NEW SOUTH WALES SUPREME COURT

CITATION:

The Owners Strata Plan 56587 v Consolidated Quality Projects [2009] NSWSC 1476

JURISDICTION:

Equity Division

Technology & Construction List

FILE NUMBER(S):

2009/298890

HEARING DATE(S):

17 December 2009

EX TEMPORE DATE:

17 December 2009

PARTIES:

The Owners - Strata Plan No. 56587 No. 56587 (Plaintiff)

Consolidated Quality Projects Pty Limited (Defendant)

JUDGMENT OF:

McDougall J

LOWER COURT JURISDICTION:

Not Applicable

LOWER COURT FILE NUMBER(S):

Not Applicable

LOWER COURT JUDICIAL OFFICER:

Not Applicable

COUNSEL:

F C Corsaro SC (Plaintiff)

M Dempsey SC (Defendant)

SOLICITORS:

Andreones Pty Limited (Plaintiff)

Massey Bailey Solicitors & Consultants (Defendant)

CATCHWORDS:

BUILDING CONTRACTS - Building and Construction Industry Security of Payment Act 1999 (NSW) - progress claim served on superintendent - whether service of progress claim on superintendent that is also a payment claim under the Act constitutes valid service of payment claim on owners corporation for the purpose of s 31 - no stipulation in contract authorising service of payment claim on superintendent on behalf of owners corporation - whether as a matter of practice parties objectively intended that progress claims that are also payment claims under the Act may be delivered as one document to superintendent.

LEGISLATION CITED:

Building and Construction Industry Security of Payment Act 1999 (NSW)

CATEGORY:

Principal judgment

CASES CITED:

Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421

Emag Constructions Pty Ltd v Highrise Concrete Contractors (Aust) Pty Ltd [2003]

NSWSC 903

TEXTS CITED:

DECISION:

See paragraph [37] of the judgment.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

TECHNOLOGY & CONSTRUCTION LIST

McDOUGALL J

17 December 2009 (ex tempore – revised 18 December 2009)

55115/09 THE OWNERS STRATA PLAN NO. 56587 v CONSOLIDATED QUALITY

PROJECTS PTY LIMITED & ANOR

JUDGMENT

1 HIS HONOUR: The plaintiff (the owners corporation) is the owners corporation of a strata title development at Botany. The first defendant (CQP) is a builder.

2 In April 2007 the owners corporation entered into a contract with CQP for CQP to carry out remedial works on the common property. The dispute before the Court concerns a payment claim made by CQP on 7 October 2009. CQP says that the payment claim was served on the owners corporation and, because the owners corporation did not provide a payment schedule, was referred to adjudication. The adjudicator (who is the second defendant) determined that the owners corporation was liable to pay CQP the amount of the progress claim: an amount in excess of $470,000.

3 The owners corporation says that the payment claim was not validly served on it. Thus, it says, one of the "basic and essential requirements" identified "for the existence of an adjudicator's determination" – service by the claimant on the respondent of a payment claim - has not been met. (See Hodgson JA, with whom Mason P and Giles JA agreed, in Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421 at 441 [52],[53].)

4 It is common ground that the only way that service was effected (if it were effected at all) was by the delivery of the payment claim to the superintendent under the contract (RHM). There is no doubt that progress claims, in accordance with the payment regime set out in the contract were to be given to RHM as superintendent. The essential issue is whether, in all the circumstances, a progress claim that was also a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) can also be served on RHM so as to constitute valid service, for the purposes of the Act, on the owners corporation.

Relevant provisions of the contract

5 Clause 4 of the contract deals with service of notices. It reads as follows:

4. Service of notices

A notice (and other documents) shall be deemed to have been given and received:

(a) if addressed or delivered to the relevant address in the Contract or last communicated in writing to the person giving the notice; and

(b) on the earliest date of:

i) actual receipt;

ii) confirmation of correct transmission of fax; or

iii) 3 days after posting.

