Supreme Court New South Wales Medium Neutral Citation: Sunshine East Pty Ltd v CBEM Holdings Pty Ltd [2023] NSWSC 744 Hearing dates: 16 June 2023 Date of orders: 29 June 2023 Decision date: 29 June 2023 Jurisdiction: Common Law Before: Fagan J Decision: (1) Order 1 made on 1 May 2023 for stay of execution of judgment of the District Court given and entered in that court on 24 March 2023 is discharged. (2) The summons filed 20 April 2023 is dismissed. (3) The plaintiffs are to pay the defendant's costs of the proceedings. Catchwords: APPEALS – procedure – leave to appeal against summary judgment of District Court Registrar - plaintiff/judgment debtor ordered to pay unanswered progress claim for building works undertaken by defendant/judgment creditor pursuant to s 15 of the Building and Construction Industry Security of Payment Act 1999 (NSW) – where summary judgment entered against plaintiff/judgment debtor due to absence of triable defence CONTRACTS – parties – agency – whether second plaintiff entered into contract with defendant for building works – where corporate agent empowered to enter into trade contracts on behalf of second plaintiff with prior approval – where no evidence that second plaintiff did not give prior approval in circumstances from which approval could be inferred – corporate agent acted with express actual authority to bind second plaintiff – no triable issue that second plaintiff was not a party to the contract BUILDING AND CONSTRUCTION – Home Building Act 1989 (NSW) – where defendant/judgment creditor was uninsured – statutory prevention to recover costs of work for failing to insure under s 94(1) not applicable to parts of the work that are not "residential building work" under the Act – where defendant/judgment creditor was unlicensed – where statutory consequences of being unlicensed do not include loss of entitlement to progress payments under s 15 of the Security of Payment Act – no triable issues arise due to the defendant/judgment creditor being uninsured or unlicensed Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW) District Court Act 1973 (NSW) Home Building Act 1989 (NSW) Supreme Court Act 1970 (NSW) Cases Cited: Brodyn Pty Ltd v. Davenport [2004] NSWCA 394 Category: Principal judgment Parties: Sunshine East Pty Ltd (plaintiff) CBEM Holdings Pty Ltd (defendant) Representation: Counsel: G Campbell (plaintiff) M Sheldon (defendant) Solicitors: Rosemont Partners (plaintiff) Hamilton Mott (defendant) File Number(s): 2023/127673 Publication restriction: No Decision under appeal Court or tribunal: District Court NSW Jurisdiction: Civil Date of Decision: 24 March 2023 Before: Registrar Howard File Number(s): 2022/343363 JUDGMENT 1. By summons filed on 20 April 2023 the plaintiffs seek leave to appeal from a decision of a Judicial Registrar of the District Court pursuant to which summary judgment was entered against them. An interim stay of execution of that judgment was ordered by this Court on 1 May 2023. The stay was continued, by order of 5 May 2023, until further order. The summary judgment entered in the District Court is for $420,952.39. The judgment creditor is CBEM Holdings Pty Ltd ("CBEM", the defendant in this Court). The sum for which the judgment was entered is a progress amount claimed due to CBEM under a building contract. 2. The Judicial Registrar was satisfied that there was no triable defence to CBEM's progress claim, by force of the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Security of Payment Act"). The plaintiffs/judgment debtors require leave to appeal to this Court: see s 127(2)(d) of the District Court Act 1973 (NSW). The application for leave and the appeal if leave should be granted are not assigned to the Court of Appeal: s 48(1)(iv) and s 48(2)(f) of the Supreme Court Act 1970 (NSW). By default, therefore, pursuant to ss 49 and 53 of the Supreme Court Act the plaintiffs' summons is assigned to the Common Law Division. 3. The issues that the plaintiffs submit are triable and should have led to the Judicial Registrar refusing to enter summary judgment are as follows: 1. Whether the second plaintiff, Chunlin Fan, was a party to the Trade Contract under which CBEM performed the building work for which it claimed the progress payment. 2. Whether that work was "residential building work" within the meaning of the Home Building Act 1989 (NSW) and, if so, whether CBEM performed the work without having in force a contract of insurance as required by that Act, so that CBEM was prohibited from demanding or receiving payment by the operation of s 94. 3. Whether CBEM was unlicensed for the purposes of the Home Building Act in respect of the work and whether it was prohibited from recovering payment of the progress claim for that reason. 1. CBEM opposes leave to appeal being granted and relies upon the strictness of the Security of Payment Act regime. CBEM's progress claim was made under a Trade Contract for civil and stormwater works, dated 3 December 2021. CBEM contends that the plaintiffs were counterparties to the Trade Contract as Principals. The Contract is further described below. It falls within the definition of a "construction contract" in s 4(1) of the Security of Payment Act. The Contract provided for progress claims to be made on the last day of each month, in amounts corresponding with the extent of work completed. The Contract required each progress claim to be paid within 14 days. The Security of Payment Act applies to the Trade Contract by force of s 7(1). 2. Part 3 Div 1 of that Act contains the following provisions for enforcement of a contractor's right to receive unpaid progress claims, (extracted so far as relevant to the circumstances of the present proceedings): 13 Payment claims (1) A person referred to in section 8 [that is, a person who had undertaken to carry out construction work under a construction contract] 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— (i) within the time required by the relevant construction contract, or (ii) within 10 business days after the payment claim is served, whichever time expires earlier, 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 allowed 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, and (b) […] […] (4) If the claimant commences proceedings under subsection (2)(a)(i) to recover the unpaid portion of the claimed amount from the respondent as a debt— (a) judgment in favour of the claimant is not to be given unless the court is satisfied of the existence of the circumstances referred to in subsection (1), and (b) the respondent is not, in those proceedings, entitled— (i) to bring any cross-claim against the claimant, or (ii) to raise any defence in relation to matters arising under the construction contract. 