Phoenix International Group Pty Ltd v Resources Combined No 2 Pty Ltd & Ors [2009] VSCA 309 (11 December 2009)

Last Updated: 21 December 2009

SUPREME COURT OF VICTORIA

COURT OF APPEAL

No S APCI 2009 03870

No. 8731 of 2009

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BUILDING AND CONSTRUCTION LAW - Construction contracts entered into before 30 March 2007 - Adjudication of payment claims - Consequences of non-compliance with adjudicator's decision - Attempt to recover adjudicated amount - Attempt to challenge on ground that adjudication null and void - Whether claimant entitled to judgment nevertheless - Judge refused to enter judgment - Application for leave to appeal from that refusal - Leave to appeal refused - Building and Construction Industry Security of Payment Act 2002 , ss.25 and 27 .

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HARPER JA:

1 This is an application by  Phoenix International Group Pty Ltd, the applicant, for leave to appeal pursuant to sub-s.17A(4)(b) of the Supreme Court Act 1986 against certain orders made by Vickery J on 8 October 2009. The respondents, Resources Combined No. 2 Pty Ltd, Jetaglass Pty Ltd and Gantley Pty Ltd, make a cross-application for security for costs in the event that the principal application succeeds.

2 On 20 January 2006 the first respondent, Resources Combined, entered into a construction contract with the applicant. Similar contracts were entered into by the second and third respondents on, respectively, 6 December 2005 and 2 October 2006. On the material available to the Court on this application for leave, it appears that the contracts were terminated in relation to the first and second respondents on 23 February 2009 and in relation to the third respondent on 19 February this year.

3 Several months later, in May and June, the applicant submitted to the respective respondents what it described as 'payment claims' in relation to the several construction contracts. That expression is to be found in s.14 of the Building and Construction Industry Security of Payment Act 2002 ('the Act'), which provides (in effect) that a person who is entitled to a progress payment under a construction contract, that person being referred to in the section as 'the claimant', may serve a payment claim on the person ('the respondent') who under the contract is liable to make the payment. Only one claim may be made 'in respect of each reference date under the construction contract', and that claim must - among other things - identify the construction work or related goods and services to which the progress payment relates, and must indicate the amount of the progress payment that the claimant claims to be due for the construction work done or related goods and services supplied.

4 Once a claim has been made pursuant to s.14 of the Act, s.15 provides that the respondent may reply to the claim by providing a payment schedule to the claimant.

That schedule must identify the particular claim to which it relates and must indicate the amount of the payment, if any, that the respondent proposes to make.

5 In this case the several respondents did respond pursuant to s.15 to the claims made upon them by the applicant pursuant to s.14; but they by their responses indicated that, in their view, in none of the three cases was any amount payable pursuant to the claim. In those circumstances, the applicant turned to s.18 of the Act. Pursuant to that section, it applied (to quote the words of the section) for an 'adjudication of the payment claim'. Thereafter an adjudicator was chosen. On 11 August 2009, Mr Phillip Davenport accepted the appointment in respect of all three properties in question.

6 Mr Davenport delivered his determinations on 24 August. In each of the three cases he found in favour of the applicant/ claimant. He did so despite the respondent's submissions to him that the claims were made in a way or form which was not in conformity with the Act, and were for that and other reasons invalid. There was a further submission that the sums claimed were not due in any event. That last submission, however, is in the circumstances presently before this Court, irrelevant.

7 The applicant now contends that, following the adjudicator's determination, the provisions of s.25 and s.27 of the Act operate in relation to the circumstances of this case. It is necessary here to note that each of these sections was repealed on 30 March 2007 but, despite that repeal, continue to apply to construction contracts entered into between the commencement of the Act on 31 January 2003 and the date of repeal. The contracts in question here meet that description.

8 So far as is relevant, s.25 provides , that if an adjudicator determines an adjudication application by determining that the respondent must pay an adjudicated amount to the claimant, the respondent must either pay that amount to the claimant or, pending the final determination of the matters in dispute, give security for such payment. It is not in contention in the present application that the respondents have neither paid the amount of the determination nor given any security.

9 It was in those circumstances that the claimant, pursuant to s.27 of the Act, applied to the Court for an order that it recover from the respondents the amount of the adjudication as a debt due from them to the claimant. That application was in due course heard by Vickery J sitting in the Practice Court. His judgment was delivered on 8 October this year. After outlining the background circumstances, his Honour rejected the application for judgment, but in lieu made certain orders which - if given effect - will result in the respondents being the applicants under an Order 56 proceeding seeking prerogative relief pursuant to that order.

10 In the course of his judgment, his Honour at paragraph [14] outlined the grounds upon which the respondents claimed the right to object to the entry of judgment by the claimant, and upon which they sought to set aside Mr Davenport's determinations. Those grounds were as follows:

(a) Contrary to sub-x.14(3) of the Act, the payment claim did not sufficiently identify the construction work or related goods or services to which the purported progress payment claim related.

(b) The applicant was not entitled to make the payment claim for two reasons. First, it was not entitled to make any payment claim under the relevant provisions of the relevant contracts. Secondly, the claim was served after termination of the contract; and that termination discharged the relevant respondents from any further performance of their obligations under that contract.

(c) The payment claim was in substance not a payment claim - which is a claim for a progress payment - but a final claim; and a final claim is one for which there is no provision under the Act as the Act was before 30 March 2007, and as it applied to these construction contracts.

