Turnkey Innovative Engineering Pty Ltd v Witron Australia Pty Ltd

1. [1]

   The sole question in this case is whether an email sent by the defendant, Witron Australia Pty Ltd (“the Principal”), to the plaintiff, Turnkey Innovative Engineering Pty Ltd (“the Contractor”), is a valid payment schedule for the purpose of s 14 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”).

2. [2]

   For the reasons that follow, my opinion is that it was not.

3. [3]

   On 8 September 2022, the Principal and the Contractor entered into a contract (“the Contract”) to carry out electrical installation works at an automated distribution centre to be constructed for Coles Group Limited at Kemps Creek.

4. [4]

   The Contract provided for a “flat rate fixed price” of $11.4 million “subject to any increase or decrease arising from variations as mutually agreed by the parties”.

5. [5]

   The works were delayed, and on 22 March 2023, the Principal sent the Contractor an email removing from the scope of works under the Contract a number of “Group Control” areas.

6. [6]

   Thereafter, the Contractor sought to re-price the works at $14,141,951.32 on the basis of “additional works on this project” which were said to be “outside the scope of the Contract and not due to the fault of” the Contractor.

7. [7]

   On 14 April 2023 the Contractor wrote to the Principal “confirming” the Principal’s “acceptance” of the Contractor’s position that “the Contract is now varied such that … the total fixed price … has been varied to $14,141,951.32”. The Contractor continued that “while we consider these changes are binding on all parties to the Contract, for administrative purposes we will have our team prepare a deed to document the accepted variations to the Contract”.

8. [8]

   The Principal replied on 17 April 2023 thanking the Contractor “for your confirmation” and stating that “you don’t need to prepare a deed because [the Principal] will submit a contract amendment like the draft one I have shown you during our last meeting”.

9. [9]

   Although it is not necessary for me to make any decision about this for the purpose of these proceedings, this exchange of emails appears to constitute an agreement by the parties that the contract price be varied from $11.4 million to $14,141,951.32.

10. [10]

    On 18 and 19 April 2023, the Contractor served on the Principal a number of variation claims.

11. [11]

    On 1 May 2023, the Contractor served on the Principal a payment claim under s 13 of the Act, claiming $884,570.10. The payment claim had two components. The first was a claim for $499,924.63 for the contract works, which claim was calculated on the basis of the contract price having been increased to $14,141,951.32, and on the basis that seven Group Control areas had been “deducted from scope” and that no amount was claimed in respect of them. The second was a claim of $304,230 for 10 identified variations.

12. [12]

    A payment schedule was due by 15 May 2023. [1] Failure to provide a valid payment schedule by that date rendered the Principal liable to pay the claimed amount. [2]

13. [13]

    On 3 May 2023, the Principal sent an email (“the Email”) to the Contractor which stated, in its entirety:

14. [14]

    This is the document that the Principal contends constituted a valid payment schedule for the purposes of s 14 of the Act.

15. [15]

    The Contractor immediately replied to the Principal’s 3 May 2023 email stating “you already agreed to the … reprice”.

The requirements for a valid payment schedule

1. [16]

   The requirements for a valid payment schedule are set out in subss 14(2) and (3) of the Act, which provide:

2. [17]

   There is no dispute that the Email identified the payment claim to which it purported to relate and thus satisfied the requirement in s 14(2)(a).

3. [18]

   The critical questions are whether the Email satisfied the further requirements of s 14, namely that it “indicated” the amount of the payment that the Contractor proposed to make (that is, the “scheduled amount”), and “indicated” why the scheduled amount was less than the amount claimed and the Contractor’s reasons for withholding payment.

Payment schedules generally

1. [19]

   A document purporting to be a valid payment schedule must, of course, be construed by reference to what it says. A payment schedule must identify the disputed amount and indicate the reasons for withholding payment. This is important because it is the payment schedule that determines the scope of what can be agitated in an adjudication response. [4]

2. [20]

   It is not sufficient that there are “vague, generalised objections to payment” [5] and what is to be included in the payment schedule must be sufficient to enable the claimant to make an informed choice as to whether to engage the adjudication procedures set out in the Act. [6]

3. [21]

   A payment schedule need not be a formal document, but it must, at the very least, identify what the respondent to the payment claim proposes to pay instead of the amount in the payment claim and “what parts of the claim are objected to and why”. [7]

4. [22]

   It follows from the use of the word “indicate” in s 14(2)(b) and s 14(3), in contrast to the word “identify” in s 14(2)(a), that “some lack of precision is permissible as long as the essence of ‘the reason’ for withholding payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication”. [8]

5. [23]

   The precision and particularity of a pleading in the Supreme Court is not required. But there must be sufficient particularity to enable the claimant “to understand, at least in broad outline, what is the issue between it and the respondent … so that the claimant may decide whether to pursue the claim and may know what is the nature of the respondent’s case which it will have to meet if it decides to pursue the claim by referring it to adjudication”. [9]

6. [24]

   It is permissible to have regard to matters of context in considering a document that purports to be a payment schedule, although not so as to provide or supply reasons that are not in the document itself. [10]

7. [25]

   It is not sufficient that a document purporting to be a payment schedule takes issue with part of the claim made in the payment claim but does not address the balance. That is because “the whole purpose of such a document is to identify what amounts are in dispute and why”. [11]

8. [26]

   However, it must be borne in mind that payment schedules are “exchanged between parties who, because of their experience in the building industry and with the particular contract, know the history of the project and the issues in dispute” and are “likely to contain material in an abbreviated form unintelligible to the uninformed reader but comprehensible to the parties”. [12]

9. [27]

   Further, on occasions, an issue “has been so expansively agitated in prior correspondence that the briefest reference in the payment schedule will suffice to identify it clearly”. [13]

Other purported payment schedules

1. [28]

   During submissions, my attention was directed to decisions of this and other courts in which consideration had been given to whether informal documents such as the Email, did or did not, in the particular circumstances, satisfy the requirements of the Act so as to be properly characterised as payment schedules for the purpose of s 14 of the Act.