1. It is common ground that on 27 October 2022 CBEM served a payment claim upon the plaintiffs for its progress claim No 4 in the amount of $420,952.39, that the plaintiffs have never paid any part of this claim and that they did not provide a payment schedule to CBEM pursuant to s 14, either within the time-limited under the Act or at all. Consequently, s 15 is engaged pursuant to subs (1)(a) and CBEM may "recover the unpaid portion of the claimed amount from the [plaintiff's], as a debt due to [CBEM]" in the District Court as a "court of competent jurisdiction". CBEM contends that any defences the plaintiffs sought to raise in the District Court proceedings from which the present application for leave to appeal is brought were precluded by s 15(4)(b)(ii). The parties 1. The parties' positions as moving or responding litigants, respectively, have reversed from the District Court to this Court. In these reasons, references to "the plaintiffs" will be to the plaintiffs in this Court and otherwise the parties will generally be referred to by name only. CBEM is an earthmoving and civil works contractor. Sunshine East Pty Ltd ("Sunshine East", the first plaintiff in this Court) was incorporated on 8 August 2019. Its issued capital consists of 1000 ordinary shares, of which 820 are beneficially held by Chunlin Fan (the second plaintiff in this Court) and 180 are beneficially held by his daughter, Xiaojie Fan. The directors of Sunshine East are the two shareholders together with Jianwei Bi. The shareholdings and directorships have remained the same from the date of incorporation to the present. 2. Chunlin Fan and his daughter Xiaojie are residents of China. Chunlin Fan is aged in his 60s, does not speak English and visits Australia from time to time on a business visa. It is not apparent from the evidence what, if any, business he actually carries on in Australia. Jianwei Bi came from China to Australia in 2005 as a student and he has remained here since. He obtained permanent residency in 2015. In 2019 Jianwei Bi was introduced to Chunlin Fan by a relative. Since then he has acted as an interpreter for Chunlin Fan during the latter's visits to Australia. Jianwei Bi caused Sunshine East to be incorporated as a vehicle for Chunlin Fan. There is no evidence that the company has been used for any other purpose than to serve as postbox or point of contact for Jianwei Bi on behalf of Chunlin Fan and to enter into transactions in respect of a property at 506 Galston Road, Dural ("the property"). 3. In mid-2019 Jianwei Bi assisted Chunlin Fan to purchase the property, which comprises 37 ha of vacant land. Jianwei Bi has deposed that Chunlin Fan obtained the permission of the Foreign Investment Review Board for the acquisition. Jianwei Bi also assisted Chunlin Fan to engage a Mr Denton, trading as Denton Homes, to apply to Hornsby Shire Council for Development Approval ("DA") for construction on the land of a dwelling, a secondary dwelling, a machinery shed, another outbuilding, a swimming pool, a three hole golf course, a small lake, a tennis court and other improvements. It appears from Council's Notice of Determination that by May 2020 extensive site plans, floor plans, elevations, sections, landscape plans and stormwater and wastewater management plans had been prepared and submitted in connection with the DA application. Approval was granted to Denton Homes on 18 August 2020. Chunlin Fan's Manor Estate Project Agreement with ASY 1. In April 2021 Chunlin Fan requested Jianwei Bi to make arrangements with Allen Young for the latter to assist in building the proposed improvements on the property. Mr Young is the principal of ASY Construction Pty Ltd ("ASY"). He is of Chinese descent and speaks and writes Chinese. Mr Young prepared a Manor Estate Project Agreement ("the Project Agreement") in the Chinese language. Jianwei Bi informed Chunlin Fan that the agreement "looked okay to me" although by his own acknowledgement Jianwei Bi has never worked in the building industry in Australia or anywhere else and is not familiar with home building or project management. Jianwei Bi has a Masters degree in environmental and business management from the University of Newcastle. The evidence does not disclose that he has any business or work experience of any nature, apart from acting as a local agent of Chunlin Fan to further the latter's ambition of owning a large home in Australia. 2. The Project Agreement was signed on behalf of ASY and Chunlin Fan on 7 and 8 April 2021, respectively. According to its English translation, the Agreement provided that ASY's obligations would be: as the project managing party and general contractor, [to] conduct comprehensive supervision over the project process, progress, quality, safety, selection of the construction team and raw materials and personnel coordination, and undertake relevant legal responsibilities and obligations. 1. The Agreement further provided that the "specific work contents" would be as described in six items listed as "Stage 1: Preparation stage" and a further 17 items under the heading "Stage 2: Construction management". In the preparation stage the Agreement required that ASY would select designers and other consultants, organise and coordinate the design work and, amongst other things, perform the following: 3. Organise and communicate with the Chinese interior design and the Australian main body design to ensure the perfect implementation of the interior design. 5. Provide builder's licence and confirmed project insurance required for the project. 1. In the construction management stage the Agreement required that ASY's obligations would include: 3. Determine various subcontractors with [Chunlin Fan's] representatives as needed. 6. Supervise and manage the whole process of project progress, construction quality and engineering process and optimize it reasonably to improve efficiency and achieve cost control. 7. Supervise the construction site and establish constraint mechanism and control methods. 