(d) If the claimant was entitled to make a progress claim under any of the contracts after its termination, then at best that entitlement was confined to a single progress claim. But such a progress claim had on 26 May 2009 been made in the form of a payment claim. Accordingly the payment claim served by the claimant in July did not fall within sub-x.14(2) as it then was, because it provided that only one payment claim may be served in respect of a specific progress payment.

(e) The determination against the first respondent was a nullity and of no effect and should be set aside or quashed because the adjudicator had failed to comply with those basic elements of the Act compliance with which was necessary for the adjudication to be valid. The determination was not a bona fide attempt to exercise the power granted under the Act, and there was a substantial denial of natural justice. Alternatively, the determination was tainted by jurisdictional error or errors of law on the face of the record.

11 His Honour dealt with these submissions at paragraph [27] of his reasons. He there said:

The respondents in each of the cases have in my opinion demonstrated an arguable case that the determinations of the adjudicator in each case are null and void. It follows that I should refuse the application of Phoenix [the claimant/ applicant] in each matter for the entry of judgment. Applying the well established principle that 'the nature of a summary procedure makes it undesirable if a court is going to give leave to defend, that it give detailed reasons for doing so', I do not propose to give detailed reasons as to why, in my opinion, the defendants in these cases have raised issues which warrant trials being conducted by way of judicial review.

12 In my opinion, the submissions put by the applicant this morning and in its written submissions, amount to this. First, that the intention of the legislature in first enacting the relevant legislation was to provide for a speedy and efficient means of resolving differences over progress claims. This is a submission which I accept. The submission continues however, to contend that the intention of the legislature was even as originally framed such as to entitle a successful party in an adjudication, as the applicant was in this case, to judgment even where the adjudicator's decision is null and void. Whatever may be the position now, this (it seems to me) is a proposition which cannot stand in the face of the legislation as it was before the amendments of 30 March 2007 and as it applies to the construction contracts in issue here.

13 The purpose of the legislation being generally as the applicant submitted, to provide for a speedy and efficient means of resolving differences over progress claims, nevertheless it seems to me that the intention of Parliament was not to go so far as to deny a person in the position of the present respondents any right to resort to the Court by way of resistance to an application by a claimant under s.27 of the Act. The Parliament might have provided that, on receipt of the adjudicator's determination, a successful claimant was entitled without more to enter judgment. Such a provision would have fallen squarely within the submissions put on behalf of the applicant today.

14 That, however, is not how the legislation is framed. Sub-section (2) of that section provides that, in the circumstances with which the section deals, and in the circumstances which obtained in this case, a claimant may recover from the respondent as a debt due to the claimant in any court of competent jurisdiction the unpaid or unsecured portion of the adjudicated amount. The ordinary processes for obtaining and resisting a judgment are therefore, at least arguably, preserved.

15 Section 25 speaks of the giving of security. His Honour dealt with that aspect at [32] and [33] of his judgment, as follows:

In relation to s.25 ..., insofar as it makes provision for security to be paid by a respondent, the requirement applies only where there is a continuing dispute as to matters arising under the relevant construction contract between the parties in connection with a progress payment. In those circumstances, the respondent has a choice as to whether it pays the adjudicated amount to the claimant, as required pursuant to s.25(1)(a), or gives security for payment of that amount to the claimant "pending the final determination of the matters in dispute between them", as required pursuant to s.25(1)(b). The respondent may only elect to give security in lieu of making payment to the claimant if it has actually commenced proceedings: s.25(2). The forms of the security are provided for by s.25(3). Finally, except with the consent of the parties, the claimant is prevented from enforcing any security given under this section until at least 2 business days after any matters in dispute between them "in connection with the progress payment to which the security relates have been finally determined".

The facility to provide security in lieu of payment under s.25 ..., in my opinion, has no application to a case such as the present where the foundation of the proceeding to be instituted by a party in the position of the respondents in this case, is a challenge to the validity of the adjudicator's determination by judicial review. The liability to provide security under s.25 ... is founded upon the premise that there is a valid adjudicated amount which has not been paid. If the adjudicator's determination is under challenge, as it is in this case, and it subsequently transpires that there was no valid adjudication determination and consequently no valid adjudicated amount, there would have been no basis to have made the order for the provision of security under s.25 in the first place. In these circumstances where there is a challenge made to the very foundation on which the security may be ordered it would be unjust, in my view, to insist on security being provided as a condition for permitting the affected party from pursuing its challenge.

16 In my opinion, neither this passage nor the judgment of his Honour more generally as delivered on 8 October is attended with such doubt as to warrant the grant of leave to appeal. In any event, it seems to me that the refusal to accede to the application for leave would not cause such injustice as to indicate that leave should be granted. For these reasons in my opinion the application should be refused.

BONGIORNO JA:

17 I agree with Harper JA. I would only add that, having regard to the fact that this litigation is currently in the hands of Vickery J and he has a directions hearing apparently scheduled for next week, the most convenient way for it to be concluded would be in his hands in the way that he proposes.

18 There is nothing that I heard from the submissions on behalf of the plaintiff which would lead me to the position that there would be any injustice done by refusing leave to appeal. Accordingly I would also refuse the application.

ORDERS:

1. The application for leave to appeal be dismissed.

2. The plaintiff pay the defendant's costs of the application.

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