[2014] WASAT 141

JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL

ACT : CONSTRUCTION CONTRACTS ACT 2004 (WA)

CITATION : R & D BUILDING PTY LTD and JACKSON [2014] WASAT 141

MEMBER : MS C WALLACE (MEMBER)

HEARD : DETERMINED ON THE DOCUMENTS

DELIVERED : 21 OCTOBER 2014

FILE NO/S : CC 618 of 2014

BETWEEN : R & D BUILDING PTY LTD

Applicant

AND

PHILLIP JACKSON

Respondent

Catchwords:

Construction Contract Act 2004 (WA) - Whether adjudication application made within time - Whether purported variation to contract in clear and unequivocal terms - Whether payment is security or retention money

Legislation:

Construction Contracts Act 2004 (WA), s 3, s 6, s 26, s 26(1), s 31(2)(a)(ii), s 46(1)

Result:

Application unsuccessful

Summary of Tribunal's decision:

The applicant sought review pursuant to s 46(1) of the Construction Contracts Act 2004 (WA) of a decision made in respect of an adjudication application dismissing it as being made out of time. The issue to be determined by the Tribunal was when the relevant payment dispute between the parties arose. The applicant contended that the parties agreed to extend the time by which the outstanding amount was to be paid, through an exchange of emails between the parties.

The Tribunal found that the relevant exchange of emails did not constitute a formal variation of the contract, primarily because the purported acceptance was not made in clear and unequivocal terms. As a result, payment of the relevant amount was due earlier in time than contended by the applicant, being the date on which the payment dispute arose. Therefore the adjudication application was made out of time. The original decision was affirmed and the application seeking review dismissed.

Category : B

Representation:

Counsel:

Applicant : Mr R Harris (Acting as Agent)

Respondent : In Person

Solicitors:

Applicant : N/A

Respondent : N/A

Case(s) referred to in decision(s):

Bondi Beach Astra Retirement Village Pty Ltd v Gora (2011) 82 NSWLR 665

REASONS FOR DECISION OF THE TRIBUNAL :

Background facts

1 R & D Building Pty Ltd, trading as Richard Harris Homes (Harris), was contracted by Mr Phillip Jackson (Jackson) to construct a residence in Cottesloe for $2,260,008 plus GST. The contract, incorporating Standards Australia AS 4000-1997 General Conditions of Contract (general conditions), was signed on 17 June 2011 (original building contract).

2 Practical completion of the house was achieved on 21 June 2013.

3 Harris prepared and served an application for adjudication under the Construction Contracts Act 2004 (WA) (CC Act) on 28 February 2014 (adjudication application). The adjudication application related to a so-called 'deferred payment' negotiated by the parties subsequent to entering into the original building contract (deferred payment). Harris contends that upon its invoice for the balance of the deferred payment of $30,000, together with interest being rejected on 24 February 2014, a payment dispute arose.

4 The adjudicator appointed by the Master Builders Association of Western Australia in accordance with the CC Act, Mr William Mark Jones (adjudicator), determined on 14 April 2014 to dismiss the adjudication application under s 31(2)(a)(ii) of the CC Act on the ground that the adjudication application was not prepared and served in accordance with the CC Act. More particularly, the adjudicator found that the deferred payment was in the nature of security or retention money. Either way, as found by the adjudicator, payment to Harris was due on 21 December 2013, meaning that the adjudication application was out of time.

5 Harris seeks a review of the adjudicator's decision.

6 In considering the matter, it is necessary that I deal with the following issues:

a) Having regard to the entire contract between the parties, what is the nature of the relevant amount claimed by Harris?

b) When did the payment dispute arise?

c) Was the adjudication application prepared and served within the allowed time?

What is the nature of the relevant amount being claimed?

7 The significance of this issue is that s 6 of the CC Act provides different tests for whether, and when, a 'payment dispute' arises, depending upon whether the amount in question is in the nature of an 'amount claimed in a payment claim', 'money retained by a party under a contract' or 'security held by a party under the contract'.

8 Section 6 of the CC Act states:

Payment dispute

For the purposes of this Act, a payment dispute arises if -

(a) by the time when the amount claimed in a payment claim is due to be paid under the contract, the amount has not been paid in full, or the claim has been rejected or wholly or partly disputed;

(b) by the time when any money retained by a party under the contract is due to be paid under the contract, the money has not been paid; or

(c) by the time when any security held by a party under the contract is due to be returned under the contract, the security has not been returned.

