Supreme Court New South Wales

• Medium Neutral Citation: Class Electrical Services v Go Electrical [2013] NSWSC 363
• Hearing dates: 11/04/2013
• Decision date: 11 April 2013
• Jurisdiction: Equity Division - Technology and Construction List
• Before: McDougall J

Decision

Declare determination void and order that it be quashed.

• Catchwords: Building and Construction - Building and Construction Security of Payment Act 1999 (NSW)- meaning of "construction contract" for the purposes of the Act - whether undertaking to supply related goods under an arrangement.; Building and Construction - Construction Contracts - Adjudication of payment claims - whether claim in respect of one contract.
• Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW)
• Cases Cited: Chase Oyster Bar Pty Limited v Hamo Industries Pty Limited (2010) 78 NSWLR 393; Machkevitch v Andrew Building Constructions [2012] NSWSC 546; Matrix Projects (Qld) Pty Ltd v Luscombe [2013] QSC 4; Okaroo Pty Ltd v Voss Construction and Joinery Pty Ltd [2005] NSWSC 45; Rail Corporation of NSW v Nebax Constructions [2012] NSWSC 6; Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd and Anor [2012] QCA 276
• Texts Cited: Oxford English Dictionary
• Category: Principal judgment
• Parties: Class Electrical Services Pty Limited (Plaintiff); Go Electrical Pty Limited (First Defendant); Philip Davenport (Second Defendant); Adjudicate Today Pty Limited (Third Defendant)
• Representation: Counsel: BW Rayment QC / B DeBuse (Plaintiff); DR Pritchard SC / FFF Salama (Defendant); Solicitors: HWL Ebsworth Lawyers (Plaintiff); Marsdens Law Group (Defendant)
• File Number(s): 2013/58792

Judgment (ex tempore - revised 11 april 2013)

1 HIS HONOUR: The first defendant (Go Electrical) claims that the plaintiff (Class Electrical) is indebted to it in an amount exceeding $1.8 million for the supply and delivery of electrical fittings and appliances. Go Electrical sought to utilise the mechanisms of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) to enforce its claim. Ultimately, the claim was referred to an adjudicator (who is the second defendant in these proceedings) for determination. He found in favour of Go Electrical and made a determination accordingly.

2 Class Electrical says that the adjudicator's determination is affected by a number of errors and that, in consequence, it cannot stand.

3 There is no doubt that the electrical fittings and appliances in question were utilised by Class Electrical in connection with various contracts or sub-contracts undertaken by it, and that those contracts or sub-contracts themselves were "construction contracts" for the purposes of the Act. Thus, it is common ground that the goods supplied by Go Electrical to Class Electrical were "related goods" for the purposes of the Act.

4 It would follow from that state of affairs that if there were a construction contract between Go Electrical and Class Electrical for the supply of those related goods (as they may be called), and if the adjudicator's determination related only to one construction contract, then he would have had jurisdiction to undertake the task that he did.

The issues

5 Class Electrical identified some five grounds of complaint in relation to the determination. The first complaint was that there was no single construction contract to which the adjudication application and determination could be said to relate, but, rather, a multiplicity of contracts.

6 Go Electrical accepted that if there were indeed a multiplicity of contracts, and not just one contract, then the determination could not stand, for the reasons that I gave in Rail Corporation of NSW v Nebax Constructions [2012] NSWSC 6 at [44]. I should say that although I was there dealing with a slightly different situation, what I said was picked up, in a context similar to the present, by Douglas J in Matrix Projects (Qld) Pty Ltd v Luscombe [2013] QSC 4 at [17] and following.

7 Mr Pritchard of Senior Counsel, who appears with Mr Salama of Counsel for Go Electrical, did not seek to persuade me that what Douglas J had said was incorrect.

8 The second ground of invalidity asserted by Class Electrical was that the adjudicator had in some way failed to carry out his statutory task because he had not "considered" the adjudication response. That was said to arise because there was a dispute between the parties as to whether the adjudication response had been lodged in time. The adjudicator did not deal with that dispute in the sense of resolving it, but, rather, said that even if it were open to him to consider it, it would not cause him to change the view that he formed in favour of Go Electrical.

