Supreme Court New South Wales

• Medium Neutral Citation: Lewance Construction Pty Ltd -v- Southern Han Breakfast Point Pty Ltd [2014] NSWSC 1726
• Hearing dates: 20 & 21 November 2014
• Decision date: 04 December 2014
• Jurisdiction: Equity Division - Technology and Construction List
• Before: Nicholas AJ

Decision

Plaintiff's Summons dismissed. Plaintiff to pay first defendant's costs.

• Catchwords: CONTRACTS- Building, engineering and related contracts- payment schedules under s 14 of the Building and Construction Industry Security of Payment Act 1999 (NSW) - whether payment schedule was provided within time prescribed by respondent - whether payment schedule was provided by agent of the respondent - turns on facts- no question of general principle.
• Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW)
• Cases Cited: Baulderstone Hornibrook Pty Ltd v Queensland Investment Corporation [2007] NSWCA 9; Perini Corporation v Commonwealth of Australia (1969) 2 NSW 530; Blatch v Archer (1774) 1 Cowp. 63; 98 ER 969; Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) NSWCA 453
• Category: Principal judgment
• Parties: Lewence Constructions Pty Ltd (ACN) 155 305 507) - Plaintiff; Southern Han Breakfast Point Pty Ltd (ACN) 155 283 239) - First Defendant
• Representation: Counsel: S. Robertson - Plaintiff; S. Goldstein - First Defendant; Solicitors: Maddocks - Plaintiff; CCS Legal Pty Ltd - First Defendant
• File Number(s): 2014/294245

Judgment

1 HIS HONOUR: In these proceedings the plaintiff seeks judgment against the first defendant ("SHBP") in the sum of $1,056,015.95 (including GST) in the exercise of its rights under s 15(2)(a) Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act"). The proceedings against the second defendant were discontinued by leave on 20 November 2014.

2 The question for determination is whether SHBP replied to payment claim No. 15 served by the plaintiff on 8 August 2014 under s 13 of the Act by providing a payment schedule to the plaintiff pursuant to s 14, within the time prescribed.

The Legislation

3 Relevantly, the Act provides:

13 Payment claims

(1) A person referred to in section 8 (1) who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment.

(2) A payment claim:

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

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

(c) if the construction contract is connected with an exempt residential construction contract, must state that it is made under this Act.

and

14 Payment schedules

(1) A person on whom a payment claim is served (the respondent) may reply to the claim by providing a payment schedule to the claimant.

(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).

...

(4) If:

(a) a claimant serves a payment claim on a respondent, and

(b) the respondent does not provide a payment schedule to the claimant:

(i) within the time required by the relevant construction contract, or

(ii) within 10 business days after the payment claim is served,

whichever time expires earlier,

the respondent becomes liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates.

15 Consequences of not paying claimant where no payment schedule

(1) This section applies if the respondent:

(a) becomes liable to pay the claimed amount to the claimant under section 14 (4) as a consequence of having failed to provide a payment schedule to the claimant within the time allowed by that section, and

(b) fails to pay the whole or any part of the claimed amount on or before the due date for the progress payment to which the payment claim relates.

(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

Background

4 On about 18 January 2013 the plaintiff, as the contractor, and SHBP, as the principal, entered into a contract pursuant to which the plaintiff agreed to construct 60 apartments, collectively known as Augusta Apartments, Magnolia Drive, Breakfast Point for the contract sum of $15,648,868.14 (including GST). The contract provided for the appointment by the principal of a superintendent, a term defined in cl 1 as follows:

"...means the person stated in Item 5 as the Superintendent or other person from time to time appointed in writing by the Principal to be the Superintendent and notified as such in writing to the Contractor by the Principal and, so far as concerns the functions exercisable by a Superintendent's Representative, includes a Superintendent's Representative."