2. [29]

   However, each of those cases depended on the particular words of the document in question. Resolution of this case depends upon careful analysis of the words used in the Email itself, in the context of the mutually known background, accepting the limits to which resort can properly be had to context.

The purported payment schedule

1. [30]

   The Email commenced by stating that the Principal “will review your variations and your new pricing after we see the real progress on the handing over of the [Group Control areas]”.

2. [31]

   The reference to reviewing “your new pricing” would, in the context I have outlined, be understood by the Contractor to be a reference to the Contractor’s proposal to increase the Contract price from $11.4 million to $14,141,951.32 and to convey, evidently inconsistently with the email exchange that I have set out at [7] and [8] above, that the Principal had not yet agreed to the “new pricing”.

3. [32]

   The statement in the Email that the Principal “will review … your new pricing” was apt to convey to the Contractor that the Principal was asserting that, despite the email exchange to which I have referred, it had not yet agreed to the “new pricing”.

4. [33]

   That the Contractor did so understand this reference is made clear by its reply, sent minutes later, asserting that the Principal had already agreed to the repricing of the works. [14]

5. [34]

   The Email also stated that the Principal would “review your variations” and that the Principal’s “review” of both the variations and pricings would take place “after we see a real progress on the handing over of” the Group Control areas. The Contractor accepted before me that this was a reference to completion of the Group Control areas that remained the subject of the Contract, as opposed to those that had been removed from the scope of works under the Contract.

6. [35]

   The Email continued by saying that “based on this”, that is, the “review” that the Principal proposed to carry out in relation to the Contractor’s variations and new pricing, “you can claim progress for April based on the original contract price minus the 5 deducted GCs”.

7. [36]

   The reference to the “5 deducted GC’s” can be put to one side, as the Contractor had not included in its payment claim any claim in respect of any of the Group Control areas deducted from the scope of works.

8. [37]

   By making a reference to what the Contractor “can claim”, the Principal was clearly enough drawing a distinction between what the Principal was contending the Contractor was entitled to do, that is make a claim based on the “original contract price”, and what the Contractor was in fact doing: making a claim based on its “new pricing”.

9. [38]

   In those circumstances, the following statement, “please adjust your claim accordingly and resubmit for approval” was apt to convey to the Contractor that the Principal did not intend to make any payment in response to the payment claim.

10. [39]

    For those reasons, I accept the Principal’s submission that, although it did not in the Email state in terms that it did not propose to make any payment in response to the payment claim, it is apparent from the Email that this was its position, and that it did thereby “indicate” the amount proposed to pay: nothing.

11. [40]

    I am therefore satisfied that the Email satisfied the requirements of s 14(2)(b) of the Act by indicating that the “scheduled amount” for the purposes of that subsection was nil.

12. [41]

    The next question is whether, for the purpose of 14(3) of the Act, the Email “indicated why” the “scheduled amount” was less than the “claimed amount” and the Principal’s “reasons for withholding payment”.

13. [42]

    The component of the payment claim directed to contract works was, as I have said, calculated on the basis of the Contractor’s proposed Contract price of $14,141,951.32: the “new pricing” referred to in the opening sentence of the Email. In the Email, the Principal stated that it was reviewing that new pricing. That statement, combined with the statement in the following paragraph that the Contractor could, and inferentially should, make a claim “based on the original contract price” made clear enough, in my opinion, that the reason given by the Principal for withholding payment was that it had not yet agreed to the new pricing. That appears to be inconsistent with the email exchange to which I have referred at [7] and [8] above. But there is nothing in s 14(3) of the Act that requires that the reasons given be correct, justified or adequate; so long as the reasons are indicated.

14. [43]

    Accordingly, my conclusion is that the Principal did, in the Email, indicate its reasons for withholding payment of that component of the payment claim.

15. [44]

    But the payment claim also claimed $304,290 for variations. This was some 40% of the Contractor’s claim. The Email did not indicate, in any way, the reason that the Principal was withholding payment in respect to that component of the payment claim. The Email said no more than that, after it saw “real progress on the handing over” of the completed Group Control areas, it would “review your variations”.

16. [45]

    The Email thus did not indicate why the Principal proposed to make no payment at all in response to the payment claim. Nor did it indicate the Principal’s reasons for withholding payment of the entirety of the amount claimed by the Contractor in the payment claim. Thus, it did not comply with the requirements of s 14(3) of the Act.

Conclusion

1. [46]

   The Email did not constitute a valid payment schedule for the purpose of s 14 of the Act. The Contractor is entitled to judgment.

2. [47]

   The parties should bring in short minutes to give effect to these reasons.