1. The Project Agreement stipulated an expected completion date of November 2022. ASY's fee was agreed at $950,400 inclusive of GST. It was expressly provided that the fee did not include any "Construction insurance fee". The Agreement prescribed that part of ASY's fee should be paid by monthly instalments and the balance at the conclusion of the project. Chunlin Fan's Construction Management Agreement with ASY 1. On 16 April 2021 Chunlin Fan and ASY entered into a further contract that duplicated the arrangement under the Project Agreement for ASY to act as construction manager. This was a Head Contract Construction Management, in the form published by the Master Builders Association of NSW ("the Construction Management Contract"). The form of this document issued by the Association specified on its face that it is "for use in non-residential building projects". That was either not noticed, not understood or disregarded by the parties who entered into this Contract. There is no evidence that the Project Agreement was expressly rescinded. The Construction Management Contract is broadly consistent with it and does not contain differences of such significance as to evince an implicit intention that the earlier Agreement be wholly replaced. The combined provisions of the two documents must be construed as a whole. 2. Chunlin Fan was named as Principal in the Construction Management Agreement and ASY was named as Construction Manager. The copy tendered in evidence bears what seem to be Chinese characters in the execution space for ASY. The placement of those markings is not witnessed by the signature of a director or secretary of ASY. Underneath the Chinese characters there appear the typed words "In the presence of Allen C Young". No party has submitted that the document is not properly executed by ASY as a corporation. The apparent irregularity of the execution is symptomatic of the general lack of understanding, on the part of Sunshine East, Chunlin Fan, Jianwei Bi and Allen C Young, of the law of the jurisdiction in which these business dealings have been undertaken. 3. The Construction Management Contract commenced with the following provision: The Principal intends to have the works identified in Schedule 1 constructed upon the site identified in that schedule. The works will be in accordance with the documents which have been or will be prepared by the Consultant. No "Consultant" was identified in the Contract. Schedule 1 specified the site as 506 Galston Road, Dural and described the works as follows: Construction Project Management of a dwelling house, a secondary dwelling, two outbuildings, outdoor recreation facilities, water storage facility and a solar energy system. 1. The Contract empowered ASY as the agent of Chunlin Fan to enter into trade contracts for the performance of the works. In cl 6 ASY's construction duties were specified in a series of paragraphs (a)-(x). Paragraph (j) was as follows: (j) enter into all contracts with Trade Contractors as the disclosed agent of the Principal (where so directed by the Principal) and provide the Principal with a copy of all trade contracts so entered into. 1. Clause 11 made the following provision with respect to entry into "Small Trade Contracts": (a) The Construction Manager has the right to enter into any trade contract with any Trade Contractor without the prior approval of the Principal where the value of that trade contract is less than or equal to the amount set out in Schedule 3 or, if nothing is stated, then $1,650 inclusive of GST. (b) Whenever the Construction Manager is entering into a contract pursuant to this clause, the Construction Manager is to wherever possible enter into the trade contract as the disclosed agent of the Principal unless the amount of the trade contract or the exigency or urgency of the situation dictates otherwise. 1. For the purposes of cl 11(a), Schedule 3 stipulated the following: The maximum value of any Trade Contract which the Construction Manager may enter into (as agent of the Principal) without the prior approval of the Principal is $5,000. Statutory provisions relevant to Issue (2): insurance Definition of "residential building work" 1. In the Home Building Act 1989 (NSW), "residential building work" is defined in cl 2 of Sch 1 to include, relevantly for present purposes: any work involved in, or involved in coordinating or supervising any work involved in— (a) the construction of a dwelling. 1. "Dwelling" is defined in cl 3 of Sch 1 in the following terms so far as presently relevant: (1) In this Act, dwelling means a building or portion of a building that is designed, constructed or adapted for use as a residence […]. (2) Each of the following structures or improvements is included in the definition of dwelling if it is constructed for use in conjunction with a dwelling— (a) a swimming pool or spa, […] (f) detached garages and carports, (g) detached decks, porches, verandahs, pergolas and the like, (h) cabanas and non-habitable shelters, (i) detached workshops, sheds and other outbuildings […], (j) concrete tennis courts and the like but only if the work involved is to be done under a contract to do other work that is residential building work, (k) driveways, paths and other paving, (l) retaining walls, (m) agricultural drainage designed or constructed to divert water away from the footings of a dwelling or a retaining wall, (n) fences and gates, (o) ornamental ponds and water features, and other structural ornamentation, the construction or installation of which requires development consent but only if the work involved is to be done under a contract to do other work that is residential building work. Homeowners warranty insurance 1. The compulsory insurance provisions of the Home Building Act are to be understood by reference to the statutory warranties that the Act makes binding upon contractors who perform residential building work. Section 7E provides as follows: 7E Terms of contracts (1) A contract must include (and is taken to include) each of the terms set out in Part 1 of Schedule 2. A contract that contains a term that is inconsistent with a term set out in Part 1 of Schedule 2 is unenforceable to the extent of the inconsistency. 1. In Sch 2, the statutory warranties that are relevant for present purposes are set out in the following terms: Schedule 2 Terms to be included in certain contracts (Sections 7E […]) Part 1 Contracts to do residential building work 1 Plans and specifications (1) All plans and specifications for work to be done under this contract, including any variations to those plans and specifications, are taken to form part of this contract. (2) Any agreement to vary this contract, or to vary the plans and specifications for work to be done under this contract, must be in writing signed by or on behalf of each party to this contract. (3) This clause only applies to a contract to which section 7AA (Consumer information) of the Home Building Act 1989 applies. 