5 Item 5 identified the superintendent as Rustom Kudinar-Kwee ("Mr Kwee"), C/- Zhinar Architects. Under cl 20, SHBP was obliged to ensure that at all times there was a superintendent, and that the superintendent fulfilled all aspects of the role and functions reasonably and in good faith. Under cl 21 the superintendent was allowed from time to time to appoint individuals to exercise delegated superintendent's functions, described as the superintendent's representative. Clause 37 required progress claims be given in writing to the superintendent. Relevantly, cl 37.2 required the superintendent, within fourteen days after receiving a progress claim, to issue to SHBP and the plaintiff a progress certificate evidencing his opinion of the monies due from SHBP to the plaintiff pursuant to the progress claim, and reasons for any difference ("progress certificate"), and a certificate evidencing his assessment of retention monies and monies due from the plaintiff to SHBP pursuant to the contract.

6 On 3 February 2014 Mr Steven Desmond McMahon commenced employment with Southern Han International Pty Ltd (SHI). His role was that of construction manager with responsibility for managing the approvals process, and construction of SHI's suite of projects. He was employed by Mr Kwee who is a principal of the firm, Zhinar Architects, a director of SHI, and a director of SHBP. At the time of the commencement of his employment, Mr Kwee was acting as the superintendent's representative for developments being undertaken by SHBP.

7 By letter of 5 February 2014 Mr Kwee advised the plaintiff of the appointment of Mr McMahon, described to be of SFK Development Pty Ltd, as the nominated superintendent's representative for the building project. It advised that Mr McMahon's delegated functions extended to the functions provided formerly by the nominated superintendent, Mr Kwee.

8 By letter of 6 February 2014 addressed to SHBP for Mr Kwee's attention, copied to Mr McMahon, the plaintiff sent progress claim 9. Included in the attachments was the invoice of 5 February 2014 for the amount of $1,116,931.00. Under the heading "Description" were the words:

"Progress Claim No 8 (sic) in accordance with Building Agreement Signed 18th February 2013"

Beneath was the statement:

"This is a Payment Claim made under the Building and Constructions Industry Security for Payment Act (NSW) 1999."

9 Later that day, during a scheduled progress meeting, Mr McMahon had a conversation with Mr Abouhamad, the sole director of the plaintiff, to the following effect:

McMahon: "The Principals and Tom have agreed that I assess your Progress Claims from here on. In fact, so that we both reconcile accounts, I will ensure Payment Schedules and Progress Certificates are issued in response to those claims."

Abouhamad: "That would be most appreciated, thanks."

10 By letter of 10 February 2014 Mr Kwee advised the plaintiff of the appointment of Mr McMahon as the nominated superintendent's representative for the project, but described him to be of Southern Han International Pty Ltd.

11 By email of 11 February 2014 to the plaintiff, Mr McMahon replied to progress claim 9. It included a payment voucher for the progress claim for the sum of $994,425.30. It also included a document under the heading "Contractor Payment Schedule" which, inter alia, identified the contracting parties, the project, the scheduled date for payment, and the scheduled payment amount. At the foot of the document appeared Mr McMahon's name above the words "Southern Han International Pty Ltd". It identified, as an attachment, the payment voucher for the amount to be paid under the progress claim which was the same as the scheduled payment amount.

The last line stated:

"This is a Payment Schedule pursuant to section 14 of the Building and Construction Industry Security of Payment Act 1999 (NSW)"

12 By email of 3 March 2014 the plaintiff sent to Mr McMahon an amended invoice for progress claim 9 for the amount of $90,363.30. The invoice was in similar form to the earlier invoice, and also included a notice that it was a payment claim made under the Act.

13 By email of 6 March 2014 to SHBP, for Mr McMahon's attention, the plaintiff sent progress claim 10. Included in the attachments was the invoice of 5 March 2014 for progress claim 10 for the amount of $607,938.10, which included a notice that it was a payment claim made under the Act.