9 The original building contract provided for security, alternatively retention money, to be provided in a manner favourable to Harris. Clause 5 of the general conditions, headed 'Security', was in the following terms:

5.1 Provision

Security shall be provided in accordance with Item 13 or 14. All delivered security , other than cash or retention moneys, shall be transferred in escrow.

5.2 Recourse

Security shall be subject to recourse by a party who remains unpaid after the time for payment where at least 5 days have elapsed since that party notified the other party of intention to have recourse.

5.3 Change of security

At any time a party providing retention monies or cash security may substitute another form of security . To the extent that another form of security is provided, the other party shall not deduct, and shall promptly release and return, retention moneys and cash security .

5.4 Reduction and release

Upon the issue of the certificate of practical completion the party's entitlement to security (other than in Item 13(e)) shall be reduced by the percentage or amount in Item 13(f) or 14(d) as applicable, and the reduction shall be released and returned within 14 days to the other party.

The Principal's entitlement to security in Item 13(e) shall cease 14 days after incorporation into the Works of the plant and materials for which that security was provided.

A party's entitlement otherwise to security shall cease 14 days after final certificate .

Upon a party's entitlement to security ceasing, that party shall release and return forthwith the security to the other party.

5.5 Trusts and interest

Except where held by a government department or agency or a municipal, public or statutory authority, any portion of security (and interest earned thereon) which is cash or retention moneys, shall be held in trust for the party providing them until the Principal or the Contractor is entitled to receive them.

Interest earned on security not required to be held in trust shall belong to the party holding that security .

5.6 Deed of guarantee, undertaking and substitution

Where:

a) a party is a related or subsidiary corporation (as defined in the applicable corporations law of the jurisdiction); and

b) a form of deed of guarantee, undertaking and substitution was included in the tender documents, that party shall, within 14 days after receiving a written request from the other party, provide such deed of guarantee, undertaking and substitution duly executed and enforceable.

10 Item 13 of the annexure to the general conditions set out that the form of the security was 'retention moneys' (item 13(a)); the maximum percentage of the contract sum payable under clause 5 was 5% (item 13(b)); the percentage of each progress certificate in the case of retention money was 10% (item 13(c)); and the contractor's security upon certificate of practical completion (as provided by clause 5.4) was to reduce by 50% of the amount held (item 13(f)).

11 The terms on which retention moneys were to be held in accordance with clause 5 of the general conditions were the subject of variation by the parties in writing dated 17 October 2011, whereby item 13(b) was amended to 2.5% and item 13(c) was amended by removing the reference to 10% and substituting 'the last 2.5% of the contract sum claimed'.

12 On 15 October 2013, as evidenced by a letter of that date signed by them, the parties agreed on the following terms (October agreement):

Clause 5.5 shall be deleted.

Notwithstanding any term of clause 5 or otherwise of the Contract, the following shall apply:

(1) the amount of the Security shall be $60,000[;]

(2) the Security shall be in the nature of a deferred payment and shall be payable by the Principal to the Contractor, along with interest thereon, no later than the date that is six calendar months from the date of Practical Completion;

(3) interest payable shall be $1,500;

(4) the Principal shall make the payment required in (2) despite any claim for defects that he may then have against the Contractor;

(5) the Security shall be credited against any claim that the Contractor may have against the Principal as contemplated under clause 37.4 and in the event that the Contractor owes the Principal any amount, after taking account of such credit, the same shall be payable as contemplated in clause 37.4.

13 In my view, the effect of this further agreement was to change the character of the payment the subject of clause 5 of the original building contract from a form of security under the contract, in the nature of retention money, to a deferred payment of money otherwise payable under the contract, payable at an agreed later time (no later than six calendar months from practical completion), and payable regardless of any claims in relation to defects. The consequence, when considering the time upon which the payment dispute arose for the purpose of s 6 of the CC Act, is that condition (a) in that section applies, making 'the time when the amount claimed in a payment claim is due to be paid under the contract [and] the amount has not been paid in full, or the claim has been rejected or wholly or partly disputed' the applicable test. I disagree with that part of the adjudicator's reasons which regarded the unpaid amount as either retention money or unreturned security.

14 In the end, which one of the three alternatives under s 6 of the CC Act the deferred payment is may be of little consequence. Assuming the term relating to time for payment fixed by the October agreement applies, that is the time by which non-payment is likely to give rise to a payment dispute, regardless of the characterisation of the payment.

