Duffy Kennedy Pty Ltd v Lainson Holdings Pty Ltd

This is an application for summary judgment. The plaintiff builder (DK) was head contractor under a contract with the defendant property owner (Lainson) for the construction of residential units on land at Cronulla. That contract was made on or about 23 June 2015. DK seeks judgment for unpaid amounts of progress payments alleged to be due under Pt 3, Div 1 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act). The amounts claimed are $760,943.41, and in the alternative, $411,942.85.

For the reasons which follow the application should be dismissed. The uncontroversial evidence shows that the payment claims were served contrary to the prohibition in s 13(7) of the Act and the defendant should be permitted to withdraw its admission to the contrary. That withdrawal should, however, have costs consequences.

On 21 March 2016, Hammerschlag J gave DK leave to file its application and listed it for hearing on 30 March 2016. In doing so, his Honour recorded the following admission by Lainson:

Prior to the hearing, the parties exchanged written submissions. Lainson described the three grounds on which it resisted summary judgment as follows:

Lainson also filed a motion for a stay of execution of any judgment, pending the determination of its proposed cross-claim.

The reference in paragraph (b) above to construction works undertaken by Lainson requires explanation. Before the building contract was signed, it was agreed that Lainson would as a sub-contractor carry out and complete shoring and earthworks that it had already commenced on the building site. There was no formal agreement executed to record the terms of that sub-contract. Lainson alleges that as at 30 November 2015 it was owed $633,194 for those works. Of that amount, $379,832 is said to relate to works which are the subject of the first or both of the payment claims made by DK.

The Tripartite Deed referred to in paragraph (a) is between DK, Lainson and its lender, National Australia Bank Limited (NAB). Clauses 8.3 and 8.4 address DK’s contractual entitlement to progress payments:

At the commencement of the hearing Lainson abandoned the argument in paragraph (a) above, accepting that s 34 of the Act prevented it from relying on cl 8.4 as disentitling DK from claiming progress payments alleged to be due under the Act.

The statutory declaration in Sch 1 to the Tripartite Deed is not in the form necessary for it to constitute a “supporting statement” as defined in s 13(9) of the Act (see [14]-[15] below).

It is common ground that s 15(4) applies to DK’s proceedings seeking to recover the claimed amounts. That subsection provides:

Lainson contends that the set-off defences on which it relies are not raised in relation to matters arising under the construction contract.

The circumstances referred to in s 15(1) are that the respondent to such a claim:

The reference to “claimed amount” is to the amount of the progress payment claimed to be due in accordance with the entitlement said to arise under s 8: s 13(2)(b). The claimant becomes liable to pay that amount under s 14(4) if two conditions are satisfied. They are:

The presently relevant requirements relating to payment claims and their service are contained in s 13:

The prescribed form of supporting statement at the time DK’s payment claims were made is set out in Sch 1 to the Building and Construction Industry Security of Payment Regulation 2008 (NSW): see cl 19. That form also is extracted in Kitchen Xchange v Formacon Building Services [2014] NSWSC 1602 at [35] (McDougall J). It requires, among other things, that the statement identify the sub-contractor or sub-contractors with whom the head contractor has contracted; and that it do so either separately, if there is only one or, if there are multiple subcontractors, by listing them in a schedule and describing them either as “subcontractors paid all amounts due and payable” or as “subcontractors for which an amount is in dispute and has not been paid.”

The affidavit evidence of the parties was read without objection and was not contested. The deponents of those affidavits were DK’s general manager, Mark Yuen, who was responsible for the day-to-day administration of the contract; DK’s managing director, Gavin Duffy; the principal of Lainson, Charles Lainson; and the “Superintendent” under the building contract, Elvis Fantov.

The sum for which DK agreed to carry out the contract works was $21.9 million. The bill of quantities for that amount included an allowance of $869,270 for shoring and earthworks. Under the arrangements between the parties and NAB, as recorded in the Tripartite Deed, progress payments were to be made by the bank out of funds available under a facility agreement between it and Lainson. DK was to provide progress claims to the Superintendent together with the signed statutory declaration described in cl 8.3. The Superintendent was then to issue to Lainson and DK a progress certificate recording his opinion as to the moneys due under the progress claim. Within seven days of receiving that certificate, Lainson was to pay DK the amount certified as due, having deducted any permissible set-off.

The payment claims which are the subject of DK’s summary judgment application were made as follows. On 1 August 2015, DK issued and forwarded to the Superintendent a document described as “Progress Claim #01” in the form of a schedule headed “Payment Schedule Summary”. That claim was for $140,256.50. A few days later, at a meeting between representatives of the parties and the Superintendent, it was agreed that claim would be revised to include other items.