2 Quality of construction (1) All work done under this contract will comply with— (a) the Building Code of Australia (to the extent required under the Environmental Planning and Assessment Act 1979, including any regulation or other instrument made under that Act), and (b) all other relevant codes, standards and specifications that the work is required to comply with under any law, and (c) the conditions of any relevant development consent or complying development certificate. (2) Despite subclause (1), this contract may limit the liability of the contractor for a failure to comply with subclause (1) if the failure relates solely to— (a) a design or specification prepared by or on behalf of the owner (but not by or on behalf of the contractor), or (b) a design or specification required by the owner, if the contractor has advised the owner in writing that the design or specification contravenes subclause (1). 1. Sections 92 and 99 of the Home Building Act require that any person or entity carrying out residential building work must hold insurance against liability for failure to complete the work and for breach of the above statutory warranties. This form of cover is generally referred to in the building industry as homeowners warranty insurance or HBCF insurance. The acronym refers to the Home Building Compensation Fund operated by the New South Wales State insurer, Insurance and Care NSW, commonly known as "icare". The consequences of not being insured are contained in the following provisions of the Act (extracted only so far as presently relevant): 92 Contract work must be insured (1) A person must not do residential building work under a contract unless— (a) a contract of insurance that complies with this Act is in force in relation to that work in the name under which the person contracted to do the work, and (b) a certificate of insurance evidencing the contract of insurance, in a form approved by the Authority, has been provided to the other party (or one of the other parties) to the contract. Maximum penalty—1,000 penalty units in the case of a corporation and 200 penalty units in any other case. […] (2) A person must not demand or receive a payment under a contract for residential building work (whether as a deposit or other payment and whether or not work under the contract has commenced) from any other party to the contract unless— (a) a contract of insurance that complies with this Act is in force in relation to that work in the name under which the person contracted to do the work, and (b) a certificate of insurance evidencing the contract of insurance, in a form approved by the Authority, has been provided to the other party (or one of the other parties) to the contract. Maximum penalty—1,000 penalty units in the case of a corporation and 200 penalty units in any other case. 94 Effect of failure to insure residential building work (1) If a contract of insurance required by section 92 is not in force, in the name of the person who contracted to do the work, in relation to any residential building work done under a contract (the uninsured work), the contractor who did the work— (a) is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to that work, and (b) is not entitled to recover money in respect of that work under any other right of action (including a quantum meruit). (1A) Despite section 92(2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis. 99 Requirements for insurance for residential building work done under contract (1) A contract of insurance in relation to residential building work required by section 92 must insure— (a) a person on whose behalf the work is being done against the risk of loss resulting from non-completion of the work because of the insolvency, death or disappearance of the contractor, and (b) a person on whose behalf the work is being done and the person's successors in title against the risk of being unable, because of the insolvency, death or disappearance of the contractor— (i) to have the contractor rectify a breach of a statutory warranty in respect of the work, or (ii) to recover compensation from the contractor for any such breach. Home warranty insurance in relation to the works 1. Clause 5 of the Construction Management Contract stipulated that ASY would not be liable for the manner in which trade contractors performed their work on the project at 506 Galston Road Dural, or for their failure to complete work in accordance with their respective trade contracts, or for the design of the project. By the terms of this Contract ASY did not undertake to "do any residential building work", within the meaning of those words in ss 4 and 92 of the Home Building Act, only to coordinate the activities of others in doing such work. ASY was therefore not required to be licensed or to hold insurance against potential liability for the non-completion or inadequate performance of the work. The printed standard terms of the Construction Management Contract, as drafted by the Master Builders Association, did not include any provision for the construction manager, ASY, to take out statutory home warranty insurance. This standardised document is consistent with it having been issued only for use in connection with non-residential building projects. 2. Chunlin Fan, or whoever acted on his behalf, and ASY made an inept attempt to address the operation of the home warranty insurance provisions of the Home Building Act in relation to the project, by attaching an "Addendum" to the Construction Management Contract. The Addendum provided as follows: Home Owners Warranty Insurance to be issued for this contract amount. 1. The only "contract amount" in the Construction Management Contract was the sum specified as the Construction Manager's fee in Sch 5, being $864,000 plus GST, that is, $950,400. The Contract did not contain or have annexed to it any figure for the expected costs of construction. However, the evidence includes a schedule dated 6 August 2021 in which a breakdown of the anticipated construction costs is provided, totalling $11,180,000 inclusive of GST. It is reasonable to infer that Chunlin Fan and ASY must have had in mind construction costs of that order when the Construction Management Contract was made. 2. ASY's fee is quantified consistently in both the Project Agreement and the Construction Management Contract. It has been mentioned that by express term of the Project Agreement, ASY's fee does not include any "Construction insurance fee". On 25 May 2021 ASY obtained from icare two certificates of insurance "complying with sections 92 and 99 of the Home Building Act 1989". Chunlin Fan was named on the certificates as the homeowner and ASY, with builder's licence number 309871C, was named as the contractor. The "Contract Amount" was specified in one certificate as $660,000 for construction work at "Unit 1, 506 Galston Road". In the other certificate the sum insured was $290,400 for work on "Unit 2". The total cover was $950,400. That was only the amount of the construction management fee, not the cost of the works. Moreover, as ASY had not contracted to "do any residential work" it had no prospective liability against which it could be insured under ss 92 and 99 of the Act. In my view ASY's obligations under the Construction Management Contract, to act as an agent of the principals in entering into Trade Contracts and to coordinate and supervise the Trade Contractors' performance of their work, could not give rise to any losses of the nature identified in s 99(1)(a) and (b) for which ASY could be liable. There was no potential for liability of ASY against which statutory insurance under the Home Building Act could provide cover. 