NEW SOUTH WALES SUPREME COURT
CITATION: Amflo Constructions Pty Limited v Anthony Jefferies
[2003] NSWSC 856
CURRENT JURISDICTION: Equity
FILE NUMBER(S): 4774/03
HEARING DATE{S):
JUDGMENT DATE:
PARTIES:
Amflo Constructions Pty Limited - First Plaintiff
George Khouri - Second Plaintiff
Anthony Jefferies - First Defendant
Westport Plumbing Pty Limited - Second Defendant
JUDGMENT OF:
LOWER COURT JURISDICTION: Not Applicable
LOWER COURT FILE NUMBER(S): Not Applicable
LOWER COURT JUDICIAL OFFICER: Not Applicable
COUNSEL:
M Sahade - Plaintiffs
No appearance - First Defendant
DD Feller - Second Defendant
SOLICITORS:
M Sahade, counsel - Plaintiffs
A Jefferies - First Defendant
Mallesons - Second Defendant
CATCHWORDS:
STATUTES - ACTS OF PARLIAMENT - interpretation - Building and
Construction Industry Security of Payment Act 1999 - time within which
application for adjudication must be made - CONTRACTS - BUILDING, ENGINEERING
AND RELATED CONTRACTS - remuneration - Building and Construction Industry
Security of Payment Act 1999 - time within which application for adjudication
must be made
ACTS CITED:
Building and Construction Industry Security of Payment Act 1999
Building and Construction Industry Security of Payment Amendment
Act 2002
Interpretation Act 1987
Statute Law (Miscellaneous Provisions) Act 2003
DECISION:
Application for adjudication made within time
JUDGMENT:
IN
THE SUPREME COURT
OF
NEW
EQUITY
DIVISION
EQUITY
LIST
AMFLO CONSTRUCTIONS PTY LIMITED
& ANOR v ANTHONY JEFFERIES & ANOR
JUDGMENT
HIS
HONOUR:
Nature
of the Case
1 This
case concerns whether a purported adjudication under the Building and
Construction Industry Security of Payment Act 1999 (“SOP Act”) is
valid. It turns on whether the application for adjudication was made within the
time required by that Act.
Facts
Giving Rise to the Dispute
2 The
First Plaintiff (“the Builder”) is carrying out construction work at 3 Railway
Parade Burwood. On
3 On
4 On
“Notice under s.17(2) of the Building
and Construction Industry Security of Payment Act 1999 NSW
In response to Westport Plumbing Pty Ltd’s
“WPPL” Payment Claim (Tax Invoice/Progress Claim No.1) dated
Notwithstanding the above, “WPPL” has
elected to apply for Adjudication of the Payment Claim. Further to this, “ACPL”
has 5 business days in which to serve a Payment Schedule or pay the amount in
full whereby if, within that time “ACPL” fails to pay the whole amount, “WPPL”
will reserve its rights to proceed to Adjudication. If “ACPL” also fails to
serve a Payment Schedule, “ACPL” will be barred from lodging an Adjudication
Response pursuant to s.20(2A) of the “Act.”.”
5 The
Builder served a Payment Schedule on
6 On
7 On
8 The
Builder asserts that the adjudication application made by the Subcontractor on
9 On 9
September 2003 the Builder commenced proceedings seeking declarations that
these contentions were correct, and an order in the nature of certiorari
correcting the purported determination of 1 September 2003 and setting aside
the award to the Subcontractor. The matter came on for argument before me in
the Duty Judge List on
10 The
First Defendant has filed an appearance in which he submitted to the orders of
the Court save as to costs. He did not take part in the oral argument.
Relevant
Provisions of the SOP Act
11
Significant amendments were made to the SOP Act by the Building and
Construction Industry Security of Payment Amendment Act 2002. That 2002
Act commenced on
“... in relation to the repeal of amending
Acts, it should be noted that the Acts are repealed simply to rationalise the
legislation in force and that the repeals have no substantive effect on the
amendments made by the Acts or any associated provisions ...
Section 30(2) of the Interpretation
Act 1987 ensures that when an Act is amended or repealed, no amendment
made by the Act is affected.”