6 Clause 15 requires there to be a superintendent. It reads as follows: and

15. Superintendent

The Principal shall ensure that at all times there is a Superintendent , and that the Superintendent fulfils all aspects of the role and functions reasonably and in good faith. Except where the Contract otherwise provides, the Superintendent may give a direction orally but shall as soon as practicable confirm it in writing. If the Contractor in writing requests the Superintendent to confirm an oral direction , the Contractor shall not be bound to comply with the direction until the Superintendent does so.

7 Clause 23 deals with payment. Of particular relevance, cl 23.1 deals with progress claims and cl 23.2 deals with certification. I set out those sub-clauses:

23 Payment

23.1 Progress claims

The Contractor shall claim payment progressively in accordance with Item 16.

An early progress claim shall be deemed to have been made on that date for making that claim.

Each progress claim shall be given in writing to the Superintendent and shall include details of the value of WUC done and may include details of other moneys then due to the Contractor pursuant to provisions of the Contract.

23.2 Certificates

The Superintendent shall, within 14 days after receiving such a progress claim, assess the claim and shall issue a progress certificate stating the moneys due to the Contractor or the Principal , as the case may be. The Superintendent shall set out in the progress certificate the calculations employed to arrive at the amount certified and, if the amount is more or less than the amount claimed by the contractor , the reasons for the difference. Within 21 days after receipt by the Superintendent of such a progress claim, the Principal or the Contractor, as the case may be, shall pay:

a) the amount certified, if the Superintendent has issued a progress certificate with respect to the progress claim; or

b) the amount of the progress claim, if the Superintendent has not so certified.

Neither a progress certificate nor a payment of moneys shall be evidence that the subject WUC has been carried out satisfactorily. Payment other than final payment shall be payment on account only.

23.3 Final payment claim and certificate

Within 28 days after the expiry of the defects liability period, the Contractor shall give the Superintendent a written final payment claim endorsed ‘Final Payment Claim’ being a progress claim together with all other claims whatsoever in connection with the subject matter of the Contract .

Within 42 days after the expiry of the defects liability period, the Superintendent shall issue to the Contractor and to the Principal a final certificate evidencing the moneys finally due and payable between the Contractor and the Principal on any account whatsoever in connection with the subject matter of the Contract.

Those moneys certified as due and payable shall be paid by the Principal or the Contractor , as the case may be, within 7 days after the debtor receives the final certificate.

The final certificate shall be conclusive evidence of accord and satisfaction, and in discharge of each party’s obligations in connection with the subject matter of the Contract except for:

a) fraud or dishonesty relating to WUC or any part thereof or to any matter dealt with in the final certificate;

b) any defect or omission in the Works or any part thereof which was not apparent at the end of the defects liability period, or which would not have been disclosed upon reasonable inspection as the time of the issue of the final certificate;

c) any accidental or erroneous inclusion or exclusion of any work or figures in any computation or any arithmetical error in any computation; and

d) unresolved issues the subject of any notice of dispute pursuant to clause 27, served before the 7th day after the issue of the final certificate.

23.4 Interest

Interest in Item 17 shall be due and payable after the date of default in payment.

8 There are many provisions in the contract that give functions to RHM as superintendent. It is not necessary to set out those provisions. It is sufficient to note that there is nothing in the contract that expressly authorises the service of payment claims under the Act on RHM so as to effect service on the owners corporation.

Relevant provisions of the Act

9 A statutory right to payment claims is given by s 8(1) of the Act. That subsection reads as follows:

8 Rights to progress payments

….

(2) In this section, "reference date", in relation to a construction contract, means:

(a) a date determined by or in accordance with the terms of the contract as the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the contract, or

(b) if the contract makes no express provision with respect to the matter-the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and the last day of each subsequent named month.

10 Sections 9 and 10 deal with quantification of the amount of progress payments. It is not necessary to go to the detail.

11 Section 13 of the Act occurs in Part 3, which is entitled "Procedure for recovering progress payments." Section 13(1) provides that a claimed entitlement to a progress claim may be asserted through a payment claim;

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.

