Supreme Court New South Wales

• Medium Neutral Citation: Proactive Building Solutions v Mackenzie Keck [2013] NSWSC 1500
• Hearing dates: 01/10/2013
• Decision date: 01 October 2013
• Jurisdiction: Equity Division - Technology and Construction List
• Before: McDougall J

Decision

Application for permanent stay dismissed with costs.

• Catchwords: BUILDING & CONSTRUCTION - construction contracts - conflict of laws - where contracts said to be governed by the laws of a foreign jurisdiction - where contracts said to require disputes to be determined by foreign courts - whether amounts to contracting out of provisions of Building and Construction Industry Security of Payment Act 1999 (NSW)
• Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW); Civil Procedure Act 2005 (NSW); Contractors Debt Act 1997 (NSW); Insurance Contracts Act 1984 (Cth); Service and Execution of Process Act 1992 (Cth); Uniform Civil Procedure Rules (NSW)
• Cases Cited: Akai Pty Limited v People's Insurance Company Limited (1996) 188 CLR 418; Akai Pty Limited v Peoples Insurance Company Limited [1998] 1 Lloyd's Rep 90; Minister for Commerce v Contrax Plumbing [2004] NSWSC 823; Neilson v Overseas Projects Corporation of Victoria Limited (2005) 223 CLR 331
• Category: Procedural and other rulings
• Parties: Proactive Building Solutions Pty Ltd (Plaintiff); Mackenzie Keck Pty Ltd (Defendant)
• Representation: Counsel: PT Russell / J Zmood (Plaintiff); JA Steele (Defendant); Solicitors: Thurlow Fisher Lawyers & Consultants (Plaintiff); Holding Redlich (Defendant)
• File Number(s): 2013/238242

Judgment

1 HIS HONOUR: The plaintiff (Proactive) sues the defendant (MK) for about $846,000 said to be due under some 19 contracts pursuant to which Proactive performed construction work for MK. There is no doubt that each of the contracts sued upon is a construction contract for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Security of Payment Act). In respect of each contract, the tax invoice given by Proactive to MK specified that it was, among other things, a payment claim for the purposes of s 13 of the Security of Payment Act. It is not in dispute that MK did not furnish a payment schedule to any of those payment claims.

Nature of the application

2 I am concerned with MK's amended notice of motion filed in court today. Pursuant to that amended notice of motion, MK seeks leave pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 12.5 to withdraw the (unconditional) notice of appearance that it has filed and served. Further, MK seeks a permanent stay of the proceedings pursuant to s 67 of the Civil Procedure Act 2005 (NSW).

3 Despite the order of the prayers for relief, Ms Steele of counsel, who appeared for MK, accepted that if her client had not made good its case for a stay then there was no basis on which it ought be given leave to withdraw its notice of appearance. That concession was properly made. On the face of things, MK (a company incorporated and having its registered office in the state of Victoria) was properly served, when the initiating process was delivered to it by prepaid registered post and received on 12 August 2013. That service was authorised by, apart from anything else, s 15 of the Service and Execution of Process Act 1992 (Cth) although there is some doubt as to whether the time limited for MK to file its appearance was sufficient. In the event, there is no need to explore the fascinating procedural complexities that may have arisen because the first directions hearing was held at a time before MK was required to file its notice of appearance.

4 The basis on which MK seeks the permanent stay is that, it says, each of the contracts on which Proactive sues included MK's "subcontract purchase order terms and conditions". Clause 27.2 of those terms and conditions reads as follows:

"This contract is governed by and is to be determined in accordance with the law of England. The courts of England shall have the exclusive jurisdiction to determine any disputes between the parties, enforcement of which determination may be through the courts of any appropriate jurisdiction."

The parties' submissions

5 Ms Steele submitted that, in a number of cases, incorporation of the terms and conditions had been proved expressly, because the work in question was done pursuant to purchase orders, which themselves referred to and attached a copy of the terms and conditions, that had been accepted in writing by Proactive. In other cases, Ms Steele submitted, the same conclusion followed either because that was the way that Proactive pleaded its case or because the court could infer, from the totality of the dealings between the parties, a course of conduct by which the parties agreed that their contractual relationship would be regulated by, among other things, those terms and conditions.

