Hynash Constructions Pty Ltd v BRP Industries Pty Ltd

1. [1]

   BELL CJ: I have had the benefit of reading the judgments of both Adamson JA and Basten AJA. I agree with their Honours’ reasons and the orders they propose. The question of whether leave to appeal was required arose because the judgment was given following the fixing for hearing of a motion for summary judgment however, as a matter of substance, the issue was determined on a final basis. Either way, the arguments relied upon for leave (if required) or in support of an appeal (if leave were not required) lacked merit. Hynash Constructions Pty Ltd did not take advantage of the payment schedule mechanism provided for in the Security of Payment Act 1999 (NSW) and sought to circumvent the outcome which flowed from that failure by advancing a construction of the Act which would subvert its purpose, as Adamson JA has explained. That purpose also warrants a broad rather than narrow interpretation being given to the expression “matters arising under the construction contract” in s 15(4)(b)(ii) of the Act.

2. [2]

   ADAMSON JA: Hynash Constructions Pty Ltd (Hynash), the applicant, applies for leave to appeal against the judgment ordered against it by Russell SC DCJ (the primary judge) on 2 September 2024 in the District Court (the Court below) in favour of BRP Industries Pty Ltd (BRP) in the sum of $243,792.28, which comprised the principal sum of $234,286.80 together with agreed interest. Judgment was ordered following BRP’s successful application for summary judgment, which was based on rights said to arise pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

3. [3]

   Hynash claims, if the appeal is allowed, that a judgment in the sum of $136,765.20 be entered in lieu of the one ordered by the primary judge (WB 30). Accordingly, the amount in issue is $97,521.60 plus interest, which, as BRP accepted, takes the total beyond the threshold below which leave to appeal is required pursuant to s 127(2)(c)(i) of the District Court Act 1973 (NSW).

4. [4]

   It is arguable that leave to appeal is required by reason of s 127(2)(d) of the District Court Act because the judgment was ordered on an application for summary judgment. However, the matter appears to have been dealt with on a final basis, albeit following a notice of motion seeking summary judgment (which the Court was informed was a procedure commonly used by plaintiffs in the District Court seeking judgment following a payment claim in response to which no payment schedule has been served, in order to obtain an expeditious hearing).

5. [5]

   The principal issue is whether the upfront payment which Hynash made to BRP on 5 January 2023 operates to reduce the amount owing to BRP as a result of its payment claim dated 13 March 2024.

6. [6]

   Unless otherwise indicated, all references to legislation in these reasons are to the Act and all references in square brackets are to the primary judge’s reasons.

The facts

1. [7]

   The facts were not in issue. In early 2022, Bathurst Regional Council (the Council) engaged Hynash as the head contractor for the Bathurst Stormwater Harvesting #3198 Project (the Project) ([1]). On 22 December 2022, following a quotation issued by BRP on 8 November 2022 (the quotation) for $1,006,880 plus GST (totalling $1,107,568), Hynash and BRP entered into a subcontract pursuant to which BRP would perform underboring works on the Project for a fixed sum to be paid by way of progress payments ([2]-[3]).

2. [8]

   The subcontract relevantly provided:

3. [9]

   Clause 7.4 provided, in effect, that Hynash could withhold any amount which it reasonably disputed and could set-off from any payment to BRP any amount owed by BRP to Hynash (WB 42).

4. [10]

   Clause 10.4 of the subcontract provided in part that, upon termination, Hynash would be entitled to reimbursement of “any overpayment or other monetary benefits” and, in that event, would be entitled to recover these amounts “by setting-off against any amount owed to [BRP] by [Hynash]” (WB 43).

5. [11]

   Schedule 2 to the subcontract included the quotation which required Hynash to make an upfront payment as follows:

6. [12]

   On 22 November 2022, BRP issued invoice 5702 to Hynash (WB 145) for the agreed 10% establishment and mobilisation fee of $110,756.80 (the upfront payment), which Hynash paid on 5 January 2023 ([13]).

7. [13]

   On 10 October 2023, BRP issued an amended quotation with an additional line item, which Hynash accepted on 17 October 2023 ([3]).

