Supreme Court New South Wales

• Medium Neutral Citation: Hanave Pty Ltd -v- Nahas Construction (NSW) Pty Limited [2012] NSWSC 888
• Hearing dates: 30 July 2012
• Decision date: 30 July 2012
• Jurisdiction: Equity Division - Technology and Construction List
• Before: Hammerschlag J

Decision

Payment of monies in Court to the first defendant was not in contravention of a requirement under Division 2A of the Building and Construction Industry Security of Payment Act 1999 (NSW)

• Catchwords: BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT ACT 1999 (NSW), DIVISION 2A - Plaintiff (principal contractor) sought to quash adjudication determination obtained by the first defendant (respondent) and paid monies into Court pending its challenge - thereafter the second defendant (claimant), a creditor of the first defendant, which had itself obtained an adjudication determination against the first defendant served on the plaintiff a payment holding request under s 26A of the Act - later the plaintiff's challenge failed and the monies in Court were paid out to the first defendant discharging the plaintiff's debt to the first defendant - the second defendant contended that the plaintiff had discharged its obligation as principal contractor to pay money under a contract to the first defendant as respondent in contravention of a requirement under Division 2A of the Act and was jointly and severally liable for the first defendant's debt to the second defendant - HELD - no contravention of the division because the payment out of Court was not discharge of the principal contractor's obligation as contemplated by s 26C(1) of the Act.
• Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW)
• Cases Cited: Pilmer v HIH Casualty& General Insurance Limited (No 2) (2004) 90 SASR 465; Duncan v National Australia Bank Limited (2006) 95 SASR 208
• Category: Principal judgment
• Parties: Hanave Pty Ltd ACN 001 416 226 - Plaintiff; Nahas Construction (NSW) Pty Limited ACN 124 452 786 - First Defendant; Waco Kwikform Ltd ACN 002 835 396 - Second Defendant; Deputy Commissioner of Taxation - Third Defendant; BWE Electrical Pty Ltd ACN 108 762 607 - Fourth Defendant; Pipeline Plumbing Developments Pty Ltd ACN 128 609 162 - Fifth Defendant
• Representation: Counsel: G.J. McVay - Plaintiff; L.M. Pozniak - First Defendant; M.A . Ashhurst SC - Second Defendant; N.J. Williams SC with M.J. O'Meara - Third Defendant; A. Giurtalis - Fourth Defendant; F.G. Kalyk - Fifth Defendant; Solicitors: Gilbert Mane Solicitors - Plaintiff; Landerer & Company - First Defendant; HWL. Ebsworth - Second Defendant; Australian Government Solicitor - Third Defendant; Salim Rutherford Lawyers - Fourth Defendant; Knight Lawyers - Fifth Defendant
• File Number(s): 2012/179470

ex tempore judgment

1 HIS HONOUR:This judgment deals with a discrete contest between the plaintiff ("Hanave") and the second defendant ("Waco"), which is part of a wider multi-dispute. After these reasons were delivered ex tempore, the dispute between all parties resolved by consent.

2 Hanave is a property developer. The first defendant ("Nahas") is a builder. Hanave and Nahas entered into a written contract on 30 May 2008 under which Hanave engaged Nahas to develop and complete the design of, and to construct, a mixed use, seventeen level building including commercial and residential components and basement parking at 61-65 Wentworth Avenue, Surry Hills, Sydney.

3 On 10 October 2011, Nahas served on Hanave a payment claim pursuant to s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act"). The payment claim was designated as progress payment No. 25, and was for $1,469,510.87 excluding GST. Hanave served a payment schedule indicating that it proposed to pay $418,830.87.

4 On 16 November 2011, Hanave commenced proceedings to quash the adjudication determination. It sought an injunction restraining Nahas from taking any step to enforce it.

5 On 16 November 2011, Hanave having given the usual undertaking as to damages and having undertaken to pay the amount outstanding under the adjudication determination into Court, I ordered that Nahas be restrained from taking any steps to enforce the adjudication determination.