12 All
the events relevant to this dispute happened after
13
There is a recurring pattern in provisions of the SOP Act whereby some
particular step which the Act makes provision for must be taken within either
the time required by the relevant construction contract, or a time laid down by
the SOP Act itself. The case was argued on the basis that no relevant times
were laid down by the construction contract. Hence in quoting from the Act, I
shall omit all reference to times laid down by the contract.
14 It
is also a repeated theme of the SOP Act that in certain circumstances a
claimant will have a right to suspend work or suspend supplying goods and
services. Another repeated theme concerns what is to happen if a claimant
chooses to go to court rather than have its claim adjudicated. I also omit both
of those matters from the provisions quoted.
15 The
following provisions of the Act are relevant:
“4 In this case: ...
adjudication application means an application referred
to in section 17 ...
adjudication response means a response referred to in
section 20 ...
claimant means a person by whom a payment claim is
served under section 13 ...
payment claim means a claim referred to in
section 13
payment schedule means a schedule referred to in
section 14 ...
respondent means a person on whom a payment claim is
served under section 13
Part 2 Rights
to Progress Payments
8(1) On and from each reference date under a
construction contract, a person:
(a) who has undertaken to carry out
construction work under the contract ...
is entitled to a progress
payment.
11(1) A progress payment under a construction
contract becomes due and payable:
...
(b) if the contract makes no express
provision with respect to the matter, on the date occurring 10 business days
after a payment claim is made under Part 3 in relation to the payment.
Part 3 Procedure
for recovering progress payments
Division 1 Payment claims and payment
schedules
13(1) A person referred to in section 8(1) who
is or who claims to be entitled to a progress payment (the claimant)
may serve a payment claim on the person who, under the construction contract
concerned, is or may be liable to make the payment. ...
14 Payment
schedules
(1) A person on whom a payment claim is
served (the respondent) may reply to the claim by providing a
payment schedule to the claimant.
(2) A payment schedule:
(a) must
identify the payment claim to which it relates, and
(b) must
indicate the amount of the payment (if any) that the respondent proposes to
make (the scheduled amount).
(3) If the scheduled amount is less than
the claimed amount, the schedule must indicate why the scheduled amount is less
and (if it is less because the respondent is withholding payment for any
reason) the respondent’s reasons for withholding payment.
(4) If:
(a) a claimant serves a payment claim on
a respondent, and
(b) the respondent does not provide a
payment schedule to the claimant: ...
(ii) within 10 business days after the payment
claim is served, ...
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.
15 Consequences of not paying claimant where
no payment schedule
(1) This section applies if the respondent:
(a) becomes liable to pay the claimed
amount to the claimant under section 14(4) as a consequence of having failed to
provide a payment schedule to the claimant within the time allow by that
section, and
(b) 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.
(2) In those circumstances, the claimant:
(a) may:
(i) recover the unpaid portion of the
claimed amount from the respondent, as a debt due to the claimant, in any court
of competent jurisdiction, or
(ii) make an adjudication application
under section 17(1)(b) in relation to the payment claim, ...
16. Consequences of not paying claimant in
accordance with payment schedule
(1) This section applies if:
(a) a claimant serves a payment claim on
a respondent, and
(b) the respondent provides a payment
schedule to the claimant: ...
(ii) within 10 business days after the
payment claim is served, ...
(c) the payment schedule indicates a
scheduled amount that the respondent proposes to pay to the claimant, and
(d) the respondent fails to pay the whole
or any part of the scheduled amount to the claimant on or before the due date
for the progress payment to which the payment claim relates.
(2) In those circumstances, the claimant:
(a) may:
(i) recover the unpaid portion of the
scheduled amount from the respondent, as a debt due to the claimant, in any
court of competent jurisdiction, or
(ii) make an adjudication application
under section 17 (1) (a) (ii) in relation to the payment claim, ...
Division 2 Adjudication of Disputes
17. Adjudication
applications
(1) A claimant may apply for adjudication
of a payment claim (an "adjudication application") if:
(a) the respondent provides a payment
schedule under Division 1 but:
(i) the scheduled amount indicated in
the payment schedule is less than the claimed amount indicated in the payment
claim, or
(ii) the respondent fails to pay the whole
or any part of the scheduled amount to the claimant by the due date for payment
of the amount, or
(b) the respondent fails to provide a
payment schedule to the claimant under Division 1 and fails to pay the whole or
any part of the claimed amount by the due date for payment of the amount.