8. [14]

   On 30 October 2023, BRP started work pursuant to the subcontract. As it continued to perform work, it issued invoices periodically ([5]-[6]).

9. [15]

   In January 2024, Hynash advised BRP that it was involved in a contractual dispute with the Council and that the works could not recommence. It eventually instructed BRP that no further works could be performed on the site ([7]). BRP accepted Hynash’s repudiation of the subcontract and terminated it on 13 March 2024 ([7]-[8]).

10. [16]

    On 13 March 2024, BRP served on Hynash a payment claim pursuant to the Act in an amount of $234,286.80 ([9]). This figure included a credit for $12,245.20, which was described in the payment claim as follows:

11. [17]

    Hynash neither paid the payment claim nor served on BRP a payment schedule pursuant to the Act ([10]).

12. [18]

    On 1 May 2024, BRP commenced proceedings by statement of claim filed in the District Court, seeking judgment for $234,286.80 plus interest and costs ([11]).

13. [19]

    In its defence filed on 14 June 2024, Hynash alleged that any amount otherwise owing to BRP should be reduced by the amount of the upfront payment ([14]). It alleged, relevantly:

14. [20]

    By notice of motion filed on 18 July 2024, BRP applied for summary judgment against Hynash for $234,286.80 plus interest and costs in reliance on ss 14 and 15 of the Act ([15]). As referred to above, the application was successful and the primary judge entered judgment for BPR in the sum claimed with interest.

Relevant statutory provisions

1. [21]

   Section 3 of the Act provides:

2. [22]

   The definitions in s 4 include the following:

3. [23]

   Part 3 of the Act is entitled “Procedure for recovering progress payments”. Division 1 of Part 3, entitled “Payment claims and payment schedules”, contains ss 13-16. Section 13 provides that a person may serve a payment claim on the person who is or may be liable to make the payment (s 13(1)). The payment claim must fulfil certain formal requirements, including that it specifies the claimed amount (s 13(2)(b)) and states that it is made under the Act (s 13(2)(c)). It was common ground that BRP’s payment claim fulfilled the statutory requirements.

4. [24]

   Subsections 14(1) and (2) provide that the respondent to the payment claim may serve a payment schedule setting out the amount of the payment claim which it proposes to make. However, s 14(4) provides that if a claimant serves a payment claim and the respondent does not provide a payment schedule to the claimant within a particular time, “the respondent becomes liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates.”

5. [25]

   Section 15 provides:

6. [26]

   Division 2 of Part 3 of the Act, entitled “Adjudication of disputes”, contains ss 17-26. Section 17 provides for an application for an adjudication (which is available if the respondent has provided a payment schedule to the claimant in accordance with Division 1). The adjudicator makes a determination under s 22. The respondent is obliged to pay the adjudicated amount within five business days of service of the adjudicator’s determination: s 23.

The reasons of the primary judge

1. [27]

   The primary judge concluded that the effect of Hynash’s defence (as extracted above) was to raise a set-off or credit for the upfront payment to reduce the amount of the payment claim because it related “to matters arising under the construction contract” and was therefore covered by the prohibition in s 15(4)(b)(ii) ([46]-[49]). His Honour said:

The proposed grounds of appeal

1. [28]

   The proposed grounds of appeal, if leave be granted, are:

Whether leave is required

1. [29]

   To obtain leave to appeal, Hynash must demonstrate that there is an issue of principle, a question of public importance or a reasonably clear injustice going beyond something which is merely arguable. The proportionality between the monetary amount in issue and the costs of the proceedings is also important: see Cheng v Motor Yacht Sales Australia Pty Ltd (t/as Boutique Boat Company) (2002) 108 NSWLR 342; [2022] NSWCA 118 at [15]-[21] (Bell CJ, Ward P and Basten AJA agreeing).

2. [30]

   While a judgment given on a summary basis (as the present judgment would appear to have been) requires leave, it is relevant that, even had the matter gone to final hearing rather than being dealt with on a summary basis, the evidence and arguments would almost inevitably have been the same. There was no issue about the primary facts: the decision turned (as it would have done had it been decided at a final hearing) on whether Hynash’s claim for a reduction of the payment claim by reference to the upfront payment was precluded by s 15(4) of the Act.