14 With his email of 7 March 2014 to the plaintiff, copied to Mr Kwee, Mr McMahon replied to progress claim 10. Its contents were substantially similar to the reply to progress claim 9. The email included a document under the heading "Contractor Payment Schedule", the terms and format of which were relevantly identical to the payment schedule which replied to the payment claim for progress claim 9. It was signed by Mr McMahon, and attached a payment voucher for $641,072.52 for the progress claim, an amount which was the same as the scheduled payment amount.

15 By email of 8 March 2014 to Mr McMahon, copied to Mr Kwee, the plaintiff sent an amended invoice for progress claim 10 for $582,793.20. As with the earlier invoices, it included a notice that it was a payment claim under the Act.

16 By email of 3 April 2014 to Mr McMahon, the plaintiff sent progress claim 11. Consistently, the attachments included an invoice with the notice that it was a payment claim under the Act.

17 By email of 9 April 2014 to the plaintiff, Mr McMahon replied to progress claim 11. As before, the reply included a document under the heading "Contractor Payment Schedule", relevantly identical to that sent in reply to the payment claim for progress claim 10, and similarly signed by him. It attached a payment voucher for $1,144,457.60 for the progress claim, an amount which was the same as the scheduled payment amount.

18 By email of 8 May 2014 to Mr McMahon, copied to Mr Kwee, the plaintiff sent progress claim 12. Included in the attachments was the invoice of 8 May 2014 for the amount of $1,241,424.80, in a form similar to previous invoices, including the notice that it was a payment claim under the Act.

19 By email of 20 May 2014 to the plaintiff, copied to Mr Kwee, Mr McMahon replied to progress claim 12. Included was a contractor payment schedule in terms and format similar to the previous documents. It was signed by Mr McMahon, and attached a progress certificate for $816,450.69, an amount which was the same as the scheduled payment amount.

20 By email of 26 May 2014 to Mr McMahon, the plaintiff attached an amended invoice for progress claim 12 for the amount for which the payment voucher was issued. The invoice included a notice that it was a payment claim under the Act.

21 By email of 5 June 2014 to Mr McMahon, copied to Mr Kwee, the plaintiff sent progress claim 13. The covering letter included the statement that it, and all attachments, constituted a payment claim under the Act. The attached invoice for $1,302,123.90 was in the usual form, and included a notice that it was a payment claim under the Act.

22 By email of 19 June 2014 to the plaintiff, copied to Mr Kwee, Mr McMahon sent a payment schedule in the usual form, signed by him, and a progress certificate for the amount of $988,816.13, an amount which was the same as the scheduled payment amount.

23 By email of 7 July 2014 to Mr McMahon, the plaintiff sent progress claim 14. Consistently, the attachments included an invoice for $1,207,959.50, with the notice that it was a payment claim under the Act.

24 By email of 7 July 2014 to the plaintiff, Mr McMahon sent a payment schedule in the usual form, under his name, and a progress certificate for the amount of $1,118,942.23 which was the same as the scheduled payment amount.

25 By email of 8 July 2014 to Mr McMahon, the plaintiff advised its agreement with progress claim 14 and the payment voucher.

26 By email of 8 August 2014 to Mr McMahon, the plaintiff sent progress claim 15. A copy of the documents attached to the email were separately served on SHBP and Mr Kwee at their common address as stated in the contract. The covering letter included the statement that it, and all attachments, constituted a payment claim under the Act, and a claim under cl 37.1 of the contract. The documents included an invoice for $2,189,807.40 in form similar to the previous invoices, including the notice that it was a payment claim under the Act.

27 On 22 August 2014 Mr McMahon delivered a letter which included a payment schedule in the usual form, signed by him, to which was attached a progress certificate in the amount of $1,133,791.45 which was the same as the scheduled amount. This amount was paid by SHBP to the plaintiff between 26 and 28 August 2014.

28 On 8 October 2014 the plaintiff commenced these proceedings for recovery of the unpaid portion of the amount claimed in payment claim 15.