15 As a result of discussions between the parties in early September 2013, Jackson agreed to release half of the delayed payment, or $30,000, to assist in difficulties with Harris' cash flow. Payment of this amount having been made, the amount of the deferred payment the subject of the October agreement reduced to $30,000.

When did the payment dispute arise?

16 The October agreement provided for the last date for payment of the deferred payment to be no later than six calendar months from the date of practical completion. This fixed 21 December 2013 as the final payment date.

17 Harris relies upon an alleged further variation to the parties' contract, initiated by Jackson in December 2013.

18 In an email to Harris dated 9 December 2013, Jackson said:

… I would propose to defer payment of the remaining retention by the same period as you bought [sic] forward the payment of the first $30,000 (paid on 2 September at your request). This would move payment to say to [sic] 11 April 2014.

19 Harris responded by email on 20 December 2013 as follows:

I have thought about your proposal in respect to the deferred payment and I propose that we reschedule the payment to the end of January, but the terms and nature of the payment remain as is. …

20 Jackson replied by email on 23 December 2013 in the following words:

Thanks Richard. I will revisit towards the end of January. …

21 Harris submits that this exchange of emails evidences the parties' agreement to extend the time for payment of the balance of the deferred payment until the end of January. Assuming this is correct, the failure of Jackson to pay the amount by 31 January 2013 meant that the provision of the adjudication application on 28 February 2014 was within the time allowed by s 26(1) of the CC Act.

22 Jackson denies that the emails gave rise to any variation of the contract, on two grounds. He argues that Harris' email dated 20 December 2013 contained no proposal to amend the contract. He also argues that his reply on 23 December 2013 did not constitute an acceptance, assuming that Harris' email did contain a proposal.

23 I reject Jackson's first ground. Harris' email of 20 December 2013 explicitly proposed the 'reschedule' of a payment 'to the end of January' (which was due under the contract on 21 December 2013). If accepted, the contract may have been amended to that extent. The proposal in the email explicitly preserved 'the terms and nature of the payment', making the change to the date of payment the only change. Obviously, the counter proposal had the effect of rejecting Jackson's proposed extension.

24 Jackson's second ground relies upon the requirement that in order for an offer to be accepted, the acceptance must be unequivocal, in the sense that the language used by the offeree must be such as would convey to a reasonable person in the position of the offeror a clear and definite decision by the offeree to be bound by the terms of the offer, leaving nothing further to be negotiated: Bondi Beach Astra Retirement Village Pty Ltd v Gora (2011) 82 NSWLR 665 at 681 is cited in support.

25 Jackson also relies upon clause 43 of the contract, to the effect that no provision of the contract can be varied except with the prior written consent of the parties. Jackson argues this 'requires a degree of formality in amending the contract' that was not present on the email exchange between himself and Harris.

26 I agree with the proposition put by Jackson regarding the acceptance of offers. An acceptance must be in clear and unequivocal terms. The statement by Jackson that he would '… revisit towards the end of January' does not, in my view, constitute clear acceptance of the counter-offer made by Harris. It merely indicates that Jackson would reconsider his position, assuming that Harris did not exercise his right to enforce payment, towards the end of January. In such circumstances, Harris took a significant risk in not invoicing the remaining $30,000 which had, by the time of the exchange of emails, become due and payable under the contract.

27 I also consider that the purported variation to the contract asserted by Harris also fails because it lacked consideration. Although Jackson would receive a benefit in postponing payment of the $30,000 by a further month, Harris would receive no consideration in return. 28 Although immaterial given my other findings, I do not agree with Jackson's submission that clause 43 of the contract demands a particular degree of formality which was lacking in order for a purported written variation of the contract to be effective. In my view, it merely requires that the parties' consent to the variation be in writing.

Conclusion

29 The payment dispute arose on 21 December 2013. In these circumstances, the adjudication application needed to be prepared and served by 18 January 2014. The adjudication application in this case having been served on 28 February 2014 was served out of time, leaving the adjudicator with no option but to dismiss it.

Orders

30 The Tribunal makes the following orders:

1. The review application is dismissed.

2. The decision of the adjudicator, Mr William Mark Jones, to dismiss the adjudication application is affirmed.

I certify that this and the preceding [30] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

___________________________________

MS C WALLACE, MEMBER