On about 17 August 2015, DK issued a revised Payment Schedule Summary described as “Progress Claim #1B”. That claim was for $487,897.60 (excluding GST). That document when provided to the Superintendent was accompanied by a form of statutory declaration which included a statement that all sub-contractors engaged in works under the contract had been paid in full all moneys due and owing to them. That declaration was dated 17 August 2015.

On 25 August 2015, Mr Yuen emailed NAB advising that he had “lodged our claim to the Superintendent” so that DK might be paid upon the Superintendent’s assessment. On the following day, Mr Yuen sent a further revised claim to the Superintendent for $374,493.50 (again excluding GST).

On 1 September 2015, following a meeting between representatives of the parties and the Superintendent, DK “resubmitted” (Mr Yuen’s words) its payment claim by issuing a Tax Invoice addressed to Lainson for an amount of $411,942.85 (being $374,493.50 plus 10% GST). The date of that invoice is recorded as “17/08/2015 (revised by Super 27 Aug 2015)”. The heading of the invoice includes the words “Progress Claim #1B” and the following sentence appears at the foot of the invoice:

In response, the Superintendent issued “Payment Certificate No #1B Revised”. That certificate was dated 1 September 2015 and addressed to Lainson. It certified that in respect of “Progress Claim No #1B submitted by the Contractor they are entitled to a payment of $411,942.85 including GST”.

The events to this point, insofar as they are relied upon in support of DK’s alternative claim for $411,942.85, are pleaded in paragraphs 9 to 15 of its List Statement as follows:

On about 15 September 2015, DK issued a further Tax Invoice addressed to Lainson. That invoice included in its heading the words “Progress Claim #2” and was for $760,943.41 (including GST). It also contained, at the foot of the invoice, a statement as to its being a payment claim made under the Act.

Paragraphs 19 to 21 of the contentions in DK’s List Statement are directed to “Progress Claim #2”:

As formulated, DK’s claim is for $760,943.41 (including GST) as a debt due under s 15(2)(a)(i) and, in the alternative, for $411,942.85 (including GST) as a debt due under the same provision. Each of those claims is, in the language of s 15(2), for recovery of “the unpaid portion of the claimed amount” as a debt due. In each case the unpaid portion is the whole of the claimed amount.

The matters which must be established to entitle DK to judgment for either amount are –

At the conclusion of the evidence, and having regard to the principles referred to by Heydon JA in Damberg v Damberg [2001] NSWCA 87; 52 NSWLR 492 at [155]-[160] (Spigelman CJ and Sheller JA agreeing), I raised with the parties before the argument proceeded further, that the admission made by Lainson on 21 March 2016 (see [3] above) did not accord with the uncontested evidence that no supporting statement had accompanied service of either of the payment claims relied upon. I did so accepting for present purposes that service of the payment claims on the Superintendent was service on Lainson. I then adjourned the hearing for a short time to enable the parties to consider their respective positions in relation to that question.

When the hearing resumed, DK submitted that Lainson should not be permitted to withdraw its admission. It had not pleaded that either payment claim had been served contrary to the prohibition in s 13(7) and by its admission was to be taken to have agreed that each had been served in accordance with s 13, so as to satisfy s 14(4)(a). DK did not, however, suggest that the admission was made by Lainson in the knowledge that it was contrary to the facts or on a view of the law from which Lainson now sought to resile. Nor was it suggested that DK would suffer any prejudice if the admission was withdrawn because of any need to lead further evidence or to amend its claim or the application for summary judgment. There was no reference by either party, in relation to the subject of prejudice, to what costs consequences, if any, might follow if the admission was permitted to be withdrawn.

On the assumption that Lainson was able to argue that any service had been contrary to s 13(7), DK made two further submissions. The first was that a breach of s 13(7) did not have the consequence that a payment claim had not been served for the purposes of s 14(4). It would follow that DK remained entitled to judgment subject only to the set-off arguments. Secondly, and accepting that no supporting statement had accompanied service of its second claim, DK submitted that Payment Claim 1 was a revision of the claim made on 17 August 2015 which was accompanied by a statutory declaration that satisfied the requirements for a supporting statement. Accordingly DK argued that Payment Claim 1 was not served contrary to s 13(7) and that it was entitled to summary judgment for the claimed amount of $411,942.85.