The Issue

29 The plaintiff seeks judgment against SHBP in the sum of $1,056,015.95, being the unpaid portion of the amount of $2,189,807.40 claimed in payment claim 15. It is alleged that the plaintiff is entitled, pursuant to s 15(2), to recover the amount claimed as a debt due as a consequence of the failure of SHBP to provide a payment schedule to the plaintiff within the time prescribed under s 14(4), or at all.

30 It is common ground that the document headed "Contractor Payment Schedule" ("the Schedule") delivered to the plaintiff on 22 August 2014 with the other documents relating to progress claim 15 was a payment schedule which met the requirements of s 14(2).

31 The only issue for determination is whether or not, in the circumstances, SHBP provided a payment schedule to the plaintiff in reply to its payment claim under s 14(1). The plaintiff contended that the documents, including the Schedule, constituted a progress certificate provided by Mr McMahon acting in his capacity as the superintendent's representative under the contract, independently of SHBP. In short, the plaintiff's case was that Mr McMahon was not authorised by SHBP as its agent to provide the Schedule and, accordingly, no payment schedule had been provided by SHBP within s 14(1) and (4)(b). On the other hand, SHBP contended that at all relevant times Mr McMahon acted on its behalf as its agent authorised to provide the Schedule.

Principals

32 For the plaintiff it was correctly accepted that it bore the onus of proving that the schedule was not authorised by SHBP to be provided to it. In Baulderstone Hornibrook Pty Ltd v Queensland Investment Corporation [2007] NSWCA 9 Tobias JA said:

"86 Nevertheless, the respondent submitted, in my opinion correctly, that once the issue of authority was raised the onus lay at all times upon the appellant affirmatively to establish that the Document headed Payment Schedule was not authorised by the respondent to be provided to the appellant. It was not sufficient, in my view, for the appellant to merely point to the deficiencies or gaps in the evidence in support of the proposition that that evidence did not establish that the document prepared by Allens and furnished to the appellant was not what it purported to be, namely the respondent's payment schedule in reply to the appellant's payment claim. On the contrary, the onus remained upon the appellant to establish that the Document headed Payment Schedule was not authorised by the respondent: in other words, it was required to prove the negative and the respondent was not required to prove the positive.

87. Accordingly, the only manner in which the appellant could establish that the Document headed Payment Schedule provided to the appellant on 28 April 2006 was not a payment schedule within the meaning of s 14(1) of the Act was if it could establish that that document was not the respondent's document in that it had neither expressly nor impliedly authorised the document in question being provided to the appellant. In my opinion that onus was not discharged by the assertion that the evidence did not show authorisation of the provision of the document. That assertion left matters neutral."

...

and Basten JA said:

"142. The proceedings were commenced on 17 May 2006 by the Appellant issuing a summons in the Equity Division, claiming a judgment for the amount of the payment claim, the Respondent not having paid any part of that amount. However, pursuant to s 15(4) the Appellant was not entitled to a judgment in its favour "unless the court is satisfied of the existence of the circumstances referred to in subsection (1)". Section 15(1)(a) identifies the first circumstance as the respondent having become liable to pay the claim "as a consequence of having failed to provide a payment schedule to the claimant". It was that which the Appellant was required to prove. Given that a document purporting to be a payment schedule and otherwise satisfying that description, had been provided within the prescribed time, the Appellant took upon itself the burden of proving that the document had not been provided by the Respondent.

...

155. The matter is ultimately a question of statutory construction: what is intended by the requirement in s 14(1) that a payment schedule be "provided" by the respondent? It seems to have been common ground during the hearing of the appeal that the term "provide" meant furnish or supply, a concept involving the transmission of a document from one person to another. In this respect, the case as outlined before the primary judge, involving the ministerial act of formulating or compiling the document, was not pressed.

156. Accordingly, the issue resolved itself into a question as to whether a person with authority from the Respondent authorised the delivery of the payment schedule in the form in which it was handed over to the Appellant. That involved more than simply authorising the ministerial act of delivering a document to the Appellant; it involved the delivery of the specific document, having a specific statutory purpose. There was, in this case, no suggestion that the payment schedule was delivered by mistake or that the wrong document was delivered, or that it was delivered to the wrong person. The Appellant's case turned on proof of the fact that the delivery occurred without the authority of the Respondent.