(2) An adjudication application to which
subsection (1) (b) applies cannot be made unless:
(a) the claimant has notified the
respondent, within the period of 20 business days immediately following the due
date for payment, of the claimant's intention to apply for adjudication of the
payment claim, and
(b) the respondent has been given an
opportunity to provide a payment schedule to the claimant within 5 business
days after receiving the claimant's notice.
(3) An adjudication application:
(a) must be in writing, and
(b) must be made to an authorised
nominating authority chosen by the claimant, and
(c) in the case of an application under
subsection (1) (a) (i)---must be made within 10 business days after the
claimant receives the payment schedule, and
(d) in the case of an application under
subsection (1) (a) (ii)---must be made within 20 business days after the due
date for payment, and
(e) in the case of an application under
subsection (1) (b)---must be made within 10 business days after the end of the
5-day period referred to in subsection (2) (b), and ...
20. Adjudication responses
(1) Subject to subsection (2A), the
respondent may lodge with the adjudicator a response to the claimant's
adjudication application (the "adjudication response") at any time
within:
(a) 5 business days after receiving a
copy of the application, or
(b) 2 business days after receiving
notice of an adjudicator's acceptance of the application,
whichever time expires later.
...
(2A) The respondent may lodge an adjudication
response only if the respondent has provided a payment schedule to the claimant
within the time specified in section 14 (4) or 17 (2) (b). ...
The
Rival Contentions
16 It is common ground between the Builder and the Subcontractor
that:
(1) The progress claim served on
(2) The notice under section 17(2) which was
served on
(3) The payment schedule which the Builder served
on
(4) The adjudication application lodged on
17 The
difference between the Builder and Subcontractor concerns whether the
adjudication application made on
18 The
Builder contends that the payment schedule which was served on
19 The
Subcontractor contends that the application for adjudication is one made under
section 17(1)(b). Thus, the Subcontractor says, section 17(3)(e) applies. The “end
of the 5 day period referred to in sub section (2)(b)” is arrived at by
starting from 31 July 2003 (the day when the Subcontractor gave notice, under
section 17(2)(a) of intention to apply for adjudication of the payment claim),
adding on five business days from 31 July 2003 (which takes one to 7 August
2003), and then adding on a further 10 business days (which takes one to 21
August 2003). Thus, the Subcontractor says, the adjudication application of
Assistance
from a Purposive Construction?
20
Section 3 of the SOP Act says;
“3. Object of Act
(1) The object of this Act is to ensure
that any person who undertakes to carry out construction work (or who
undertakes to supply related goods and services) under a construction contract
is entitled to receive, and is able to recover, progress payments in relation
to the carrying out of that work and the supplying of those goods and services.
(2) The means by which this Act ensures
that a person is entitled to receive a progress payment is by granting a
statutory entitlement to such a payment regardless of whether the relevant
construction contract makes provision for progress payments.
(3) The means by which this Act ensures
that a person is able to recover a progress payment is by establishing a
procedure that involves:
(a) the making of a payment claim by the
person claiming payment, and
(b) the provision of a payment schedule
by the person by whom the payment is payable, and
(c) the referral of any disputed claim to
an adjudicator for determination, and
(d) the payment of the progress payment
so determined.
(4) It is intended that this Act does not
limit:
(a) any other entitlement that a claimant
may have under a construction contract, or
(b) any other remedy that a claimant may
have for recovering any such other entitlement.”
21
Part 2 of the SOP Act ensures that, even if a construction contract does not
make provision for the making of progress payments, a person who has undertaken
to carry out construction work under the contract, or who has undertaken to
supply related goods and services under the contract, is entitled to periodical
progress payments, to interest on unpaid progress payments, and to some rights
of security concerning unpaid progress payments. Further, the right to a
progress payment exists even if the person who is obliged to make the progress
payment has not itself been paid money by some third party.
22
Part 3 of the SOP Act sets out a procedure for recovering progress payments,
whereby payment claims can be made periodically, and the person on whom the
payment claim is made has the opportunity to reply to that claim with a payment
schedule under section 14. There is no obligation for a person on whom a
payment claim is served to reply with a payment schedule. If no payment
schedule is served, however, section 15 provides for the person on whom the
payment claim was served to be liable to pay the amount of that payment claim.