3. There is evidence before the Court that Charles Estephen, who traded as Arkitek Projects, acted in conjunction with Allen Young and ASY on the project. The evidence includes emails between Charles Estephen, Allen Young, a building certifier named Peter Moroney trading as Buildingwise Certifiers and Jianwei Bi in July and August 2022. These show that ASY and Jianwei Bi were aware that the insurance obtained by ASY as per the certificates of 26 May 2021 was not in a sufficient amount and did not relate to an appropriate head contract for the purposes of satisfying the insurance requirements of the Home Building Act in respect of any residential building work to be carried out on the property. 4. On 1 August 2022 Charles Estephen proposed, in an email to Allen Young and Jianwei Bi, that a lump sum contract for the work should be entered into "just for show" and "to give authorities". This would be a head contract in the standard BC4 form published by the Master Builders Association, under which ASY as builder would agree to carry out for Chunlin Fan as owner all of the works comprised in the project at a price of $11,180,000. Charles Estephen suggested that upon this sham contract being entered into, Chunlin Fan would write a letter stating that for the time being he wished only to proceed with the main residence and a machinery shed, at a total cost of $4 million. This letter would also be a sham, for the purpose of minimising the insurance premium. 5. There is no evidence that this proposal was implemented in any respect. Its significance lies in the fact that it shows Jianwei Bi, as the New South Wales based representative of Chunlin Fan, and ASY, as Chunlin Fan's agent under the Construction Management Agreement, knew by 1 August 2022 that the insurance certificates issued to ASY on 25 May 2021 did not satisfy the statutory requirement for insurance to cover the risk of liability of whoever was actually going to perform those works. The emails also show that Chunlin Fan understood, through Jianwei Bi and ASY, that the obligation of obtaining the insurance rested with him under the Construction Management Contract. Trade Contract between Sunshine East, Chunlin Fan and CBEM 1. By early December 2021 a Trade Contract had been prepared for the civil and stormwater works of the construction project at the property. The Trade Contract was in the form published by the Master Builders Association for use in conjunction with a Contract Management Agreement such as that between Chunlin Fan as principal and ASY as construction manager. The form of Trade Contract envisaged that it would be made between the principal and the contractor, with the construction manager also a party. The Trade Contract for the civil and stormwater works specified the parties thereto as follows: Name of Principal: Sunshine East Pty Ltd – Chunlin Fan Construction Manager: ASY Construction Pty Ltd Contractor: CBEM Holdings Pty Ltd 1. The civil and stormwater works were fully described in the Trade Contract by reference to drawings, the identifying numbers of which were recorded in a schedule. The lump sum contract price was specified as $1,611,078.51 (excluding GST). This price was the subject of a detailed quotation with an itemised breakdown of the components of work and their separate costing. CBEM had submitted that quotation on 19 November 2021 under cover of an email addressed to Jianwei Bi at "robin@sunshineeast.com.au". That was an address that Jianwei Bi maintained for Sunshine East and through which he sent and received emails on his own behalf, and on behalf of Chunlin Fan and the company. 2. The Trade Contract made the following provision with respect to payment: 5% deposit required before commencement of works to secure materials and labour. Payments thereafter to be made as per works completed in schedule breakdown of contractors. Claims to be made by the Contractor by the last day of each month. Contractor to be paid within 14 days of claim. The "schedule breakdown of contractors" refers to CBEM's itemised quotation, which was incorporated in the Trade Contract by reference. 1. On 3 December 2021 the Trade Contract was signed by Allen Young on behalf of ASY on the first page, in the signature space designated "Construction Manager for and on behalf of the Principal". Chinese characters apparently representing ASY, identical to those that appeared on the Construction Management Contract as referred to at [16] above, were entered in spaces designated for the signature of the Construction Manager at the foot of each of pages 2, 3 and 4 of the Trade Contract. The executed document was returned to CBEM by email from Jianwei Bi on 4 December 2021. The email was copied to Allen Young and Charles Estephen. Issue (1): Chunlin Fan a party to the Trade Contract with CBEM 1. Chunlin Fan became bound by the terms of the Trade Contract because he is named as one of two Principals on the document and, under the Construction Management Agreement, ASY had express actual authority to enter into the Trade Contract as Chunlin Fan's agent. That is exactly what it did. It was submitted for the plaintiffs that the value of the Trade Contract exceeded $5,000 and that ASY was not authorised to commit Chunlin Fan to the transaction without his prior approval: see the relevant provisions of the Construction Management Contract quoted at [18]-[20] above. However, on the application to this Court for leave to appeal, no evidence has been tendered to show that there is any genuine dispute about prior approval having been given. To the contrary, there is strong circumstantial evidence supporting an affirmative inference that Chunlin Fan did give prior approval for the Trade Contract to be entered into with CBEM, as follows. 