9 The next issue raised by Class Electrical was failure to afford natural justice. This seemed to relate (I use the words "seemed to relate" because both the pleading and submissions were less than clear) to some three separate complaints. One was based on the requirements of s17(2)(a) of the Act and the "due date for payment". (This issue was put in the alternative as a jurisdictional issue.) Another was based on the way in which the adjudicator had dealt, or in Class Electrical's view failed to deal, with the question of non-delivery. A third was based on the way which the adjudicator dealt, or again, it was said, failed to deal, with the question of defective work.

First issue: multiple contracts

10 I return to the first complaint: that the payment claim, the adjudication application and the adjudicator's determination, related not to one construction contract but to multiple construction contracts.

The agreement to grant credit

11 Class Electrical applied to Go Electrical for the supply of goods and equipment on credit. Go Electrical agreed to supply on that basis. Their agreement was reduced in writing. The terms of that agreement included the following:

1. That the conditions of sale between the applicant(s) and Go Electrical Pty Ltd shall incorporate and be governed by the conditions of sale detailed at the end hereof as modified from time to time. It is agreed and acknowledge that the applicant(s) shall have had sufficient notification of any modification of the conditions of sale from time to time if such conditions of sale, as modified, are printed on the reverse of an invoice or pick up slip for the supply of goods or are displayed in the business premises of Go Electrical Pty Ltd.

...

7. That Go Electrical Pty Ltd may withdraw credit facilities at their discretion without prior notice.

12 As is apparent, there were terms and conditions of sale annexed to the application for commercial credit and, thus, forming part of the contract constituted by acceptance of the application for credit. Although it is not strictly speaking relevant it may be noted that Clause 10 of those terms and conditions dealt with "terms of payment".

10. TERMS OF PAYMENT

10.1 All prices quoted are strictly net and the purchase price of the goods shall be payable on or before the thirtieth (30th) day of the calendar month following the delivery of goods unless other terms of payment are expressly stated on the invoice for the Goods to be supplied and delivered.

10.2 If we do not receive payment within 30 day as outlined in 10.1 we may charge interest on the overdue amount at the rate of 1 per cent per month, calculated from the date of the invoice to the actual date of full and final payment. Any payment made by you will be credited first against interest accrued.

10.3 We may at any time in our sole discretion combine the amount payable to us for the goods with any other account between you and us or otherwise effect any set off without notice and no agreement tot the contrary shall arise by implication.

10.4 You may pay by cash, cheque, credit car, BPAY, EFTPOS, Internet banking, direct deposit or direct debit.

10.5 You are deemed to have paid only when your payment is fully available for us to use at our discretion.

13 There was nothing in the application for commercial credit to suggest that credit was sought in respect of any particular contracts or sub-contracts that Class Electrical proposed to undertake. It may be - I do not know - that the parties had in mind that Class Electrical had tendered for, or indeed, had been awarded, contracts or sub-contracts for particular jobs, including the four that were said to be relevant to the present application; but if that is so, it does not appear on the face of the written contract.

Arrangements for supply

14 Thereafter, so far as one can tell, what happened was that from time to time Class Electrical would request Go Electrical to supply goods or equipment, and from time to time Go Electrical would accede to those requests and deliver accordingly.

15 The requests for delivery were constituted by purchase orders given by Class Electrical to Go Electrical. The deliveries were accompanied by and evidenced in invoices for the goods delivered. That, I think, is the scheme of dealing that was contemplated by the accepted application for commercial credit.

"Construction contract"

16 It is, of course, an essential requirement of a valid adjudicator's determination that there by a construction contract between the parties to the application. That requirement directs attention to the definition of "construction contract" in s 4 of the Act. Those words are defined to mean "... a contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party".

17 As I have indicated already, it is common ground that related goods were supplied by Go Electrical to Class Electrical in the way that I have outlined. Whether those supplies were complete, and of the appropriate standard or quality, can be put to one side.