6 Mr Russell of counsel, who appeared with Mr Zmood of counsel for Proactive, did not accept that it had been shown that, in the case of each of the 19 invoices on which his client sued, cl 27.2 formed part of the conditions of contract. He noted that only ten of the underlying 19 contracts had been formed by reference to a purchase order, and submitted that in three of those cases, the purchase order could not have any contractual effect because it had been delivered after the work was done and the invoice submitted. Be that as it may, Mr Russell accepted that, in six cases at least, there was evidence that would support the conclusion that the contract (in each of those cases) was one made on terms that included cl 27.2.

7 Further, Mr Russell submitted, the court should not express a final conclusion, on an interlocutory application, as to whether there was a course of dealings which had the effect that the relevant terms and conditions were incorporated into each and every contract. In circumstances where, it appears, that is a question in dispute, I think that this submission should be accepted.

8 There remains a dispute as to whether it is Proactive's pleaded case that, in each and every contract, the terms and conditions apply. Although the contentions set out in the Technology and Construction List Statement could be clearer, I think the better view of what they say is that, in cases where there was a purchase order, the terms and conditions attached to that purchase order formed part of the contract, but that it is not otherwise pleaded or admitted that this was so.

9 Nonetheless, since there is a factual basis for concluding that at least some of the contracts are governed by those terms and conditions, it is proper to deal with today's application on the basis that the evidence provides a firm and not merely a theoretical foundation for the resolution of the dispute.

Decision

10 Proactive "pleads" its case in three ways. First, it says, it is entitled to judgment because, in the absence of any payment schedule, it has elected to pursue its rights under s 15 (2)(a)(i) of the Security of Payment Act. It follows that in these proceedings, MK is debarred by s 15 (4)(b) from bringing any cross-claim or raising any contractual defence. Thus, the first way in which Proactive articulates its case is one for judgment based on what might be called the summary procedure established by those provisions of the Security of Payment Act.

11 The second way in which Proactive puts its case is that it is entitled to judgment for work done and materials supplied, pursuant to each of the contracts, regardless of the effect of the Security of Payment Act.

12 The third head of relief which Proactive claims is pursuant to the Contractors Debts Act 1997 (NSW). It says that once judgment is given, it is entitled to the issue of a debt certificate, which debt certificate can then be served upon MK's principal, a company known as Abercrombie and Fitch.

13 Those articulations of the different bases on which relief is claimed are of some importance.

14 There is no doubt that, as a general rule, where the parties to a contract express their agreement as to what is the system of law to be applied, or as to what are the courts in which disputes are to be resolved, that choice should be respected so far as possible. Any other conclusion would deny the primacy of the parties' bargain. Thus, in this case, the starting point is that the court should enforce cl 27.2 unless there is some reason why it should not or must not do so.

15 Clause 27.2 does two things (or perhaps three). The first thing that it does is provide for the law of England to be the law that governs the contract between the parties, and thus the law pursuant to which disputes under the contract are to be resolved. The second thing that the clause does is give to the courts of England the exclusive jurisdiction to determine disputes between the parties. I referred to a possible third aspect of the clause's operation. That is subsidiary; it relates to enforcement of any judgment of the courts of England.

16 In determining how the courts of England would approach the task, the court is required to proceed upon the basis of the assumption that the English courts would apply the choice of law rules as they are understood in this country. That follows from the decision of the majority (Toohey, Gaudron and Gummow JJ) in Akai Pty Limited v People's Insurance Company Limited (1996) 188 CLR 418 at 444.

17 It is not necessary that there be expert evidence as to how the courts of England would resolve the problem of choice of law, because, in the absence of evidence, the presumption to which I have just referred applies.

18 Thus, I do not accept one of the submissions put by Ms Steele, which was to the effect that it was for Proactive to prove how the English courts would deal with the dispute, and it had failed to do so. (As an aside: how the English courts would deal with the dispute was shown in litigation connected to the Akai case. In the High Court of Justice of England and Wales, there was concurrent litigation; Akai Pty Limited v Peoples Insurance Company Limited [1998] 1 Lloyd's Rep 90. In that case, notwithstanding the decision of the High Court in this country, Thomas J decided that the choice of law clause would be given effect, so that the court in England would deal with the matter on a basis that did not, or arguably might not, include important protective features of Australian statue law relating to insurance contracts.)