Consideration of the grounds of appeal

1. [31]

   The two grounds of appeal will be addressed together as the second ground is, in effect, a reformulation of the first.

2. [32]

   In substance, Hynash submitted that the statutory prohibition in s 15(4)(b)(ii) of the Act did not prevent the Court below from setting-off the upfront payment when calculating “the unpaid portion of the claimed amount” within the meaning of s 15(2)(a)(i) and, thus, the debt due to BRP (which would entitle it to judgment in a court of competent jurisdiction) ought be reduced by the amount of the upfront payment. On this basis, Hynash submitted that its claim for credit of the upfront payment did not amount to a “defence in relation to matters arising under the construction contract” within the meaning of s 15(4)(b)(ii) of the Act, but rather a matter which conditioned the Court’s power to enter judgment for the sum of the “the unpaid portion of the claimed amount”.

3. [33]

   In support of this submission, Hynash relied (as it did before the primary judge) on this Court’s decision in Kennedy Civil Contracting Pty Ltd (subject to deed of company arrangement) v Linx Constructions Pty Ltd [2024] NSWCA 243 (Kennedy CA).

4. [34]

   Hynash also referred to decisions of this Court in which the following defences raised by a defendant in proceedings brought on a payment claim were held not to be prohibited by s 15(4) of the Act:

   1. (1)

      defences akin to res judicata and issue estoppel, on the basis that such defences constituted “a matter arising out of the proper construction of the Act in conjunction with relevant common law principles” and not “a matter arising under the construction contract” within the meaning of s 15(4)(b)(ii): Dualcorp Pty Ltd v Remo Constructions Pty Ltd (2009) 74 NSWLR 190; [2009] NSWCA 69 at [41] (Macfarlan JA, Allsop P and Handley AJA agreeing);

   2. (2)

      a denial that the defendant is party to the contract, on the basis that such a defence “is not a defence arising under the contract sued upon [but rather] a denial of the existence, as between applicant and respondent, of any such contract”: Grave v Blazevic Holdings Pty Ltd (2010) 79 NSWLR 132; [2010] NSWCA 324 at [36] (McDougall J, Allsop P and Macfarlan JA agreeing); and

   3. (3)

      a defence under s 52 of the Trade Practices Act 1974 (Cth) alleging that the plaintiff had engaged in misleading or deceptive conduct, on the basis that the language of s 15(4) should not be construed so broadly as to prohibit a defence founded on a statutory right conferred by Commonwealth legislation: Bitannia Pty Ltd v Parkline Constructions Pty Ltd (2006) 67 NSWLR 9; [2006] NSWCA 238 at [41] (Basten JA, Hodgson and Tobias JJA agreeing)

5. [35]

   I do not propose to address these decisions further since each is plainly distinguishable from the present case, which falls, in my view, squarely within the prohibition in s 15(4)(b)(ii).

6. [36]

   In essence, Mr Byrne, who appeared with Mr Sivanathan, for Hynash, seeks to characterise the upfront payment as a partial payment of the payment claim under s 15(2)(a)(i) rather than as a defence to BRP’s payment claim (the latter being prohibited under s 15(4)(b)(ii) of the Act), notwithstanding that it was made well before the payment claim was made and, accordingly and in any event, could not on any view be said to have been made in payment of the payment claim.

7. [37]

   In the course of oral submissions, Mr Byrne accepted the following:

   1. (1)

      the subcontract was silent as to how the upfront payment was to be dealt with and, in particular, how, if at all, it was to be apportioned in reduction of a payment claim (as noted by the primary judge at [50], extracted above); and

   2. (2)

      this question, accordingly, was a question of construction which, if Hynash’s argument were correct, would need to be determined by the Court below in the course of the proceedings brought by BRP.

8. [38]

   I did not understand Mr Byrne to have a satisfactory answer to the question why, given this concession, the matter would not fall within the prohibition in s 15(4)(b)(ii) of the Act.