That liability is one which the claimant can enforce as a debt in a court, or
through the making of an adjudication application.
23 If
a respondent chooses to provide a payment schedule which acknowledges that some
money is owed to the claimant, and the respondent does not pay the amount of
money it acknowledges is owed, the claimant has the same sort of rights,
concerning the amount which was acknowledged but not paid, as it would have had
concerning the amount claimed if no payment schedule has been served at all.
24 If
a payment schedule is served, which disputes all or part of the claimed amount,
the claimant can also apply for adjudication concerning the disputed amount.
Adjudication is required, under section 21(3) to be determined as expeditiously
as possible, and in any case within 10 business days after the date on which
the adjudicator notified the claimant and respondent of his or her acceptance
of the application, or such further time as the claimant and the respondent
might agree. Once an adjudicator’s determination has been served, if the
determination is that the respondent is required to pay an adjudicated amount,
the respondent must pay that amount within five business days of the
determination being served, or such later date as the adjudicator has
determined. If payment is not made within that time, the claimant can request
an adjudication certificate (section 24(1)) which may then be filed as a
judgment for debt in a court (section 25(1)).
25 A
fundamental feature of the legislation is that, apart from the fact that
parties to a construction contract cannot contract out of the rights given by
the legislation (section 34) nothing in Part 3 of the Act (section 13-32
inclusive) affects any of the rights that parties to a construction contract
have (section 32(1)). The concern of the Act is with maintaining the cash flow
of claimants, by enabling them to recover quickly amounts which the
adjudication process says they are entitled to. It is possible for the person
who pays the amount of money which an adjudication has found due to seek to
reclaim that money, in court proceedings which decide what the ultimate legal
rights of the parties are. An evident purpose of the Act is that, if there is
to be such litigation, it will start from a position where the claimant has
been paid the amount which the adjudication process has decided should be paid.
26 The
purposes which can be ascertained from considering the Act as a whole would be
equally well advanced by the contention of the Builder as by the contention of
the Subcontractor.
Assistance
from Extrinsic Aids to Construction? – Second Reading Speech
27
Section 17 of the SOP Act was completely replaced by the amendment which came
into effect on 3 March 2003. The second reading speech for the Building
and Construction Industry Security of Payment Amendment Bill 2002
was given in the Legislative Assembly on 12 November 2002 (Hansard page 6541).
In his speech the Minister said:
“The main purpose of the Act is to ensure
that any person who carries out construction work, or provides related goods or
services, is able to promptly recover progress payments. The Government wanted
to stamp out the practice of developers and contractors delaying payment to
subcontractors and suppliers by ignoring progress claims, raising spurious
reasons for not paying, or simply delaying payment. ...
The Act was designed to ensure prompt
payment and, for that purpose, the Act set up a unique form of adjudication of
disputes over the amount due for payment. Parliament intended that a progress
payment, on account, should be made promptly and that any disputes over the
amount finally due should be decided separately. The final determination could
be by a court or by an agreed dispute resolution procedure. But meanwhile the
claimant’s entitlement, if in dispute, would be decided on an interim basis by
an adjudicator, and that interim entitlement would be paid ...
Cash flow is the lifeblood of the
construction industry. Final determination of disputes is often very time
consuming and costly. We are determined that, pending final determination of
all disputes, contractors and subcontractors should be able to obtain a prompt
interim payment on account, as always intended under the Act ...
... there will be instances when the
progress payment determined by the adjudicator will be more or less than the
entitlement finally determined to be due under the contract. However, it is
better that progress payments be made promptly on an interim basis, assessed by
an independent party, rather than they be delayed indefinitely until all issues
are finally determined.
Presently, when a respondent fails to pay
the claimant by the due date for payment under the contract, the claimant’s
only recourse to enforce payment is to commence proceedings in a court. The
Bill will give the claimant another option. The claimant will be able to opt to
have an adjudicator determine the amount of the progress payment that is due. This
is an “optional adjudication”. The claimant will still be able to
proceed to adjudication earlier if the respondent provides a payment schedule
and the scheduled amount is less than the amount claimed. The benefit to the
claimant of proceeding with an optional adjudication rather than commencing
proceedings in a court is that the claimant will then be able to use the
adjudication certificate to obtain judgment expeditiously and without a court
hearing. The claimant will be able to initiate an optional adjudication when
the respondent fails to provide a payment schedule within time and fails to pay
the amount claimed, or the respondent provides a payment schedule but fails to
pay the whole of the scheduled amount.”