19 It is necessary to look at some of the features of the Security of Payment Act. Section 3(1) sets out the object of the Act. Subsections (2) and (3) set out the means by which the object, so described is carried out, or effected.

3 Object of Act

(1) The object of this Act is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services

(2) The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to such a payment regardless of whether the relevant construction contract makes provision for progress payments.

(3) The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves:

(a) the making of a payment claim by the person claiming payment, and

(b) the provision of a payment schedule by the person by whom the payment is payable, and

(c) the referral of any disputed claim to an adjudicator for determination, and

(d) the payment of the progress payment so determined.

(4) It is intended that this Act does not limit:

(a) any other entitlement that a claimant may have under a construction contract, or

(b) any other remedy that a claimant may have for recovering any such other entitlement.

20 It is not necessary to go to the definition of "construction contract", because it is clear in this case that the contracts in question are construction contracts.

21 Section 7 deals with the application of the Act. The effect of subss (1) and (4) is that the Act applies to any construction contract, regardless of any choice of law clause in it, unless (among other things) the contract relates to work carried out outside New South Wales.

7 Application of Act

...

(2) This Act does not apply to:

(a) a construction contract that forms part of a loan agreement, a contract of guarantee or a contract of insurance under which a recognised financial institution undertakes:

(i) to lend money or to repay money lent, or

(ii) to guarantee payment of money owing or repayment of money lent, or

(iii) to provide an indemnity with respect to construction work carried out, or related goods and services supplied, under the construction contract, or

(b) a construction contract for the carrying out of residential building work (within the meaning of the Home Building Act 1989) on such part of any premises as the party for whom the work is carried out resides in or proposes to reside in, or

(c) a construction contract under which it is agreed that the consideration payable for construction work carried out under the contract, or for related goods and services supplied under the contract, is to be calculated otherwise than by reference to the value of the work carried out or the value of the goods and services supplied.

...

(4) This Act does not apply to a construction contract to the extent to which it deals with:

(a) construction work carried out outside New South Wales, and

(b) related goods and services supplied in respect of construction work carried out outside New South Wales.

22 I have summarised the procedural aspects of s 15 (which applies in this case because there were payment claims, but no payment schedules). However, it is helpful to set out s 15(2),(4):

15 Consequences of not paying claimant where no payment schedule

...

(2) In those circumstances, the claimant:

(a) may:

(i) recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction, or

(ii) make an adjudication application under section 17 (1) (b) in relation to the payment claim, and

(b) may serve notice on the respondent of the claimant's intention to suspend carrying out construction work (or to suspend supplying related goods and services) under the construction contract.

...

(4) If the claimant commences proceedings under subsection (2) (a) (i) to recover the unpaid portion of the claimed amount from the respondent as a debt:

(a) judgment in favour of the claimant is not to be given unless the court is satisfied of the existence of the circumstances referred to in subsection (1), and

(b) the respondent is not, in those proceedings, entitled:

(i) to bring any cross-claim against the claimant, or

(ii) to raise any defence in relation to matters arising under the construction contract.

23 Finally, for present purposes, I refer to s 34. Although that section is headed "No contracting out" it seems to me to go somewhat further than traditional "no contracting out" provisions in legislation. The reasons for that were explored, although not in any particular detail, in my judgment in Minister for Commerce v Contrax Plumbing [2004] NSWSC 823. Section 34 provides as follows:

34 No contracting out

(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.

24 The Contractors Debt Act provides for a scheme whereby in effect subcontractors who have obtained judgment against their head contractors may enforce that judgment against money owed to the head contractor in the hands of the principal with whom the head contractor has contracted. It makes provision both for the enforcement of final judgments through the process of certification of debts (s 7) and also for what is in effect an interlocutory process, called an attachment order (s14). I will not set out those sections. I will, however, set out s 18, which deals with the topic of contracting out (and does so by forbidding it):

18 No contracting out

(1) The provisions of this Act have effect despite any stipulation to the contrary in any contract.