The parties' submissions

18 Mr Rayment of Queen's Counsel, who appeared with Mr Debuse of Counsel for Class Electrical, submitted that the accepted application for commercial credit, whilst undoubtedly it amounted or was capable of amounting to a concluded contract, was not a contract or arrangement under which Go Electrical undertook to supply the related goods in question. He submitted that the only undertakings to supply were those to be found in what he said were the individual contracts that came into existence each time that his client submitted, and Go Electrical accepted, an order for the relevant goods.

19 Mr Pritchard submitted that what the parties had intended was an over-arching arrangement which encompassed both the general conditions on which credit would be extended, the particular conditions on which goods would be sold and delivered from time to time, and individual requests for delivery and acceptance thereof. Even if those requests and acceptances amounted of themselves to contracts that did not mean, Mr Pritchard submitted, that the over-arching arrangement on which he based his submission could not of itself be a construction contract.

Decision

20 The fundamental question seems to be whether one can spell out of the application for commercial credit some undertaking on the part of Go Electrical to supply related goods to Class Electrical. If one cannot, then what one is left with is a series of individual contracts for sale and delivery, or contracts for supply. In the latter case, Class Electrical's submissions based on multiplicity of contracts would be made good.

21 The definition of "construction contract" has been considered from time to time. In particular, there have been cases which give consideration to whether or not there is (or was on the facts of the particular case) an "arrangement" of the requisite kind.

22 Nicholas J dealt with this in Okaroo Pty Ltd v Voss Construction and Joinery Pty Ltd [2005] NSWSC 45. However, the point of his Honour's analysis was to see whether, on the proper construction of the definition, there was on the facts of that case an "arrangement" which could fall within the definition of "construction contract". That was the question with which his Honour dealt at [38] and following.

23 Having found that there was an "arrangement" [at 43], his Honour then turned to whether it was necessary that the arrangement should be legally enforceable. He concluded at [55] that it was not.

24 In that case, whatever may have been in dispute, it was clear that one party undertook to carry out construction work for the other. That is why, as I have indicated, the focus of his Honour's analysis was on the concept of "arrangement".

25 I looked at the question in Machkevitch v Andrew Building Constructions [2012] NSWSC 546 at [14] and following. In that case there was on any view a construction contract, or perhaps two construction contracts, between the builder and the proprietor. The question was whether, in addition, there was a construction contract between the builder and the plaintiff. The plaintiff was a principal of the proprietor. The builder's case was that the plaintiff, Mr Machkevitch, had given an oral undertaking to ensure that the builder was paid if the proprietor did not pay it.

26 I have set out that background because on re-reading my reasons it is apparent to me that there is some lack of clarity in a particular paragraph.

27 I referred at [21] to the reasons of Nicholas J in Okaroo. Building on that, I said at [27] that there should be something more than a mere undertaking; there should be something which could be said to give rise to engagement although perhaps not legally enforceable between two parties; or a state of affairs under which one party undertook to do something for the other; or an arrangement to that effect:

27 In my view, what is required is that there be something more than a mere undertaking; or something which can be said to give rise to an engagement, although not a legally enforceable engagement, between two parties; or a state of affairs under which one party undertakes to the other to do something; or an arrangement between parties to like effect.

28 The first use of the word "undertaking" seems to me now to be somewhat unfortunate, having regard to the definition of "construction contract". It was intended to pick up undertakings of the kind said to have been given by Mr Machkevitch to the builder, as I explained above. It was not intended to be "an undertaking" in a cognate sense to the verb "undertakes" as it is used in the definition of "construction contract".

29 Thus, properly understood, I do not think that anything that I said in Machkevitch focused on what is required to satisfy or demonstrate the concept of undertaking to do construction work or supply related goods and services. It was concerned with the existence of a contract or arrangement.

30 The matter has been looked at more recently in the Court of Appeal of Queensland in Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd and Anor [2012] QCA 276. In that case, as is clear from the reasons of Holmes JA, there is no doubt that Warren undertook to carry out work for Thiess. The question was whether that work was construction work, and thus whether the arrangement resulting from and incorporated in "the undertaking" was a construction contract. All of their Honours, Holmes JA, White JA and Philippides J, concluded that some of the work in question was construction work. Although their Honours disagreed as to the extent to which the work in question was construction work, nonetheless they concluded that there was a construction contract.