2. First, Jianwei Bi was present when the signature and markings were affixed to the Trade Contract on behalf of ASY. Jianwei Bi then caused the signed document to be transmitted to CBEM. In view of his very junior and subordinate status relevant to Chunlin Fan, it is improbable that he would have permitted the Trade Contract to be executed and delivered in the form that it was, for some in excess of $1.6 million, with the Principals named as they appear on it, unless Chunlin Fan had conveyed express approval. 3. Secondly, an amount of $88,609.32 was paid from a bank account in the name of Sunshine East to CBEM on 9 December 2021. That amount is 5% of the Trade Contract lump sum price. The payment accords with the obligation of the Principals to pay a deposit "to secure labour and materials". Again taking into account Jianwei Bi's status, it may readily be inferred that the funds in the bank account of Sunshine East were deposited by Chunlin Fan and that they would not have been disbursed without his authority. By entering into the Construction Management Agreement Chunlin Fan as Principal had authorised ASY to enter into trade contracts in his name. When substantial funds, provided by Chunlin Fan, were paid out to a contractor he must have understood that ASY had exercised its agency authority by committing him to a contract for part of the works. By allowing payment, he admitted implicitly that ASY had acted within its authority to bind him. 4. Thirdly, the same reasoning and the same inference applies with respect to the first three progress payments submitted by CBEM. All of them were paid in full from the bank account of Sunshine East, as follows: Claim No Date Amount Date paid 2022 $ 2022 1 1 July 167,677.54 23 August 2 29 August 220,583.46 5 and 10 August 3 30 September 89,286.78 1 November 1. The circumstances in which Sunshine East and Chunlin Fan refused to pay the fourth progress payment do not give rise to any contradiction or weakening of the inference that arises from the significant payments, totalling $562,157.09, that were made between 9 December 2021 and 1 November 2022. CBEM's progress claim No 4 for the amount of $420,952.39 was served on 27 October 2022. On 1 November 2022 Charles Estephen sent an email to CBEM in the following terms: The works at 506 Galston Road, Dural will cease effective immediately. The reason for this is legal action for breach of copyright being taken against the principal and owner of the site. There is no date currently set for the recommencement of work. If you have any outstanding invoices please notify myself and Allen immediately so we can assist with processing. 1. During the hearing of the summons the Court was informed by the plaintiffs' counsel that the drawings used in in the project had been prepared by Denton Homes, with some modifications by a "feng shui expert" whom Chunlin Fan had engaged, from China. By October 2022 Denton Homes had notified Chunlin Fan and ASY of an objection to the continued use of the drawings, which it was alleged constituted a breach of copyright. Proceedings for an injunction to restrain further use of the drawings were commenced in the Federal Court. This caused Chunlin Fan and ASY to sign a formal termination of the Construction Management Agreement, effective on 28 October 2022. There is no suggestion in the evidence that CBEM was in any way responsible for or at fault with respect to this situation. Rather, it appears that the plaintiffs found themselves unable to continue with the work lawfully and therefore caused it to cease. They have refused ever since to pay the progress instalment due to CBEM for the most recent tranche of work carried out prior to shutting down the site. 2. Sunshine East does not dispute that it is bound by the Trade Contract. On the hearing of the plaintiffs' summons it was acknowledged by their counsel that, as Sunshine East is a named principal to the Trade Contract with CBEM and as one of the company's directors, Jianwei Bi, was both present at the signing and also transmitted the executed document to CBEM, Sunshine East cannot contest that it is bound by the Contract. 3. I am satisfied that Chunlin Fan has no seriously triable defence to CBEM's claim on the basis of any issue as to whether he was effectively made a party to the Trade Contract. He became bound as a Principal as a result of ASY executing the document on his behalf. Issue (2): insurance Contractual responsibility for obtaining homeowners warranty insurance 1. The third item in the Preliminaries section of CBEM's quotation was in the following terms: Contract Works insurance for duration of works – [BY BUILDER] EXCL This wording would have been apposite to a subcontract between CBEM and a head contractor who was undertaking the whole works. However, in the context of a construction management arrangement it is clear enough that CBEM was quoting a price for the civil and stormwater works that did not include insurance and that any required insurance was to be taken out and paid for by the Principals or by their agent, ASY. That is consistent with the terms of the Construction Management Contract, which provided for home owners warranty insurance to be issued and for the premium cost to be additional to ASY's construction management fee. It is also consistent with the communications between Allen Young, Charles Estephen and Jianwei Bi in July 2022 wherein all of those parties recognised that responsibility for taking out home owners warranty insurance and paying the premium rested with Chunlin Fan. Progress claim No 4 only in part for residential building work 1. The work for which progress claim No 4 was issued by CBEM on 27 October 2022 is specified in categories that correspond with the breakdown of work items in CBEM's quotation. The plaintiffs in this Court have not tendered evidence to explain the items claimed by CBEM in any greater detail than what appears on the progress claim and the quotation. Doing the best that I can with the descriptions of work in those documents and taking into account the definition in the Home Building Act, the following items comprised in progress claim No 4 appear to be, arguably "residential building work" for which home owners warranty insurance should have been in place: Trim pavement subgrade 9,264.30 Trim building pads 11,413.78 Backfill material to subgrade beneath vehicular pavements 553.02 Concrete pavement - conforming option 13,107.95 Basecourse 29,640.27 Total 63,979.32 1. It appears that no homeowners warranty insurance was in force in respect of