(2) No contract entered into before or after the commencement of this section operates to annul, vary or exclude any of the provisions of this Act.

25 If the submissions of Ms Steele, for MK, are correct, then any dispute in relation to the contracts must be resolved in the courts of England. That does not mean not just, or only, a general claim based on the alleged failure on the part of MK to perform its contractual obligations. It means, also, the substantive claim brought by Proactive based on s 15 of the Security of Payment Act. Although s 15 authorises recovery of the claimed amount as a debt, and limits severely the ability of MK to cross-claim or defend, nonetheless, on Ms Steele's submission, that process must be carried out in the courts of England. It may be wondered whether this could be regarded, in the language of s 34(2), as a contractual provision that might reasonably be construed as an attempt to deter Proactive from taking action under the Security of Payment Act, because of the costs barrier involved.

26 However, it seems to me, there is a more fundamental objection. Clause 27.2 would apply, as the proper law of the contract and the law by which disputes are to be resolved, the law of England. The law of England does not include the Security of Payment Act. Nor, for that matter, does it include the Contractors Debts Act.

27 The decision of the High Court of Australia in Neilson v Overseas Projects Corporation of Victoria Limited (2005) 223 CLR 331 dealt with the question of whether the doctrine of renvoi is part of the Australian choice of law rules in cases of tort. As I understand it, the majority in that case held, for various reasons, which do not now need to be explored, that it was. However, the orthodox doctrine is that the doctrine of renvoi plays no part in the choice of law rules concerning contracts, at least where the governing law of the contract has been the matter of express decision by the parties.

28 The cases are reviewed in Nygh's Conflict of Laws in Australia (8th ed, 2010) at [15.10] and again at [19.4]. At the latter reference, the authors state that a reference to a particular law system as the law of a contract is traditionally considered to pick up that law system excluding its principles of private international law. The corollary of that proposition, the authors say, is that the "doctrine of renvoi does not apply in the field of contract". I acknowledge that the authors continue to observe that the question may now be regarded as open in this country by reason of the decision in Neilson. Whether or not that is so, it is clear that the decision in Neilson is limited to the choice of law rules for tort. If it follows, by a process of reasoning based on the judgment in Neilson, that the traditional view in relation to contract should be varied or supplemented, that seems to me to be a matter for an appellate court, not a matter for a judge at first instance dealing ex tempore with an interlocutory application.

29 Thus, as I understand the present state of the law, the effect of cl 27.2 would be that the courts of England would apply English law excluding its choice of law rules, and would not apply, as part of that law, legislation of this State. That conclusion seems to me to be consistent with the commercial reasons underpinning choice of law rules. The parties bargained for a particular system of law to apply so that, among other things, disputes between them would be resolved by reference to the legal principles established by that system. They did not bargain for an outcome that, by reason of the rules of private international law of that system, some process of renvoi might lead to the application of laws of a different legal system. Far less did they bargain for a process whereby, because of the particular private international law rules of the two systems, there would be an infinite regression on the procedural point and never a resolution on the point of substance (if I may be so bold as to paraphrase, entirely out of context, the observations of McHugh J in dissent in Neilson at [41]).

30 It follows that acceptance of the position for which MK contends in this case would mean, among other things, that Proactive would be shut out of its rights under the Security of Payment Act. It may very well mean also that Proactive would be shut out its rights under the Contractors Debts Act. That is because, by s 7 of that Act, the debt certificate is to be issued when judgment is given or entered up by the court in which judgment is given or entered up. That poses no problem where the action is heard in and determined by a court of this State. It poses a very considerable problem where the action is heard in and determined by a court in England, in circumstances where (at the risk of excessive repetition) the Contractors Debts Act forms no part of the law of England.