31 Again, I do not think that anything in the reasons in Thiess deals with the concept of undertaking to carry out. The case was concerned with the concept of construction work.

32 The verb "undertake" is capable of having numerous meanings. That can be exemplified by looking at the Oxford English Dictionary online, which gives at least six different meanings, themselves having numerous sub-meanings, for the verb in its transitive form, and further meanings and sub-meanings for the verb in its intransitive form. What is intended to be conveyed by the verb will depend on the context in which it is to be found.

33 It seems to me that in the statutory context with which I am concerned, a person undertakes to carry out construction work, or to supply related goods and services, for or to another if the first person agrees, or accepts an obligation, or promises, to do that work or supply those goods and services.

34 In the context of the definition, the agreement or acceptance or promise need not be one having legal effect, so that there may not be a contract as the law understands that term.

35 Nonetheless, what is important is that the undertaking be one under a contract or other arrangement. To put it the other way around, there must be a contract or other arrangement under which an undertaking of the relevant kind is given and accepted.

36 In this case, it seems to me, what the parties have done is agree to the terms on which Go Electrical would supply electrical fittings and appliances to Class Electrical if requested to do so. But there is nothing in the accepted application for commercial credit that sets out any of the usual indicia of a supply contract. The goods are not specified. Obviously enough, their price is not specified. The date and place of delivery are not specified. All of those matters are left for later agreement if Class Electrical should choose to order goods from Go Electrical and if Go Electrical should choose to supply them.

37 Clearly enough, the accepted application for commercial credit recognises that there might be contracts of sale made between Class Electrical as purchaser and Go Electrical as vendor. But it does not follow that, by anything contained in the application for commercial credit, Go Electrical agreed, or accepted, or promised (or, adapting the wording of the statute, undertook) to supply goods from time to time. The question of supply was left entirely at large. Although this is obvious from the document itself, it is made particularly clear by cl 7, under which credit facilities might be withdrawn without prior notice at the discretion of Go Electrical.

38 For there to be an undertaking to supply related goods under an arrangement, there must be something in the arrangement which indicates that the prospective supplier in some way undertakes to make the supply. There is nothing in the arrangement on which Go Electrical relied in this case to impose that burden. On the contrary, as I have said, if anything is clear from the document, it is that any question of supply was to be negotiated later, as needs required.

39 For those reasons (it not being suggested that there was any arrangement of the requisite kind other than one to be spelled out from the terms of the accepted application for commercial credit), I conclude that there was not one construction contract but, rather, a multiplicity of construction contracts.

40 It follows that the plaintiff is entitled to the relief sought, unless perhaps there can be seen some discretionary ground for withholding relief.

Discretion

41 Although the submissions for Go Electrical invoked the concept of discretion, and although in my view there is a discretion to withhold relief in the nature of prerogative relief in certain circumstances, I see nothing in the circumstances of this case to enliven the discretion. (I should say that the existence of the discretion is something with which I dealt, although by the way, in Chase Oyster Bar Pty Limited v Hamo Industries Pty Limited (2010) 78 NSWLR 393 at, in particular, [268] to [284].)

Remaining issues

42 Having concluded that the determination is invalid, because it was not made in respect of one claim under one construction contract, it is unnecessary to go further, and consider the alternative grounds on which relief is claimed. Further, in circumstances where the underlying facts are not in dispute, I do not think that anything is to be gained by undertaking, in ex tempore reasons, yet further analysis of the principles. To my mind, the result is more likely to confuse than to assist those who may need to consider similar questions at some later stage.

Conclusion and orders

43 I conclude that Class Electrical has made good its claim to the relief prayed in the summons. I will hear counsel on the precise form of the relief to be given.

[Counsel addressed.]

44 I make a declaration in terms of Prayer 1 of the summons filed on 25 February 2013.

45 I make an order in terms of Prayer 2.

46 I order the first defendant to pay the plaintiff's costs. Otherwise, I make no order as to costs.

47 I order that the sum of $50,000 paid into court by way of security for the first defendant's costs be paid out to the plaintiff forthwith.

48 I order that the exhibits on this application be returned to the parties tendering them.

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Decision last updated: 19 April 2013