157. The operation of s 14(1) has been considered by this Court, particularly in Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2006] NSWCA 259, but the issue in that and other cases has been whether the obligation to "provide" the payment schedule required that the document actually be brought to the notice of the claimant, or whether service as permitted by s 109X of the Corporations Act 2001 (Cth) or in accordance with s 31 of the Security of Payment Act, would be sufficient. Hodgson JA (with whom Handley JA and Hunt AJA relevantly agreed) held that a payment schedule is a "notice" for the purposes of s 31 of the Security of Payment Act: at [59]. His Honour considered whether the legislature had intended to treat payment claims (required to be served) and payment schedules (required to be provided) differently in the sense that service could be effected whether or not the other person had actual knowledge of the document, whereas provision could not. His Honour rejected the contention that some differential result had been intended: at [60]. His Honour continued at [61]:

"The use of the word 'provide' rather than the word 'serve' does carry a suggestion that a different meaning is intended, and that accordingly s 31 does not apply in the case of the word 'provide'. Against this, however, I do not think the legislature would have (1) used a problematic word like 'provide' with the intention that it have a different meaning from 'serve', (2) given useful instructions as to how service may be effected, yet (3) given no instructions whatsoever as to how provision may be effected. When this consideration is combined with the consideration raised in the previous paragraph, in my opinion this justifies the conclusion, reached by the primary judge in this case, that 'provide' does not mean anything different from 'serve', and that s 31 applies to 'provision' as well as to 'service'."

The submissions

33 The plaintiff's submissions may be summarised as follows.

34 Compliance with s 14(1) and (4)(b) of the Act requires provision of a payment schedule by a respondent or someone authorised on its behalf. The evidence supported the inference that Mr McMahon had not been authorised by SHBP to provide the schedule. Accordingly, no schedule had been provided by its authorised agent under s 14(a) of the Act, with the consequence that SHBP became liable to pay the claimed amount pursuant to s 15(1)(a).

35 It was put that, as the superintendent's representative, in issuing the payment claim and the progress certificate for progress claim 15, Mr McMahon was exercising his functions as a certifier with respect to the payment of the progress claim under cl 37.2 of the contract. By cl 20 he was required to act "reasonably and in good faith", an obligation which required Mr McMahon to act impartially, and independently, as explained in Perini Corporation v Commonwealth of Australia (1969) 2 NSW 530. It followed, so it was put, that he was not acting, or purporting to act, at the same time as SHBP's authorised representative for the purpose of providing a payment schedule under s 14(1).

36 It was submitted that the absence of evidence of the appointment of Mr McMahon as SHBP's agent supported the inference that there had been no appointment. It was put that as SHBP had declined to call such evidence, which would have been peculiarly within its knowledge, in response to the evidence of Mr McMahon's contractual role, it was open to the Court to draw inferences contrary to SHBP's interests on the issue of authority, with regard to the principles in Blatch v Archer (1774) 1 Cowp. 63; 98 ER 969; Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) NSWCA 453 para 26. Accordingly, it was put that, although the evidence showed that Mr McMahon was acting as an independent certifier under the contract, there was nothing to show he was acting on behalf of SHBP to reply to a payment claim under the Act. The plaintiff accepted it bore the onus of proving that a payment schedule was not provided by SHBP, but it contended that it had done so on the balance of probabilities absent evidence to the contrary.

37 SHBP submitted that the plaintiff had failed to prove a schedule had not been provided by it and, in any event, there was ample evidence that the schedule had been provided with SHBP's approval and authority. It put that there was no obstacle to a person who was the superintendent's representative exercising certifying functions under the contract being appointed as agent to reply to a payment claim under the Act. It was put that the evidence of the course of dealing with respect to progress claims 10, 11, 12, 13 and 14, which were also payment claims under the Act, and to the fact that payments were made to, and accepted by, the plaintiff in respect of those claims and progress claim 15 was sufficient to show that Mr McMahon was authorised to provide the payment schedule in each case at the same time as he issued a progress certificate under the contract.