31 Of course, proceeding by way of action under s 15(2)(a) is not the only way that Proactive could have chosen to enforce its rights. It could have proceeded to adjudication (s 15(2)(a)(ii)). Had it done so, and had it been the beneficiary of a determination in its favour, it could have procured the issue of an adjudication certificate (s 24(1)(a)). That certificate could be filed as a judgment or a debt in any court of competent jurisdiction and be enforceable accordingly. It seems to me that the prospect of persuading a court of England that it should receive an adjudication certificate issued by an authorised nominating authority in this State and thereupon (upon the certificate's being filed) give judgment for the claimant for the adjudicated amount, is illusory at best. The procedural mechanism for which the ss 24 and 25 provide give courts in this State jurisdiction to enforce adjudication determinations by giving judgment. I do not think that they would have the effect of empowering courts of other jurisdictions, outside Australia, to do so.

32 Finally, and before I leave the Security of Payment Act, I should mention that the right given by s 15(2)(a)(i) is to recover the unpaid portion of the claimed amount in any court of competent jurisdiction. Even if it be assumed that the courts of England are courts of competent jurisdiction (because cl 27.2 has that effect) nonetheless, the courts of this State are, or depending upon the amount claimed may be, courts of competent jurisdiction.

33 In this case, because the amount claimed is of the order that I have indicated, the action is properly commenced (cl 27.2 apart) in this court. It is clear from the decision of Toohey, Gaudron and Gummow JJ in Akai that it is not the effect of the choice of law clause that this court does not have jurisdiction. This court retains its jurisdiction. The question raised by the choice of law clause is whether the court should refuse to exercise that jurisdiction. This follows from what their Honours said at 444-445, talking of a stipulation not dissimilar to cl 27.2:

"This stipulation, which may be described as a foreign jurisdiction clause, does not operate to exclude the jurisdiction of the Supreme Court of New South Wales, although it may constitute a ground for that Court to refuse to exercise its jurisdiction."

34 If the stay were granted, one result would be that Proactive would be refused its right given by s 15(2)(a)(i) of the Security of Payment Act, to recover the claimed amount in this court as a court of competent jurisdiction.

35 In those circumstances, it seems to me, that there is just not a question of s 34(2)(b). If cl 27.2 applies then, it seems to me, it has the effect of excluding, modifying or restricting the operation of the Security of Payment Act in the ways that I have indicated.

36 Mr Russell relied on the logic of the majority decision in Akai in support of his contention that a stay should be refused. Ms Steele submitted that the position was distinguishable. Technically, no doubt, it is distinguishable because it was concerned with different legislation. Specifically (the legislation in question being a law of the Commonwealth), there were discrete constitutional issues. Nonetheless, it seems to me, the inexorable logic that their Honours apply at 442-448, in looking at the question of a stay, dictates that in this case the same result should follow. The result of giving effect to the choice of law clause would be to deprive Proactive of the legitimate juridical advantage given to it by the procedure set out in the relevant parts of s 15 of the Security of Payment Act (compare what their Honours said, as to s 54 of the Insurance Contracts Act 1984 (Cth), at 445).

37 Further, as their Honours said at 447 in discussing the equivalent "no contracting out" provision of the Insurance Contracts Act (s 52 (1)), the effect of cl 27.2 in this case would be to exclude, restrict or modify, to the prejudice of Proactive, the operation of the Security of Payment Act.

38 In those circumstances, it seems to me, it must follow that to the extent that cl 27.2 formed a part of any of the contracts (and as I have said, I think that in at least six cases it does), it is void. More importantly, as to the remaining thirteen contracts, if Ms Steele is right in her submission that cl 27.2 applies then it must also be void for the same reasons.

39 Accordingly, in my view, the application for a stay fails. Because the application for a stay fails, there is no need to deal with the separate and consequential application for leave to withdraw the notice of appearance.

40 I should say that there were many other matters argued in the course of this application. Because the matter is of some importance, both to the parties and to the construction industry generally, I have thought it appropriate to deal with it in an ex tempore judgment, by reference to what seems to me to be the key and dispositive issue. I do not propose to deal with every submission put by the parties. Those submissions were encapsulated in written submissions which counsel very helpfully provided and expanded at some length orally. If the matter goes any further, the written submissions and the transcript of the hearing before me will show what were the further issues that were agitated.

Orders

41 The result is that the defendant's amended notice of motion filed in court today must be dismissed with costs and I so order.

42 I order that the exhibits on the application be handed out.

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Decision last updated: 14 October 2013