaration was required.

41 Mr Morrison said that in any event this was not a requirement for a valid payment claim under the Act. It was a purely contractual requirement which did not affect the liabilities of Donmar under the Act. He referred to a number of authorities, including Minister for Commerce v Contrax Plumbing [2004] NSWCC 823 [45], Plaza West Pty Ltd v Simon's Earthworks (NSW) Pty Ltd [2008] NSWCA 279 [54]; John Holland Pty Ltd v Coastal Dredging and Construction Pty Ltd [2012] QCA 150; [2012] 2Qdr 435 [21]; BHW Solutions Pty Ltd v Altitude Constructions Pty Ltd [2012] QST 214 [17] and J Hutchinson Pty Ltd v Jalvcom Pty Ltd [2016] NSWSC 126 [26].

42 In Argyle Services Pty Ltd v One Three Wilson Pty Ltd [2019] VCC 1567, I considered a contention that a purported "payment claim" was invalid by reason of it not being accompanied by a required tax invoice. The same sort of arguments were pressed upon me relative to the tax invoice as were raised in the present proceeding relative to the statutory declaration. I referred to a number of the same authorities and, in addition, to a journal article by MacDougall J, the trial judge in the Contrax Plumbing case dealing with this issue. The upshot of these matters seems to be that additional conditions as to payments such as these may be contractually imposed, but such clauses may be regarded as invalidated by the "no contracting out" principle of the Act, where the conditions are onerous and have no legitimate utility. In Argyle I concluded that the requirement for the provision of a tax invoice as part of the payment claim process was not onerous and not lacking in utility. The same may be said for the requirement here for the provision of the statutory declaration as to the meeting of various liabilities. MacDougall J had concluded that the contractual provisions with which he was dealing in Contrax Plumbing would have added 200 days to the payment claim process; see [65] of the judgment in Argyle Building Services. If the requirement for the statutory declaration is imposed by contract, it can be regarded as an obstacle to the validity of the invoice as a payment claim under the Act, and this situation is not affected by the prohibition of contracting out because that requirement is not onerous or devoid of utility.

43 The matter therefore turns on whether the statutory declaration was requested, as contended by Mr Biviano, or not, as contended by Mr Morrison for Zulform. Mr Biviano referred to paragraph 22 of the affidavit of Mr Donagan, sworn and filed on behalf of Donmar. Mr Donagan correctly observed in that paragraph that Zulform stated in its email covering the invoice that it would forward a statutory declaration after 11.00am on 26 July 2019, confirming that the subcontractors and employees had been paid. The fact that there had been a promise of the statutory declaration would tend to support the inference that it had been requested. On the other hand, if a request had been made, one would have expected Mr Donagan to depose to the making of that request in terms - which he has failed to do. That omission is, in my view, so striking that I should conclude that no request was in fact made.

44 Clause 2.22 of the Subcontract Post Tender Evaluation document also states a requirement for the provision of the statutory declaration, but does not condition the obligation upon a request having been made. However, as Mr Biviano's previous submissions have established, the subcontract conditions are of overriding effect and prevail to the extent of any inconsistency with the Subcontract Post Tender Evaluation document.

45 It follows therefore that this defence is not made out either.

46 In the result, therefore, the plaintiff's claim succeeds. I will hear the parties on the issue of costs and other consequential relief. I will direct that on or before 5 May 2020, the parties bring in short Minutes to the effect of these reasons.