Not unexpectedly, Lainson did seek to withdraw its admission. It argued that having regard to the uncontested evidence, it was clear that neither of the payment claims, when served, was accompanied by a supporting statement. As to the form of the pleadings and the absence of any pleading of a contravention of s 13(7), Lainson submitted that there was no specific allegation of service to which it was required to plead and that it did not in terms make any admission that either payment claim had been accompanied by a supporting statement when served.

Lainson’s admission, in the terms in which it was made, was as to a matter of law which in turn was based on mixed questions of fact and law. Those questions included whether there had been service in accordance with the provisions of s 13, and particularly whether the payment claim had been served contrary to the prohibition in s 13(7). Focussing on that question, the admission, as made in relation to Payment Claim 1 and Payment Claim 2 (in each case as defined in DK’s List Statement), is contrary to the evidence.

It is conceded that no supporting statement accompanied the service of Payment Claim 2. As to Payment Claim 1, it is argued that it was served on 17 August 2015 and accompanied by a supporting statement. There are two fatal difficulties for this argument. The first is that the statutory declaration served on 17 August 2015 was not in the form required of a supporting statement by the Regulation. It did not identify the sub-contractor or sub-contractors with whom DK had contracted. The second is that the claim served on 17 August 2015 is not the claim pleaded or relied upon. It was served on an earlier date to Payment Claim 1 and claimed an amount ($487,897.60 excluding GST) which is different to the “claimed amount” now the subject of DK’s alternative claim: cf ss 13(2)(b), 14(4), 15(1).

Lainson should be permitted to withdraw its admission, at least to the extent that it includes that the payment claims when served were accompanied by a supporting statement. That admission is contrary to the evidence. It did not arise from a calculated consideration of the effect of s 13(7) or a deliberate acknowledgement of a fact that was known on the evidence to be untrue. The making of it does not cause DK continuing or irretrievable prejudice because it has conducted its case in a particular way. In these circumstances, the interests of justice require that the Court determine the issue between the parties by reference to the true facts.

The evidence supports the following conclusions. First, the statutory declaration which accompanied the claim attached to Mr Yuen’s email of 17 August 2015 was not a supporting statement within s 13(9). Secondly, no document purporting to be a supporting statement accompanied service of the first claim in respect of which DK seeks judgment, namely Payment Claim 1. Thirdly, no supporting statement accompanied the service of Payment Claim 2 dated 15 September 2015.

It follows that the service of each claim was contrary to s 13(7). DK was a head contractor and Lainson was also a sub-contractor. The latter was required to be identified in the supporting statement and a declaration made that all amounts that had become due and payable to Lainson in that capacity had been paid.

There remains to be considered DK’s submission that service contrary to the prohibition in s 13(7) does not have the consequence that there has not been service within s 14(4)(a). The question whether such service is invalid, in the sense that it is not service for the purposes of the Act and does not attract the consequences of such service, was considered by McDougall J in Kitchen Xchange at [34]-[51]. His Honour concluded, relying on the reasoning of Allsop P in Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69; 74 NSWLR 190 at [14]-[15], that service contrary to s 13(7) was not service within the meaning of s 14(4). I agree with his Honour’s reasoning and conclusion, which I followed in Kyle Bay Removals Pty Ltd v Dynabuild Project Services Pty Ltd [2016] NSWSC 334.

In the result it is sufficient to record that I am not satisfied that either payment claim was served in accordance with s 13 and for that reason I am not satisfied that there was service within s 14(4)(a). That being so, DK’s application for summary judgment must be dismissed.

That conclusion makes it unnecessary to address Lainson’s remaining arguments and its application for a stay of execution of any judgment.

There remains the question of costs. My view is that notwithstanding its success on DK’s application, Lainson should not have an order for payment of its costs of either application. Had it not made the admission on 21 March 2016, it is most unlikely that the summary judgment application would have proceeded.

In circumstances where the matters that have been raised are also relevant to the resolution of the ultimate issues in the proceedings, the costs order which I propose to make is that there be no order as to the costs of either of the motions, the result being that each party should bear its own costs of those motions.

However, because the parties have not had the opportunity to address this question, I propose to grant leave to each to apply for a different order as to costs. That leave must be exercised within seven days and by way of lodging written submissions with my Associate. Those submissions are not to exceed three pages and should be served on the other party at the same time as they are lodged with my Associate.

If that leave is exercised by one party, the other should respond by written submissions, again not to exceed three pages, to be lodged with my Associate and served on the other party within seven days of receipt of the submissions seeking a different order. I will then determine the question of costs on the papers. Otherwise, the proceedings should be listed for directions in the Technology and Construction List.

Accordingly, I make the following orders: