Total Construction Pty Ltd v Kennedy Civil Contracting Pty Ltd (subject to a Deed of Company Arrangement)

1. [1]

   MEAGHER JA: I agree with Mitchelmore JA.

2. [2]

   MITCHELMORE JA: On 22 February 2022, the respondent, Kennedy Civil Contracting Pty Ltd (subject to a Deed of Company Arrangement) (Kennedy), entered into a contract with the appellant, Total Construction Pty Ltd (Total), for Kennedy to carry out demolition, excavation, pavement and associated works for a project in Arndell Park. The issue in this appeal is whether a letter and attachments that the solicitors for Kennedy’s Administrators sent to Total on 25 October 2022, in which the sum of $545,353.18 was claimed, constituted a payment claim within the meaning of s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

3. [3]

   It was common ground that Total did not serve a payment schedule on Kennedy within 10 business days of receiving the letter dated 25 October 2022. It followed that if the 25 October 2022 letter and attachments constituted a payment claim, Total was liable to pay the amount claimed in the letter, pursuant to s 14(4) of the Act. On 23 November 2022, Kennedy commenced proceedings against Total in the District Court, claiming that amount.

4. [4]

   On 18 August 2023, Abadee DCJ gave judgment for Kennedy. His Honour concluded that the 25 October 2022 letter and attachments satisfied the requirements for a payment claim in s 13 of the Act and, in the absence of serving a payment schedule, Total was liable to pay the amount claimed: Kennedy Civil Contracting Pty Ltd (subject to a Deed of Company Arrangement) v Total Construction Pty Ltd [2023] NSWDC 325.

5. [5]

   Total contends that the primary judge erred in concluding that the 25 October 2022 letter and attachments was a payment claim within the meaning of s 13(1) of the Act. It submitted that, looked at objectively, the letter was a demand for payment in respect of a pre-existing debt, supported by the attached documents. For the reasons that follow, I have concluded that the primary judge erred in that respect, as Total has alleged. It follows that the appeal should be allowed.

6. [6]

   Total also contended that the 25 October 2022 letter and attachments did not comply with s 13(2) of the Act, or with s 13(6)(b). In light of the view I have reached on Total’s first argument, it is unnecessary to reach a concluded view on those arguments.

Relevant provisions of the Act

1. [7]

   There was no dispute that the Act applied to the contract between Total and Kennedy, and the works that Kennedy performed pursuant thereto. Section 8 of the Act confers an entitlement on a person who, under a construction contract, has undertaken to carry out construction work, to receive a progress payment. Part 3 of the Act prescribes the procedure for recovering progress payments. Section 13 of the Act is titled “Payment claims” and relevantly provides (at the time the construction contract was made):

2. [8]

   Section 14 of the Act is titled “Payment schedules” and provides:

3. [9]

   Section 15 of the Act applies if the respondent becomes liable to pay the claimed amount to the claimant under s 14(4) as a consequence of not having provided a payment schedule within the time allowed by that section, and 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: s 15(1). Section 15(2) provides that in those circumstances, the claimant may, relevantly for present purposes, “recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction”: s 15(2)(a)(i). Section 15(4) provides:

4. [10]

   Section 16 of the Act applies if the respondent provides a payment schedule that indicates an amount that the respondent proposes to pay, and fails to pay the whole or any part of that amount on or before the due date for the progress payment: s 16(1). Section 16(2) provides that the claimant may recover the unpaid portion of the scheduled amount from the respondent as a debt due in any court of competent jurisdiction, or may apply for an adjudication of the payment claim.

Kennedy’s payment claims between February and August 2022

1. [11]

   Between February 2022 and August 2022, Kennedy carried out construction works at the Arndell Park site. Between 25 February 2022 and 28 June 2022, Kennedy served four payment claims on Total (Payment Claims 1, 2, 3 and 5), using the system stipulated in the contract for service of claims, being the PayApps system. In response to each of those payment claims, Total served a payment schedule on Kennedy, and made a payment in accordance with the amount it specified in the payment schedule.

2. [12]

   In its written submissions, Total provided the following summary of the payment claims, payment schedules, and payments:

3. [13]

   On 1 August 2022, Kennedy was placed into administration. On 4 August 2022, Kennedy served a further payment claim for $164,049.70 (Payment Claim 7). In response to that claim, Total served a payment schedule for - $323,216.13. It followed from the negative amount that Total included in the payment schedule that it would not be making any payment to Kennedy pursuant to this payment claim.

The letter of 25 October 2022

1. [14]

   At 12:40pm on 25 October 2022, the solicitors for the Administrators sent an email to a number of email addresses. The addresses included, relevantly, claims@totalconstruction.com.au and peterw@totalconstruction.com.au. The subject of the email was “Letter of Demand | Kennedy Civil Contracting Pty Ltd”, and it relevantly stated:

2. [15]

   Attached to the email was a letter addressed to Total, written on Kennedy’s solicitors’ letterhead. The subject of the letter was “Kennedy Civil Contracting (Administrator Appointed) (ACN 166 354 692) (the Company)” and it relevantly stated:

3. [16]

   Attached to the letter were a number of tax invoices which were created on or about the date of the letter by the amending and updating of earlier tax invoices submitted with earlier payment claims, and one PayApps record for the last tax invoice. Each of the documents attached to the letter bore the notation: “This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW”:

   1. (1)

      The tax invoice numbered INV-1123 was dated 25 February 2022 and stipulated a “due date” of 28 March 2022. The description of the invoice was “February Claim 001 – Contract Civil Works Pa[c]kage”. The invoice stated the total as $186,606.83, included a line item for what Total had paid to Kennedy ($167,946.14), and provided the “Amount Due” was $18,660.69.

   2. (2)

      The tax invoice numbered INV-1158 was dated 31 March 2022 and stipulated a due date of 30 April 2022. The description was “Works for March – Payapps”. It gave a total of $29,732.40, made allowance for the sum that Total had paid ($26,759.16), leaving $2,973.24 as the amount due.

   3. (3)

      The tax invoice numbered INV-1185 was dated 29 April 2022 and stipulated a due date of 27 May 2022. This invoice described the work as “Preliminaries” and gave a total of $84,096.90. Making allowance for what Total had paid Kennedy ($75,687.21), the amount due was $8,409.69.

   4. (4)

      The tax invoice numbered INV-1127 was dated 28 June 2022 and stipulated a due date of 28 July 2022. The description was “Contract Works carried out to Date” and the amount claimed was $621,371.93. One of the administrators, Mr Devine, was cross-examined on this invoice and acknowledged that he could not work out, by reference to the invoice alone, what work had previously been completed or was previously the subject of a claim.

   5. (5)

      The tax invoice numbered INV-1239 was dated 4 August 2022 and stipulated a due date of 3 September 2022. The amount claimed in this invoice was $147,644.73. In addition to this invoice, the solicitors provided a 10-page PayApps record.

4. [17]

   In a letter dated 31 October 2022, which was emailed to the Administrators’ solicitors on 9 November 2022, Total replied to the solicitors as follows:

5. [18]

   When pressed as to the information he had relied upon to assert that Total was indebted to Kennedy for the claimed amount, Mr Devine’s evidence was that he had looked at the company’s books and records. He rejected the proposition that the intention in sending the letter was to convey a demand as distinct from a payment claim under s 13 of the Act.

6. [19]

   The Contract Administrator for Total, Mr Francois, gave evidence denying that he understood the documents Kennedy sent on 25 October 2022 amounted to a payment claim under the Act. However, he accepted that he appreciated that there was a correspondence between the tax invoice numbered INV-1123 and Payment Claim 1, the tax invoice numbered INV-1158 and Payment Claim 2, the tax invoice numbered INV-1185 and Payment Claim 3, the tax invoice numbered INV-1127 and Payment Claim 5, and the tax invoice numbered INV-1239 and Payment Claim 7.

The decision of the primary judge

1. [20]

   His Honour concluded that the 25 October 2022 letter and attachments constituted a single claim, “comprising (or purporting to comprise) an aggregate total derived from the combination of the sums in the individual invoices”: at [92]. In concluding that this claim was a payment claim within s 13 of the Act, his Honour did not consider himself limited to the letter and attachments. Instead, his Honour had regard to what he described as “the context”, which included Kennedy’s contractually mandated deployment of the PayApps system “and the circumstance that all of the invoices were updated modifications of tax invoices previously supplied to Total (as payment claims) which had prompted Total to serve payment schedules”: at [84].

2. [21]

   His Honour observed that each of the invoices submitted with the 25 October 2022 letter bore the same date as the payment claims that had been lodged under the contract: at [85]. His Honour considered that, in reality, Mr Francois had “little real difficulty” in matching the invoices attached to the 25 October 2022 letter and those that had previously been submitted.

3. [22]

   In relation to the use of the word “indebted” in the letter of 25 October 2022, his Honour described it as “inapt for the purposes of a statutory claim”: at [87]. Nonetheless, this “misdescription or mischaracterisation” did not invalidate a payment claim which otherwise satisfied the requirements in s 13(2) of the Act: at [88]. His Honour stated at [89]:

4. [23]

   The primary judge considered that with the exception of the tax invoice numbered INV-1127, Kennedy was not again asserting claims for money that had previously been paid in full, but was asserting a claim largely centred on amounts the subject of prior claims, a permissible approach pursuant to s 13(6)(b) of the Act: at [90]. His Honour had earlier described INV-1127 as the least informative, but nonetheless held that Mr Francois had understood, on 25 October 2022 or shortly thereafter, that the amount claimed ($621,371.93) was the same as the amount in the payment claim of that date, albeit without having taken into account Total’s payment schedule or payment ($106,062.37): at [86].

5. [24]

   Although the letter of 25 October 2022 did not state that it was a payment claim made under the Act, his Honour stated that “what counts is whether the documents (and, I would add, where there are multiple documents, treated as a composite whole and read in context including prior dealings), reasonably convey to Total that Kennedy intended to engage the operation of the Act”: at [93]. In his Honour’s opinion, “[p]aragraph 6 of the letter would, alone, have satisfied this requirement, but I agree that the intention would have reasonably been apparent to Total from the notation which did appear on each of the supporting invoices”: at [93].

6. [25]

   His Honour concluded at [119]:

The Appeal

1. [26]

   Total advances two grounds of appeal:

2. [27]

   There is a degree of overlap between the two grounds, in the sense that whether the letter of 25 October 2022 and its attachments has the features one would expect of a payment claim, by reference to the requirements of s 13(2) of the Act, is relevant to the objective characterisation of the documents. Ultimately, however, it is the characterisation exercise that is the subject of ground 1 that is determinative in this appeal.

3. [28]

   By ground 1, Total submitted that the 25 October 2022 letter and attachments did not, viewed objectively, purport to be made under the Act. Rather, the letter stated that a debt existed which was the subject of a demand. That reading of the letter was, in Total’s submission, supported by the invoices that were attached to the letter, each of which, on its face, was historical.

4. [29]

   The letter bears the following features that are relevant to how it would be understood by a reasonable reader in the position of Total:

   1. (1)

      It was drafted on the letterhead of, and was signed by, solicitors.

   2. (2)

      The solicitors were acting for the Administrators appointed to Kennedy.

   3. (3)

      Numbered paragraph 2 of the letter asserted that on the basis of Kennedy’s books and records, Total was “indebted” to Kennedy in the specified amount. The reasonable inference from the next sentence, which referred to the “relevant documents” being attached, was that the attachments to the letter supported Total’s current indebtedness.

   4. (4)

      Numbered paragraph 3 included a demand for payment of the “total outstanding amount” by the “Deadline”, being five business days after the letter was served. That period was less than that permitted under the Act for service of a payment schedule (being 10 business days: s 14(4)(b)(ii) of the Act)).

   5. (5)

      Rather than pay Kennedy (as had occurred in the case of the four payment claims for which Total had made a payment), the solicitors instructed Total, in numbered paragraph 4, to make payment into the firm’s trust account.

   6. (6)

      In numbered paragraph 5, the solicitors again referred to the “above outstanding amount”, stating that it was to be paid to the Company only and could not be used to pay any third party debt(s).

   7. (7)

      The solicitors next, in numbered paragraph 6, foreshadowed commencing proceedings without further notice “to recover the outstanding as well as seek costs and interest”, by way of statutory debt pursuant to s 15 or s 16 of the Act.

   8. (8)

      Recovery action was again referred to in numbered paragraph 7, in which the solicitors noted that their clients urged Total to consider the benefits of early resolution “without the need for further recovery action”.

5. [30]

   In Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1, Palmer J observed, among other things, that in the case of a payment claim which does not purport reasonably on its face to comply with the requirements of s 13(2) of the Act, the claim is a nullity for the purposes of the Act: at [41(vi)]. Having regard to the features that I have identified above, the 25 October 2022 letter reads objectively, and obviously, as a letter of demand for payment of an outstanding indebtedness by the stipulated deadline, failing which the solicitors would likely be instructed to commence recovery proceedings.

6. [31]

   Kennedy relied on numbered paragraph 6 of the letter (as had the primary judge), and the reference therein to ss 15 and 16 of the Act. Kennedy submitted that those provisions of the Act would only come into play if Total did not submit a payment schedule (s 15), or it submitted a payment schedule but did not pay the scheduled amount (s 16). That submission accurately reflected the proper operation of ss 15 and 16, but the context in which those provisions were cited in the letter does not lead inexorably to the conclusion that paragraph 6 would have been objectively understood in the manner for which Kennedy contends. As I have noted, paragraph 6 also foreshadowed the commencement of further proceedings “without further notice to recover the outstanding”, if the outstanding amount was not paid by a deadline that did not account for the statutory period in s 14 of the Act; and the following paragraph encouraged Total to resolve the matter so as to avoid recovery action.

7. [32]

   The invoices that were attached to the letter serve only to support its objective characterisation as a letter of demand. The invoices were created on or about 25 October 2022, but each of them was dated well before that date. Each invoice stipulated an amount that was due, with four of the five referring to an amount that had already been paid and giving the balance as the amount due. Only one of the invoices contained any detailed description of the work to which the invoice related. The payment details on the invoices emphasised their historical nature, noting that Kennedy was in administration by 25 October 2022 and the solicitors’ letter directed payment of the outstanding amount be made to their trust account.

8. [33]

   Kennedy relied on the statement that appeared in each of the invoices, “This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW”, as supporting that a payment claim was made under the Act. However, there was force in Total’s responsive submission that, having regard to the dates of the invoices (long since passed), this statement was also of no more than historical significance, particularly when the invoices were read together with the terms of the letter to which they were attached. Indeed, as counsel for Kennedy submitted of the first three invoices, those invoices were claiming outstanding amounts that were due under previous claims, consistently with paragraph 2 of the letter.

9. [34]

   In concluding that the 25 October 2022 letter and attachments constituted a payment claim, the primary judge emphasised what his Honour described as the context and what would have been subjectively understood by Total upon receipt of the letter. So much was apparent from his Honour’s treatment of the tax invoice numbered INV-1227. Kennedy accepted before the primary judge, and on the appeal, that this was the least informative of the tax invoices, with the limited description of the works as “Contract works to date”. Apart from the statement asserting it was a claim under the Act, which I have addressed above, there was nothing on the face of the invoice that indicated the construction work to which it related: see Estate Property Holdings Pty Ltd v Barclay Mowlem Construction Ltd (2004) 61 NSWLR 515; [2004] NSWCA 393 at [17]; Coordinated Construction Company Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229 at [25]. However, his Honour relied by way of answer on Mr Francois’ evidence that he had understood, on 25 October 2022 or shortly thereafter, that the amount claimed ($621,371.93) was the same amount for the earlier payment claim of that date, although it had not taken into account the scheduled amount Total had made ($117,847.08) and had not taken into account the amount Total paid ($106,062.37): at [86].