12 Section 31 of the Act deals with service of notices. It is relevant because it is common ground between the parties (and in my view correctly so) that a payment claim under s 13 is a notice that is under the Act authorised or required to be served on a person. Section 31 reads as follows :

31 Service of notices

(1) Any notice that by or under this Act is authorised or required to be served on a person may be served on the person:

(a) by delivering it to the person personally, or

(b) by lodging it during normal office hours at the person’s ordinary place of business, or

(d) in such other manner as may be prescribed by the regulations for the purposes of this section, or

(e) in such other manner as may be provided under the construction contract concerned.

(2) Service of a notice that is sent to a person’s ordinary place of business, as referred to in subsection (1) (c), is taken to have been effected when the notice is received at that place.

(3) The provisions of this section are in addition to, and do not limit or exclude, the provisions of any other law with respect to the service of notices.

Other factual matters

13 CQP laid stress on the course of dealing between the parties. CQP served 25 payment claims before it served the subject payment claim on 7 October 2009. Each of those earlier payment claims was in terms addressed to, and presumably delivered to, the owners corporation in care of RHM at RHM's postal address. Each was in terms a progress claim (numbered from 1 to 25) under the contract. Each contained a notation that it was a payment claim under the Act.

14 In accordance with the regime established by cl 25 of the contract, RHM assessed each of those claims and issued a progress payment certificate (again, numbered from 1 to 25). In some cases, the assessment was in the amount of the claim. In some cases, it was less than the amount claimed. So far as I can tell, there was only one substantial discrepancy. In the case of progress claim number 13, the amount claimed was (in round figures) $171,000 and the amount certified was (again in round figures) $52,000.

15 One dispute - not relating to the claim to which I have just referred - was sent to adjudication. That claim related to progress claim (or payment claim) number 12, in the amount of $135,000, certified at $133,000 (again, in each case, in round figures). The matter was sent to adjudication not because of the relatively small discrepancy between the claim and the certified amount but because the certified amount was not paid. Although the owners corporation raised a number of defences to the adjudication application, the defences raised did not include that the payment claim in question had not been validly served. There was a generalised assertion that the owners corporation "does not admit that the purported payment claim submitted by CQP meets the requirements of section 13 of the Act." There is nothing to suggest that the alleged discrepancy between the payment claim and the requirements of s 13 had anything to do with the mode of service of the payment claim.

The parties' submissions

16 Mr Corsaro of Senior Counsel, who appeared for the owners corporation, submitted that the payment claim in question had not been served in accordance with s 31 of the Act. He submitted that for a payment claim to be valid it must be served in accordance with a manner permitted by s 31. In other words, he submitted, section 31, although providing for a variety of means of service, should be taken to set out a code in relation to service. I pause to observe that if that is correct, the code includes "the provisions of any other law with respect to the service of notices.”

17 Mr Corsaro relied on the decision of Einstein J in Emag Constructions Pty Ltd v Highrise Concrete Contractors (Aust) Pty Ltd [2003] NSWSC 903. In that case, his Honour said at [38] that service in accordance with the Act "is critical as it governs the commencement of the time limitations following such service." It was critical, his Honour said, because "[t]he consequence of non-compliance with the time limitation periods is harsh." Thus, his Honour said at [59], whatever principles the general law might show in relation to actual or ostensible authority for someone to receive documents on behalf of another (in the particular case, the question was whether a solicitor had such authority to receive documents on behalf of a respondent) those principles "must yield to the strictures of the strict requirement to prove service." His Honour continued by observing:

[59] In my view the character of the subject legislation is such that general principles of actual or ostensible authority in solicitors to receive service of copies of relevant notices must yield to the strictures of the strict requirement to prove service. The service provisions of the Act require to be complied with in terms. Prudence dictates that those responsible for complying with the service provisions take steps to be in a position to strictly prove service in the usual way. One only example of the difficulties which may arise is where a solicitor who may have been instructed to act in relation to an adjudication application has his/her instructions withdrawn. There are no provisions similar to those to be found in the Supreme Court Rules 1970 for notices of ceasing to act and the like. The Act here under consideration simply proceeds by requiring particular steps to be taken by the parties and by the adjudicator and proof of strict compliance with the Act is necessary for the achievement of the quick and efficient recovery of progress payments and resolution of disputes in that regard.