9. [39]

   I regard Hynash’s submission as to the construction of ss 15(2)(a) and 15(4)(b) as unsupported by the wording of those provisions when read in the context of the Act as a whole and inconsistent with its purpose. If its argument were accepted, it would follow that the court, in determining the “unpaid portion of the claimed amount”, must consider all payments made by Hynash to BRP in the course of the subcontract, for whatever purpose, including those, such as the upfront payment, made prior to the payment claim. This result would be antithetical to the prohibition in s 15(4)(b) of the Act.

10. [40]

    Acceptance of Hynash’s construction would also undermine the purpose of the Act, which includes providing a statutory entitlement to progress payments (to facilitate continued liquidity of builders and sub-contractors) while preserving other legal rights (such as the right, the subcontract having been terminated, to reimbursement of an as yet unquantified portion of the upfront payment under cl 10.4 that amounted to “[an] overpayment or other monetary benefit”). Such legal rights could have been asserted in an adjudication had Hynash served a payment schedule on BRP within the statutory period and can separately be claimed in proceedings other than those in which BRP claims a judgment by reference to a payment claim (since the prohibition in s 15(4)(b) is expressly confined to proceedings founded on the payment claim).

11. [41]

    Section 14 makes provision for a party in Hynash’s position to serve a payment schedule if it disputes any part of the claimant claim. If the matter cannot be resolved, the claimant is then entitled, pursuant to s 17 to apply for an adjudication, which is performed by an accredited adjudicator, who determines an “adjudicated amount”, which the respondent is obliged to pay within five business days of service of the determination (s 23). These provisions and the object expressed in s 3(3)(c) of the Act evince a legislative intention that a disputed claim be dealt with by an adjudicator in accordance with Division 2 of Part 3 of the Act and not in court proceedings founded on payment claims.

12. [42]

    One of the purposes of the Act is to ensure that persons performing construction work are paid in a timely manner and that payment is not delayed by litigation. The Act evinces a legislative intention to reallocate the risk of insolvency up the line to the principal and away from contractors and subcontractors who have performed construction work. If Hynash’s argument were to be accepted, the force of the prohibition in s 15(4)(b)(ii) would be significantly weakened by the reclassification of prior payments which are, in substance, defences and cross-claims, as part-payments of payment claims, including when, as in the present case, they preceded the payment claim.

13. [43]

    I am not persuaded that Kennedy CA assists Hynash. In Kennedy CA, leave to appeal was refused in circumstances where the primary judge upheld a magistrate’s decision to allow a direct payment by the principal (Linx) to a third party supplier (Civilcast) to be taken into account in the calculation of “the unpaid portion of the claimed amount” owing to the contractor (Kennedy): Kennedy Civil Contracting Pty Ltd (subject to deed of company arrangement) v Linx Constructions Pty Ltd [2024] NSWSC 366 (Kennedy).

14. [44]

    In Kennedy, at [38], Wright J noted that the parties had accepted in the Local Court that Linx’s payment to another third party supplier (in the same position as Civilcast) reduced the unpaid portion of Kennedy’s claimed amount, and that it was therefore open to the magistrate to find that the unpaid portion of Kennedy’s claimed amount was reduced by Linx’s payment to Civilcast. Further, as the primary judge noted at [41], the magistrate had found that Linx’s payment to Civilcast did in fact reduce Kennedy’s claimed amount because the amount paid was also included in the payment claim Kennedy issued to Linx. For these reasons, Kennedy CA has no application to the present case since it turns entirely on its facts and the way the proceedings were conducted, including the concessions made by the parties. It was, in my view, correctly distinguished by the primary judge.

Whether leave ought be granted

1. [45]

   I do not consider there to be sufficient merit in either of the proposed grounds to warrant a grant of leave, if leave be required. There is no issue of principle or question of public importance in light of the clear expression of legislative intention. There is no arguable injustice. The defence sought to be raised by Hynash falls squarely within the prohibition in s 15(4)(b)(ii) of the Act, as the primary judge found. No error has been demonstrated in his Honour’s analysis. If leave were not required, the appeal ought be dismissed.