Determination

38 Analysis of the documents relating to progress claims 9 to 15 inclusive during the period between February and August 2014 demonstrates the course adopted by the parties in relation to the making of claims by the plaintiff and to the response to them by SHBP.

39 Following notification to the plaintiff by Mr Kwee, a director of SHBP, of the appointment of Mr McMahon as the superintendent's representative by letters of 5 and 10 February 2014, the plaintiff sent its progress claim to Mr McMahon for consideration.

40 By letter of 6 February 2014, progress claim 9 was addressed to SHBP for Mr Kwee's attention, and copied to Mr McMahon. The wording of the invoice shows that it was sent as a progress claim under the contract and as a payment claim under the Act for the same amount. Mr McMahon replied by email of 11 February 2014 with which he provided a payment voucher for progress claim 9 for the sum of $994,425.30, and a "Contractor Payment Schedule" (to which was attached the payment voucher) for the same amount, which included a statement that it was a payment schedule pursuant to s 14 of the Act. On 3 March 2014 the plaintiff sent to Mr McMahon an amended invoice for progress claim 9 in similar form, which he proceeded to deal with.

41 The evidence in relation to the subsequent claims is detailed above, and need not be recited. It shows that the plaintiff sent its claims upon SHBP to both Mr Kwee and Mr McMahon (eg. progress claims 12, 13 and 15), Unsurprisingly, it also shows that Mr McMahon sent progress certificates and payment schedules in reply to the claims to both Mr Kwee and the plaintiff (eg. for progress claims 10, 12 and 13). The modus operandi appears to have been that, in each case, the plaintiff's invoice was submitted as both a progress claim under the contract and a payment claim under the Act for the same amount, to which, in reply, Mr McMahon delivered to the plaintiff a progress certificate and a payment schedule.

42 In my opinion, the evidence of these communications, taken overall, supports the finding, which I make, that the plaintiff regarded Mr McMahon as having SHBP's authority to receive the progress claims and the payment claims and expected him to respond by providing both a progress certificate and a payment schedule.

43 Such an expectation would be consistent with the conversation of 6 February 2014 when Mr McMahon advised Mr Abouhamad that he would ensure that payment schedules and progress certificates were issued in response to the progress claims.

44 There can be no doubt that Mr McMahon was authorised to receive the claims on behalf of SHBP. It may be readily inferred that Mr Kwee knew and approved the fact that Mr McMahon would be providing a reply to both claims which, necessarily, included the provision of a payment schedule in reply to the payment claim. In my opinion, it cannot be reasonably doubted that the circumstances support the clear implication that Mr McMahon was authorised by SHBP to provide the payment schedule in each case on its behalf. This conclusion is reinforced by the plaintiff's tacit acceptance of Mr McMahon's authority to provide a payment schedule and a progress certificate in reply to each of progress claims 9, 10, 11, 12, 13 and 14.

45 In my opinion, the plaintiff has failed to establish that the payment schedule was not provided by SHBP. Furthermore, the mere fact that Mr McMahon was acting under the contract in issuing a progress certificate does not lend support to the proposition that, in providing a payment schedule for the substantially different purpose of the Act, he was not acting as SHBP's agent. It was for the plaintiff to prove the negative. Although SHBP was not required to prove the positive, the evidence was sufficient to show authorisation of the provision of payment schedules in reply to payment claims including the payment claim in respect of progress claim 15.

46 In summary, I find that Mr McMahon was authorised under the contract to issue a payment voucher or progress certificate in reply to progress claim 15, and was authorised by SHBP to provide a payment schedule in reply to the payment claim made by the plaintiff in respect of it.

Orders

47 It is ordered that:

(1) The plaintiff's Summons be dismissed;

(2) The plaintiff pay the first defendant's costs.

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Decision last updated: 05 December 2014