28
While the Minister’s statement in the second reading speech clearly states the
general purposes which the Bill was seeking to achieve, those statements of
general purpose do not assist in resolving the point of fine detail upon which
this case turns.
Assistance
from Extrinsic Aids to Construction? - The Departmental Booklet
29 The
Builder tendered a booklet entitled “Government Information Kit”
published in March 2003 as a guide to the Act. It includes an “adjudication
application checklist” which says:
“In accordance with section 17 of the Act,
the time for lodging an adjudication application is: ...
c. where the claimant did not
receive an initial payment schedule within 10 business days and the full amount
of the payment claim was not paid on the due date for payment - .
i. the claimant has 20 business days
from the due date for payment to notify the respondent of the claimant’s
intention to apply for adjudication; and
ii. the respondent has 5 business days
to provide a payment schedule; and
iii. the claimant has 10 business days after
receipt of the payment schedule to make the application. If the respondent does
not provide a payment schedule, the application must be made within 10
business days of the expiry of the 5 business days period provided to the
respondent.”
30 The
Builder says that this is something I should take into account as an aid to
construction.
31 The
Interpretation Act 1987 section 34(1) says:
“34. Use of
extrinsic material in the interpretation of Acts and statutory rules
(1) In the interpretation of a provision
of an Act or statutory rule, if any material not forming part of the Act or
statutory rule is capable of assisting in the ascertainment of the meaning of
the provision, consideration may be given to that material:
(a) to confirm that the meaning of the
provision is the ordinary meaning conveyed by the text of the provision (taking
into account its context in the Act or statutory rule and the purpose or object
underlying the Act or statutory rule and, in the case of a statutory rule, the
purpose or object underlying the Act under which the rule was made), or
(b) to determine the meaning of the
provision:
(i) if the provision is ambiguous or
obscure, or
(ii) if the ordinary meaning conveyed by
the text of the provision (taking into account its context in the Act or
statutory rule and the purpose or object underlying the Act or statutory rule
and, in the case of a statutory rule, the purpose or object underlying the Act
under which the rule was made) leads to a result that is manifestly absurd or
is unreasonable.”
32
Section 34(2) goes on to give a list of material that may be considered in
interpretation of a provision of an Act. A booklet like the Government
Information Kit does not fall within the list in section 34(2). Neither do I
regard it as falling within section 34(1). There is no reason to believe that
the contents of the Kit have at any time come to the attention of Parliament,
let alone been taken into consideration by Parliament in deciding what to
include in the SOP Act.
33 The
portion I have quoted from the Kit is, in any event, inconsistent with another
extract from the Kit (information sheet 2, page 4) which says:
“If you did not receive a payment
schedule and decide to make an adjudication application, you must give the
respondent an opportunity to provide a payment schedule.
In such circumstances you must, within 20
business days after the due date for payment, give the respondent notice that
the respondent has 5 business days to serve you with a payment schedule. You
then have another 10 business days to make an adjudication application after
the end of the 5 business days period provided to the respondent to serve the
payment schedule.”
34 It
is the extract from the Kit which I have just quoted which gives the correct
construction of the legislation, not the extract which I have first quoted.
The
Correct Construction
35 The
Subcontractor is correct in the construction of the Act for which it contends.
36 The
question of construction hinges on what is meant by the expressions “provides
a payment schedule under Division 1” in section 17(1)(a), and “fails to
provide a payment schedule to the claimant under Division 1” in section
17(1)(b). Each of those expressions contains a syntactic ambiguity. The
ambiguity concerns whether “under Division 1” is an adjectival phrase
describing “payment schedule”, or an adverbial phrase qualifying “provides”
or “fails to provide”.