18 Mr Corsaro observed, correctly, that RHM was not, and could not have been thought to have been, a person who, under the construction contract in question, is or might have been liable to make the payment that was claimed. He submitted, again correctly, that those words in s 13 refer, in the circumstances of this case, to the owners corporation.

19 Further, Mr Corsaro submitted, there was nothing in the contract to authorise or justify service of a payment claim on the owners corporation through the provision of that payment claim to RHM. On the contrary, cl 4 of the contract said nothing as to that question.

20 Mr Dempsey of Senior Counsel, who appeared for CQP, submitted that RHM, as the superintendent under the contract having the functions to which I have referred, was the agent of the owners corporation for the purpose of service of progress claims. Thus, he submitted, the contract both authorised and required CQP to serve payment claims on RHM. Alternatively, Mr Dempsey submitted, the factual history that I have briefly summarised shows that the parties were content for payment claims to be served in the manner that the particular payment claim was. Thus, he submitted, there was a previous course of dealings putting the owners corporation on notice of that practice and, thereby, authorising RHM to receive service on behalf of the owners corporation.

21 As a further alternative, Mr Dempsey submitted that the practice that had developed formed part of the contract or arrangement that constituted the construction contract in this case. He referred to the definition of "construction contract" in s 4 of the Act which, of course, includes "a contract or other arrangement under which one party undertakes to carry out construction work...for another party.”

Decision

22 The question, although in narrow compass, is not an easy one. I accept the general proposition flowing both from the decision of Einstein J in Emag and from the decision of Hodgson JA in Brodyn that service of a payment claim is an essential matter if the processes of the Act are to be engaged. Although the decision of Einstein J in Emag was given before the Court of Appeal handed down its judgment in Brodyn , nothing seems to me to turn on that. On the contrary, I think, the reasoning of Einstein J is in substance (if not in detail) consistent with the view taken by Hodgson JA in the passage in Brodyn to which I have referred.

23 However, that does not answer the question. It simply focuses attention on the real question which is whether the payment claim in this case was served on the owners corporation. The answer to that question must take into account the requirements of s 31 of the Act. It follows from s 31(1)(e) that it must also take into account any relevant provision of the construction contract.

24 The starting point of the analysis is to observe that service, for the purposes of s 13 (read in conjunction with s 31) can only be valid if in some way RHM had been authorised to receive service of payment claims on behalf of the owners corporation. I do not think that it is correct to say that RHM should be regarded as the agent of the owners corporation. The owners corporation is required to ensure there is a superintendent to fulfil all aspects of the role of the superintendent to the contract "reasonably and in good faith." It follows from that that the superintendent should not be beholden to, or more specifically owe obligations to, one of the parties to the contract that could compromise the independence, or ability to act in good faith, of the superintendent. If the superintendent were the agent of the owners corporation for a particular purpose, it would presumably owe fiduciary duty obligations to the owners corporation. It is not hard to see that, in an appropriate case, those fiduciary duty obligations might conflict with the ability of the superintendent to act reasonably and in good faith.

25 However, it does not follow from this conclusion that the superintendent is not authorised to receive payment claims on behalf of the owners corporation. Whether or not that is so depends, in the first place, on an analysis of cl 23 of the contract read in conjunction with the Act.

26 I start with the the proposition that the Act is concerned with ensuring, relevantly, that those who carry out construction work under a construction contract recover progress payments for the value of that work. That is why s 8 gives a statutory right to a progress payment and why s 13 and the following sections provide a mechanism for enforcing the statutory right given by s 8. However, the Act operates supplementary to, and not to the exclusion of, relevant provisions of the contract. If the contract gives a right to progress payments, and does so in a manner that cannot be seen to offend s 34 of the Act, the contractual regime has to be made to coexist with the statutory regime.