6 Court records reveal that the following day Hanave duly paid $1,100,471.78 into Court.

7 On 30 November 2011, I heard and dismissed Hanave's challenge to the adjudication determination in favour of Nahas. The injunction was dissolved and I ordered that the monies paid into Court were forthwith to be paid out to Nahas.

8 Court records reveal that the monies standing in Court plus interest were paid out to Nahas on 2 December 2011.

9 It is not in dispute that Waco is, and at all material times was, a creditor of Nahas in the amount of $292,155.26 for the supply of scaffolding equipment and related labour at the site. Waco applied for and obtained an adjudication determination under the Act against Nahas for that amount. Its claim remains unsatisfied.

10 On 24 November 2011, Waco served on Hanave a payment withholding request pursuant to Division 2A of the Act requiring Hanave to retain the amount of $292,155.26 including GST out of the money owed by Hanave to Nahas. Division 2A includes ss 26A - 26D

11 Section 26A of the Act is in the following terms:

26APrincipal contractor can be required to retain money owed to respondent

(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.

Note. A person may no longer be a principal contractor as a result of money owed to the respondent having been paid by the person before the payment withholding request was served.

12 Section 26B of the Act is in the following terms:

26B Obligation of principal contractor to retain money owed to respondent

(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

13 Section 26C of the Act is in the following terms:

26C Contravention of requirement by principal contractor

(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.

14 Section 26D(1) of the Act is in the following terms:

26D Protections for principal contractor

(1) An obligation under this Division to retain money owed by a principal contractor to the respondent operates (while the obligation continues) as a defence against recovery of the money by the respondent from the principal contractor.

15 Waco (the claimant) puts that Hanave (the principal contractor) became jointly and severally liable with Nahas (the respondent) in respect of the debt owed by Nahas to Waco because Hanave discharged its obligation to Nahas in conravention of a requirement under Division 2A of the Act to retain the money.

16 This contravention, it puts, occurred when the money standing in Court was paid to Nahas pursuant to the order made on 30 November 2011.

17 During argument there was some discussion about whether, upon payment into Court, Hanave retained any interest in the funds and, if so, the nature of that interest. Reference was made to Pilmer v HIH Casualty& General Insurance Limited (No 2) (2004) 90 SASR 465 and Duncan v National Australia Bank Limited (2006) 95 SASR 208 at [28] and following. In the latter decision the Supreme Court of South Australia considered the various circumstances in which payment into Court may be made and pointed out that whether the paying party or some other party retains or obtains an interest in monies paid into Court depends on the particular circumstances.

18 Hanave did not put that the payment into Court itself discharged any obligation to Nahas. It did put that it lost any interest in the monies when it paid them into Court, in aid of a submission that from that time it had no control over them.

19 I do not accept the submission that Hanave lost any interest in the monies. The adjudication determination in favour of Nahas was under challenge. The monies were paid in as security for the debt and would have come back to Hanave had its challenge succeeded. In that event Nahas would have acquired no right to or interest (contingent or otherwise) in the monies.

20 However, control of the monies passed into the hands of the Court and in the circumstances which arose, Hanave was powerless to stop them being paid over to Nahas. Hanave could have (and perhaps should have) informed the Court of the notice received from Waco but its failure to do so did not constitute any contravention of the Act.

21 The substance of Waco's complaint distils into one that Hanave failed to take steps to prevent discharge of the debt, rather than a complaint that Hanave discharged it. The act on Hanave's part which brought about discharge of its obligation to pay Nahas was the original payment into Court. That happened before Hanave received the notice from Waco. The payment out was under compulsion of an order of Court. It did not occur as a result of anything done voluntarily (or perhaps at all) by Hanave after receipt of the notice.

22 In my view contravention of s 26C of the Act requires a voluntary act (or omission) on the part of the discharger, after receipt of the payment withholding request, which act or omission is in a practical sense causitive of the discharge. That is not this case. It follows, in my view, that in the particular circumstances of this case there has been no contravention of s 26C by Hanave. It accordingly did not become jointly and severally liable with Nahas to pay Waco.

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Decision last updated: 03 August 2012