37 The
definition of “payment schedule” in section 4 requires one to identify
what is “a schedule referred to in section 14”. The sub sections in
section 14 have differing functions. Section 14 (1) is in part a facultative
provision – it creates the possibility of an action being taken in the law,
namely “providing a payment schedule to the claimant” which will have
legal consequences under the new structure for creating legal rights which the
Act brings into existence. Section 14(1) also by implication states two
characteristics of a “payment schedule”, namely that it is something
which is provided by a respondent to a claimant, and that it is provided after
a payment claim is served. Section 14(2) and (3) set out other characteristics
which a payment schedule must have. Section 14(4) states a legal consequence of
a respondent failing to provide a payment schedule.
38 It
is only section 14(1)(2) and (3), out of all the provisions in the Act, which
state characteristics which a payment schedule needs to have. Section 14 is in
Division 1 of Part 3 of the Act. If the words “under Division 1” in
section 17(1)(a) and section 17(1)(b) were an adjectival phrase describing “payment
schedule”, the words “under Division 1” would be accurate (in that
it is Division 1 which sets out the characteristics of the payment schedule),
but redundant - section 17(1)(a) and (b) would mean exactly the same even if
the words “under Division 1” did not appear in them.
39 If “under
Division 1” is an adverbial phrase qualifying “provides” or “fails
to provide” then it looks to whether a payment schedule has been provided
in the circumstances in which Division 1 contemplates provision of a payment
schedule. Division 1 sets out, in section 14(4) and 15(1) and (2) the
consequences of a payment schedule not being provided within 10 business
days after the payment claim is served those subsections could not state what
counts as the payment schedule being provided under Division 1. I do not regard
sections 14(1), 15(1) or 15(2) as stating what is meant if a payment schedule
is provided “under Division 1”. However section 16 sets out the
consequences which flow if a payment schedule is provided within 10
business days after the claim is served. If a payment schedule is provided
within 10 business days after the payment claim is served, that payment
schedule is one which is provided “under Division 1”.
40
There is provision in the Act, outside Division 1, for a payment schedule to be
provided in circumstances other than within 10 business days after a payment
claim is served. Section 17(2) sets out those other circumstances. Thus, if ”under
Division 1” is treated as an adverbial phrase which qualifies “provides”
or “fails to provide” it is capable of making a real distinction –
namely that it is section 17(1)(a) which is attracted if the respondent has
provided a payment schedule with 10 business days after the payment claim is
served, and section 17(1)(b) which is attracted if the respondent does not
provide a payment schedule within those 10 business days. A construction of the
Act which gives the words “under Division 1” work to do is to be
preferred to a construction which gives them no work to do. And there is no
strained or artificial use of language if “under Division 1” is
construed as an adverbial phrase.
41
This construction fits with other provisions of the Act. Section 15(2)(a)(ii)
contemplates that if no payment schedule has been provided within 10 business
days after a payment claim is served, and in consequence the respondent has
become liable to pay the claimed amount under section 14(4), and has not paid
all of it, the claimant may make an adjudication application under section
17(1)(b). Section 17(2) says that, as a precondition to making an application
under section 17(1)(b) the respondent must be specifically notified of the
claimant’s intention to apply for adjudication of the payment claim, and given
an opportunity (which, in the circumstances, must be a further opportunity,
beyond the 10 business days after the payment claim was served) to provide a
payment schedule within five business days of receiving the claimant’s notice.
If the contention of the Builder were right, then, if that opportunity were
availed of, and a payment schedule was served, the adjudication which resulted
would be one under section 17(1)(a). Yet that result is inconsistent with what
section 15(2)(a)(ii) expressly provides, namely that the adjudication
application will be one under section 17(1)(b).
42 The
construction which seems to me to be the correct one is also consistent with
section 17(3). Section 17(3)(c), (d) and (e) set out three different
circumstances in which an adjudication application may be made, and sets out
the time for making of each such type of application. It gives a coherent
reading of these provisions if, every time a respondent has not provided a
payment schedule within 10 business days after the payment claim is served, but
has been given the opportunity, under section 17(2) to provide a payment
schedule at a later date, the application for adjudication is made within 10
business days after the end of the five day period.
43 For
all these reasons, I conclude that, in the present case, the application was
commenced within time.
44 The
Subcontractor submitted that, if I was against its construction of the
legislation, this was still not an appropriate case in which to make an order
in the nature of certiorari. In light of the conclusion I have come to,
I need not consider that submission.
Orders
(1) Summons dismissed.
(2) Plaintiffs
to pay costs of Second Defendant.