27 Again, s 13 of the Act has as its general subject the provision of a mechanism, or the initiating point of a mechanism, for enforcing a right to a progress payment given (or confirmed) by s 8. The mechanism is, as I have said, the service of a payment claim. The phrase "payment claim" is defined, in a wholly circular and unhelpful fashion, to mean "a claim referred to in section 13."

28 A progress claim under a contract, given in relation to a contractual right to receive a progress payment, may be a payment claim under the Act if it includes the statement required by s 13(2)(c). In those circumstances it will have a dual character. Relating that to the circumstances of this case, one aspect of the dual character is that it is a progress claim which initiates the progress of assessment and payment set out in cl 23. The other aspect of that dual character is that it is a payment claim that initiates the enforcement mechanism set out in Part 3 of the Act.

29 The parties should not be taken to have contracted unaware of the provisions of the Act. Accordingly, it seems to me, if one looks at the matter objectively, the intention of cl 23 of the contract should be taken to be that it deals with claims to progress payments not only having regard to their contractual character but also having regard to their statutory character. Looking at the matter objectively, it seems to me that the parties could not have intended that there should be a dual track mechanism whereby contractual claims were provided and assessed in one way and statutory claims were provided and assessed in quite a different way. That would be a most unbusiness-like way to go about the administration of their contract.

30 It is correct to say, as Mr Corsaro observed, that the superintendent has 14 days to assess a progress claim, whereas a respondent to a payment claim has 10 business days within which to provide a payment schedule (see s 14(4) of the Act). Although the difference may be noted, it is unlikely ever to be of real practical significance given that any period of 10 business days will, of necessity, include at least two weekend days. In any event, it is possible to comply with both regimes by ensuring that certification is effected within 10 business days if that is a lesser period of time than 14 days.

31 However, it seems to me, the more helpful way of understanding the parties' objective intention is that they appear to have engaged in a regime whereby documents purporting to be both progress claims under the contract and payment claims under the Act were delivered, as one document, to the owners corporation in care of RHM. The parties appear to have treated that, in at least one case, as being capable of giving rise to a dispute that could be referred to adjudication. That would only be possible if the document that was served had been served on the owners corporation. Lest it be thought that the point was simply overlooked, I should observe that when the earlier adjudication took place, the owners corporation was represented by the same firm of solicitors that represented it in these proceedings.

32 For those reasons, it seems to me, as a matter of construction the regime set out in cl 23 of the contract should be taken to extend not only to progress claims strictly so called but also to the parallel track statutory mechanism for payment claims.

33 For those reasons, I conclude that the payment claim was served in a manner authorised by the contract, and thus that it was validly served for the purposes of s 31 of the Act.

34 In case I am wrong in that, I will deal with the alternative argument. As I have said, Mr Dempsey submitted that in this case the contract (more accurately the construction contract) included an arrangement whereby payment claims could be validly served in the manner that the particular payment claim was served, and would be taken by the parties, or accepted by the parties, to have been served on the owners corporation through service on RHM.

35 In my view, that submission should be accepted. The evidence is that, on the 25 prior occasions, a document purporting to be both a progress claim under the contract and a payment claim under the Act was served on the owners corporation in care of RHM, and was assessed and paid. On one occasion, as I have said, the failure to pay it gave rise to a reference to adjudication in which no point as to service was taken. Were it necessary to do so, I would conclude that there was a practice or arrangement whereby, notwithstanding (on this hypothesis) the strict terms of cl 23 of the contract, the parties agreed or arranged that payment claims for the purpose of the Act could be served on the owners corporation by being served, in their dual capacity as progress claims under the contract, on RHM.

36 Thus, were it necessary to do so, I would conclude, as I have said that there was an arrangement that encompasses the practice on which, in the alternative, CQP relied in this case.

Conclusion and orders

37 The only basis on which the owners corporation relied to support the relief claimed fails for the reasons that I have given. I note that an alternative basis for relief, relating to denial of procedural fairness, was not pressed at the hearing. In those circumstances, the appropriate orders are that the summons be dismissed with costs, and I so order.

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LAST UPDATED:

11 February 2010