10. [35]

    One may accept, as Kennedy emphasised, the need to adopt a “fair but broad” and not “pedantic” approach to compliance with the statutory requirements for a payment claim in the Act: Fernandes Constructions v Tahmoor Coal (trading as Centennial Coal) [2007] NSWSC 381 at [38] (McDougall J) ("Fernandes"). One may also accept that payment claims are to be read in context, which may include, inter alia, industry conventions and the usage adopted by the parties in their earlier contractual dealings; and that construction work may be identified by reference to earlier documents, such as variation claims or other documents capable of being identified by reference to the contract or the earlier dealings of the parties: Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448; [2005] NSWCA 391 at [40] (Mason P, Giles JA and Santow JA agreeing); see also Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWCA 211 at [22] (Basten JA, Macfarlan JA and Emmett JA agreeing). Nonetheless, as is inherent in McDougall J’s description of the approach in Fernandes, the approach must be fair, reading the relevant documentation as a whole, for which context cannot be a substitute.

11. [36]

    The final tax invoice that was attached to the 25 October 2022 letter, numbered INV-1239, did contain a detailed description of the work to which the invoice related, which detail was replicated in the PayApps data that was also provided. Kennedy relied in this respect upon Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (In Liq) (2005) 64 NSWLR 462; [2005] NSWCA 409, in which Hodgson JA stated at [35] that:

12. [37]

    Kennedy submitted that in circumstances where the payment claim comprised five invoices, where three invoices were clearly for retentions and one had a detailed description of the construction work, a lack of clarity in one invoice (being the invoice numbered INV-1127) would not render the payment claim as a nullity; and Total could have taken the approach to which Hodgson JA referred. Kennedy’s reliance on this passage was misplaced in the particular circumstances of the present case. The detail in the final invoice has to be read with the balance of the documents, including the covering letter and the other invoices, which had the features I have identified above. So read, the documents did not constitute a payment claim within s 13 of the Act. The primary judge erred in concluding to the contrary.

13. [38]

    It does not follow from the conclusion I have reached that a letter of demand could not, in other circumstances, satisfy the requirements of a payment claim under s 13 of the Act. Thus, in Piety Constructions Pty Ltd v Megacrane Holdings Pty Ltd [2023] NSWSC 309, to which Kennedy drew the Court’s attention, Richmond J rejected the plaintiff’s submission that the letter in that case was one of demand, rather than a payment claim, with the invoices attached by way of reference alone. His Honour rejected the submission on the basis of considering the letter sent by the administrator and attached invoices as a whole: at [43]. The conclusion I have reached similarly depends on a consideration of the 25 October 2022 letter and attachments, read objectively and as a whole.

Conclusion

1. [39]

   The appeal should be allowed. It is unnecessary finally to determine ground 2 of the notice of appeal, or the additional contention that Total raised on the appeal, as to whether s 13(5) and s 13(6)(b) of the Act, properly construed, permit the inclusion in a payment claim of an amount that has been the subject of a previous claim.

2. [40]

   The parties informed the Court that in the event that the appeal was allowed, they had reached agreement as to what should occur in so far as Total has paid the money the subject of the claim to Kennedy. Accordingly, I propose the following orders:

   1. (1)

      Appeal allowed with costs.

   2. (2)

      The parties are to file short minutes of order on or before 2 February 2024 for the making of any further orders necessary to give effect to the result on the appeal.

3. [41]

   ADAMSON JA: I agree with Mitchelmore JA.