2. [46]

   For these reasons I propose the following orders:

   1. (1)

      To the extent required, refuse leave to appeal.

   2. (2)

      If leave is not required, dismiss the appeal.

   3. (3)

      Order the applicant/appellant to pay the respondent’s costs.

3. [47]

   BASTEN AJA: I agree with Adamson JA that the substantive issue sought to be agitated by the applicant is not reasonably arguable to the level required for a grant of leave to appeal. Indeed, it should be rejected. Because, for reasons expressed below, I have doubts that the applicant requires leave, the basis for rejecting the application (or appeal) should be explained. That can be done briefly, as I do not depart from anything Adamson JA has written.

Substantive issue - liability

1. [48]

   Section 13(1) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Security of Payment Act) provides for a party entitled to a progress payment under a construction contract for construction work to make a claim for payment. The claim is to be served on the person liable to make the payment. That person, if wishing to dispute the liability in part or in whole must, within 10 days, serve a “payment schedule” on the claimant. Failure to do so renders the respondent “liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates”: s 14(4).

2. [49]

   There is no dispute that the liability created by s 14 was engaged in the present case. The amount of the liability (“the claimed amount”) was a term defined in s 13(2) as “the amount of the progress payment that the claimant claims to be due”. Section 15(1) then provides for the consequences of failing to pay “the whole or any part of the claimed amount on or before the due date”. In short, the claimant may “recover the unpaid portion of the claimed amount as a debt due, in a court of competent jurisdiction”: s 15(2). The reference to the “unpaid portion of the claimed amount” is a reference to the amount which the respondent to the claim has failed to pay, being the precondition to the engagement of s 15(2), set out in s 15(1)(b). A payment which is not made by reference to that liability, because it predated the making of the payment claim does not qualify as a payment of part of the “claimed amount”.

3. [50]

   That is not to say that the respondent to the payment claim cannot seek to deduct payments on account of the construction work the subject of the payment claim which have been made before the payment claim was served. However, the prescribed procedure is to identify such payments in a payment schedule, indicating the reason that payment of that amount is not required: s 14(3). That step was not taken in the present case. Had it been, any dispute in relation to that amount, including, for example, whether it related to the construction work the subject of the payment claim, could then be referred for adjudication. An adjudication can occur only where a payment schedule has been provided, or the respondent fails to pay the whole or any part of the claimed amount. The respondent to the payment claim may lodge an adjudication response, but “cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant”: s 20(2B).

4. [51]

   This statutory scheme would be subverted by permitting the respondent to a payment claim to resist a judgment obtained by the claimant on the basis of payments made prior to the service of the payment claim but not the subject of a payment schedule.

Procedural issue - leave

1. [52]

   There remains a question as to whether the applicant needed leave. The claimant sought judgment in an amount of $234,286.80; the applicant pleaded that it had paid $110,756.80 at the outset of the contract, described as an “upfront payment”. [1] On one view, the amount of the claim in question was the full amount of the judgment debt sought by the respondent. On another view, it was the difference between that amount and the amount claimed to have been paid, which is $123,530. It is not necessary to determine which is the correct approach for the purposes of the leave requirement in s 127(2)(c) of the District Court Act 1973 (NSW): each involves an amount exceeding the floor under which leave is required, namely $100,000.

2. [53]

   The second basis for requiring leave is that the appeal is from a judgment or order “on an application for summary judgment under the rules”: s 127(2)(d). [2] On its face, that provision was engaged by the listing of a notice of motion filed by the respondent seeking “summary judgment”. However, as counsel for the respondent accepted, the motion was filed in order to obtain an expedited hearing. What in fact happened was that evidence was filed by both parties and, there being no dispute as to the facts, the matter was determined by the judge on the basis of the proper construction of the statute. Where there has been a full determination of a matter on the merits, the judgment and orders were not properly characterised as “summary”; they were merely obtained expeditiously. The orders were not interlocutory but final. There is no apparent purpose in requiring leave in such a case.

3. [54]

   If leave were required, it should be refused; if leave were not required, the appeal should be dismissed. The applicant must pay the respondent’s costs.