the above items. The only insurance purportedly obtained under the Home Building Act was that taken out by ASY, as referred to at [29] above, which did not provide any level of indemnity in respect of any contractor who would actually carry out work on the project. It is therefore at least arguable for the plaintiffs that a breach of s 92 of the Home Building Act occurred and that CBEM is not entitled to enforce any remedy in respect of non-payment for those items listed in the preceding paragraph, unless a court determining the final account between the plaintiffs and CBEM should consider that it would be just and equitable for CBEM to recover a quantum meruit pursuant to s 94(1A). Factors disposing the Court to refuse leave to appeal on Issue (2) 1. The issue of whether CBEM's progress claim is defensible on the ground that no statutory insurance was in force does not warrant a grant of leave to appeal against the Judicial Registrar's entry of summary judgment, for the following four reasons. First, the amount that has been shown to be affected by this potentially triable issue is only $63,979.32, being 15.2% of the judgment sum. Secondly, if it should be determined in the plaintiffs' favour that home warranty insurance was required in respect of works to that value, or even to a greater value, there would be a very strong case for the District Court to exercise its jurisdiction under s 94(1A) of the Home Building Act. That follows from the fact that Chunlin Fan, through his agent ASY and his co-director and representative Jianwei Bi, clearly assumed responsibility for securing the insurance and paying the premium. By the terms of the Trade Contract, CBEM would reasonably have understood that ASY and its principals would take out whatever cover was required. 2. The absence of insurance arises from the plaintiffs' failure to fulfil an obligation they assumed. The email correspondence of July 2022 strongly suggests that this was a deliberate decision, directed to minimising expenditure. As CBEM was unlicensed for residential building work, home warranty insurance could not have been issued in its name as the insured. That was either known to the plaintiffs or would have been readily ascertainable by them. If the plaintiffs had taken any step towards obtaining cover for CBEM's work they would have found, if they did not already know, that their contractor did not hold a licence and could not be insured. The evidence points strongly to an inference that the inability of CBEM to attain homeowners warranty cover would not have been significant to the plaintiffs because they did not wish to incur the cost of the premium in any event. 3. On the hearing of a summons of this nature and having regard to the limitations of the evidence, the Court is not able to reach a final conclusion about the parties' respective states of mind in July 2022 at the time when the plaintiffs and ASY knew of the need for statutory insurance and failed to procure it. However, it is sufficient for the purpose of determining the leave application that it appears, at a prima facie level, that the plaintiffs are now acting discreditably and disingenuously in seeking to resist an obligation to pay CBEM for its work upon the basis of an absence of insurance cover, where that absence arose through the plaintiffs' conscious decision not to fulfil their own contractual obligations. On the material tendered in this Court, the case for allowing a quantum merit on grounds of justice and equity seems very strong. 4. Thirdly, the summary judgment in the District Court is only for the progress payment under the Security of Payment Act. The Act includes the following provision regarding the effect of Pt 3, (comprising ss 13-15 quoted earlier, providing for enforcement of unpaid payment claims): 32 Effect of Part on civil proceedings (1) Subject to section 34, nothing in this Part affects any right that a party to a construction contract— (a) may have under the contract, or (b) may have under Part 2 in respect of the contract, or (c) may have apart from this Act in respect of anything done or omitted to be done under the contract. (2) Nothing done under or for the purposes of this Part affects any civil proceedings arising under a construction contract, whether under this Part or otherwise, except as provided by subsection (3). (3) In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal— (a) must allow for any amount paid to a party to the contract under or for the purposes of this Part in any order or award it makes in those proceedings, and (b) may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings. 1. The effect of s 32 is that if the plaintiffs can, in separate proceedings in the District Court, demonstrate that they have to some extent overpaid CBEM by satisfying the whole of progress claim No 4 in accordance with the Judicial Registrar's judgment, then they would be able to recover the amount of the overpayment. On the hearing of the summons for leave to appeal the Court was informed that such proceedings have been commenced. It is very significant to the question whether leave should be granted that the summary judgment entered in the District Court is, in substance, only for the payment of progress claim No 4 on account. Execution of that judgment will not on a final basis deprive the plaintiffs of the opportunity to agitate the consequences of there having been no homeowners warranty insurance. Execution of the judgment will not prevent the plaintiffs from disputing, in another proceeding, CBEM's entitlement to a quantum meruit under s 94(1A), or how much that quantum should be. 2. Fourthly, no evidence was tendered in this Court to suggest that the plaintiffs contend that any part of the work which is the subject of progress claim No 4 was not carried out or was poorly executed. There is no reason to expect that any part of the summary judgment amount will be repayable to the plaintiffs on the taking of a final account in proceedings pursuant to s 32 of the Security of Payment Act. Issue (3): CBEM unlicensed 1. The Home Building Act contains these provisions concerning licensing of builders: 4 Unlicensed contracting (1) A person must not contract to do— (a) any residential building work, or (b) any specialist work, except as or on behalf of an individual, partnership or corporation that is the holder of a contractor licence authorising its holder to contract to do that work. Maximum penalty—1,000 penalty units in the case of a corporation and 200 penalty units in any other case. 10 Enforceability of contracts and other rights (1) A person who contracts to do any residential building work, or any specialist work, and who so contracts— (a) in contravention of section 4 (Unlicensed contracting), or (b) […] (c) […] is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, and the contract is unenforceable by the person who contracted to do the work. However, the person is liable for damages and subject to any other remedy in respect of a breach of the contract committed by the person. 1. In contravention of s 4, CBEM entered into the Trade Contract without holding a contractor licence. The plaintiffs contend that s 10 therefore renders the Trade Contract unenforceable and deprives CBEM of any remedy for breach by the plaintiffs, including for their failure to pay progress claim No 4. CBEM submits that the denial of remedies under s 10 does not give rise to a triable issue in the District Court proceedings because the section does not extend so far as to bar recovery of the statutory debt for the progress claim that arises under s 15 of the Security of Payment Act. For this proposition CBEM relies upon Brodyn Pty Ltd v Davenport [2004] NSWCA 394. 2. In that case a concreting contractor carried out work for the appellant ("Brodyn") in the construction of residential townhouses. The contractor served a payment claim under s 13 of the Security of Payment Act and Brodyn responded with a payment schedule under s 14(3), contending that no money was payable. The contractor made an adjudication application under s 15(2)(a)(ii), which resulted in an adjudication in accordance with the provisions of Pt 3 Div 2 of the Act (ss 17-26). The adjudicator determined that Brodyn was required to pay the contractor $180,059. The statutory effect of such an adjudication determination is provided for in s 23(2): the amount determined must be paid within five days or such other period as the adjudicator may determine. Relevant extracts from ss 24 and 25, providing for recovery of the adjudicated amount, are as follows: 24 Consequences of not paying claimant adjudicated amount (1) If the respondent fails to pay the whole or any part of the adjudicated amount to the claimant in accordance with section 23, the claimant may— (a) request the authorised nominating authority to whom the adjudication application was made to provide an adjudication certificate under this section, and (b) […] 25 Filing of adjudication certificate as judgment debt (1) An adjudication certificate may be filed as a judgment for a debt in any court of competent jurisdiction and is enforceable accordingly. (2) [...] (3) […] (4) If the respondent commences proceedings to have the judgment set aside, the respondent— (a) is not, in those proceedings, entitled— (i) to bring any cross-claim against the claimant, or (ii) to raise any defence in relation to matters arising under the construction contract, or (iii) to challenge the adjudicator's determination, and (b) is required to pay into the court as security the unpaid portion of the adjudicated amount pending the final determination of those proceedings. 1. On those facts the Court of Appeal (Hodgson JA, Mason P and Giles JA agreeing) held as follows: [81] It was submitted for Brodyn that, because [the contractor] did not have a licence under the [Home Building Act], the subcontract was illegal (s 4) and unenforceable (s 10). Accordingly, [the contractor] was not entitled to any progress payment. [82] In my opinion, the civil consequences for an unlicensed contractor for its breach of s 4 are those set out in s 10, and not any wider deprivation of remedies. In my opinion this is confirmed by the different provisions of s 94, which explicitly precludes, in the event of breach of the insurance provisions, the obtaining of a quantum meruit unless a court considers it just and equitable. In my opinion, the remedy given by the [Security of Payment] Act is not of the nature of damages or any other remedy in respect of breach of contract nor is it enforcement of the contract: it is a statutory remedy, albeit one that in part makes reference to the terms of a contract, and thus it is not affected by s.10 of the [Home Building Act]. [83] Accordingly, in my opinion [the contractor's] failure to have a licence could not be a ground on which the adjudicator's determination could be considered void, or for otherwise giving relief in respect of the determination. 1. I am bound by the decision in Brodyn Pty Ltd v Davenport. It was concerned with the statutory remedy under s 25 of the Security of Payment Act (enforcement of an adjudication certificate as a judgment of a court of competent jurisdiction), rather than with the statutory remedy under s 15 (enforcement of an unanswered payment claim in a court of competent jurisdiction). However, there is no basis upon which the reasoning of the Court of Appeal in Brodyn Pty Ltd v Davenport could be distinguished and held inapplicable to a statutory claim under s 15. Such a claim does not involve the steps of referring a disputed payment claim to an adjudicator and securing the adjudicator's certificate of determination – but those additional steps make no difference to the question of statutory construction that Hodgson JA's judgment resolved. 2. For those reasons I determine Issue (3) in favour of CBEM. I find that there is no serious issue to be tried with respect to the plaintiffs' liability to pay CBEM's progress claim No 4, arising from the circumstance that CBEM did not hold a building contractor licence for the work that it undertook and for which it seeks payment. Orders 1. After the hearing of the summons on 16 June 2023 the plaintiffs applied, by notice of motion filed in court on 29 June 2023, for leave to reopen. I granted that leave to the extent of permitting the plaintiffs to read affidavits of their solicitor, Mr Elic Tang affirmed 19 and 27 June 2023, to which there were annexed, inter alia, certificates of insurance issued to ASY in respect of the project works. Having received that evidence and having heard further argument from counsel during the application to re-open on 29 June 2023, I was able to finally determine the Summons forthwith. The following orders were made on 29 June 2023: 1. Order 1 made on 1 May 2023 for stay of execution of judgment of the District Court given and entered in that court on 24 March 2023 is discharged. 2. The summons filed 20 April 2023 is dismissed. 3. The plaintiffs are to pay the defendant's costs of the proceedings. 1. When those orders were pronounced on 29 June 2023, the Court's reasons were reserved. The reasons are as now set out in this judgment. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 July 2023