Local Court of New South Wales CITATION: 7 Skyland Pty Limited v K & H Jnaid Pty Limited [2007] NSWLC 7 JURISDICTION: Civil PARTIES: 7 Skyland Pty Limited K & H Jnaid Pty Limited FILE NUMBER: 3066/07 PLACE OF HEARING: Downing Centre Local Court DATE OF DECISION: 06/06/2007 MAGISTRATE: Magsitrate B A Lulham CATCHWORDS: Summary judgment - whether defence pleaded arises under construction contract - alleged misleading and deceptive conduct - whether defence on that basis available Uniform Civil Procedure Rules LEGISLATION CITED: The Building and Construction Industry Security of Payment Act Trade Practices Act Nepean Engineering Pty Limited v Total Process Services Pty Limited (In Liquidation) [2005] NSWCA 409 Alamdo Holdings Ltd v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWSC 1073 CASES CITED: General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 Yango Pastoral Co Pty Limited v First Chicago Aust Ltd (1978) 139 CLR Brodyn Pty Limited v Davenport (2004) 61 NSWLR 421 Bitannia Pty Ltd & Anor. V Parline Construction Pty Ltd [2006] NSWCA 238 A.R.R. Vincent (Counsel for Plaintiff) REPRESENTATION: Salim Lawyers (Solicitor for Plaintiff) Mr D. Kalyk (Counsel for Defendant) Furlow Fisher (Solicitor for Defendant) ORDERS: Judgment for the plaintiff in the sum of $33,024.00. The defendant is ordered to pay the plaintiff interest on the judgment from 1 March 2007 to be calculated by the Registry. Costs follow the event. The defendant is to pay the plaintiff's costs and disbursements of the proceedings, including the motion, as agreed. In default of agreement within 28 days, the costs are to be assessed under the Legal Profession Act. Reasons for Decision BACKGROUND TO DISPUTE 1 7 Skyland Pty Limited (the applicant) contracted on or about 14 March 2006 to carry out painting work for K & H Jnaid Pty Limited ('the respondent') at premises 177-179 Salisbury Road, Camperdown. The applicant claimed it served a Payment Claim on the respondent which failed to serve a Payment Schedule within 10 days of such service. The applicant in its motion sought summary judgment based on its right to a judgment under s 15 of The Building and Construction Industry Security of Payment Act 1999 (hereinafter referred to as 'the Building Payment Act). 2 The respondent filed its Defence on 1 May 2007. It admitted that it was served with an invoice, but denied that the applicant was entitled to make a progress claim or that the invoice was a Payment Claim. It alleged that the applicant had failed to complete the work and that the work done was defective. It pleaded that the applicant had failed to supply a Certificate of Currency for insurance cover and that the respondent had repudiated and abandoned the building site failing to complete the contract. 3 The respondent also filed a Cross Claim on 1 May 2007. The Cross Claim alleged that the applicant had failed and/or refused to provide the respondent with a Certificate of Currency in respect of its insurance. It did not allege any loss suffered as a result of that alleged breach. 4 The Cross Claim further alleged that the applicant had failed to rectify work which had been defectively carried out. The Cross Claim alleged that the applicant had abandoned the site and repudiated the contract and alleged that the respondent had incurred expense in completing the work, rectifying damaged work and replacing items taken away by the applicant in the total sum of $49,374.80. 5 I propose to determine the matter firstly on the basis of the filed documents and to then consider the application based on the proposed Amended Defence sought to be relied on by the respondent. SUMMARY JUDGMENT PRINCIPLES 6 The applicant seeks summary judgment under Pt 13 r 2 of the Uniform Civil Procedure Act. Mr Vincent set out in his submissions the following excerpt from the decision of Studdert J in Ginelle Finance Pty Limited v Diakakis (2002) NSWSC 1032 at paras 5 and 6 which I agree usefully sets out the applicable principles: '[5] A party seeking summary judgment under Pt 13 r 2 is required to satisfy the court that there is really no triable issue and it is clear that caution is to be exercised in entertaining an application such as that now before the Court. In their joint judgment in Fancourt v Mercantile Credits Limited (1983) 154 CLR 87 at 99 Mason CJ and Murphy, Wilson, Deane and Dawson JJ said: "The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: see Clarke v Union Bank of Australia Ltd. (1917) 23 CLR. 5; Jones v Stone [1894] A.C. 122: Jacobs v. Booth's Distillery Co. (1901) 85 L.T. 262." [6] The burden rests upon the plaintiff to persuade the Court that there is no real question to be tried: see Singh v Kaur (1985) 61 ALR 720 per Samuels JA at 722. THE SCHEME UNDER 'THE BUILDING PAYMENT ACT' 7 S 13 of the Building Payment Act permits a claimant under a construction contract to serve a Payment Claim on the person liable to make the payment. The section provides that the Payment Claim must: (i) specify the construction work for which the progress payment relates; (ii) must indicate the amount of the progress payment; (iii) must state that it is made under the Act. 8 S 14 provides for the person (the respondent) on whom the Payment Claim is served to provide a 'Payment Schedule' by way of reply. Sub-section 4 provides that if the respondent does not provide a Payment Schedule to the claimant within 10 business days of service of the Payment Claim 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. 9 S 15 of the Act provides that the claimant may recover the unpaid portion of the claimed amount from the respondent as a debt due to the claimant in any court of competent jurisdiction. 10 Significantly s 15 further provides that the respondent in those proceedings is not entitled to bring any cross claim against the claimant or to raise any defence in relation to matters arising under the construction contract. 11 S 15 of the Act provides that if a Payment Schedule is served within 10 days disputing the amount claimed, then the claimant is entitled to refer to Payment Claim for adjudication pursuant to Pt 3 Div 2 of the Act. 12 S 32 of the Act provides that action under the Act (including a judgment under s 15) does not affect the right of a party to bring any civil proceedings under the construction contract, including a claim for restitution of the amount ordered to be paid under s 15. 13 The Act therefore provides a scheme whereby if a Payment Claim is served, the respondent if it wishes to dispute the claim, must serve a Payment Schedule within 10 days. If it does, then the Act provides for the dispute to be referred for adjudication under the Act by an appropriately qualified adjudicator. 14 If the respondent does not serve a Payment Schedule within 10 days, then the applicant is entitled to recover the amount due as a debt. In those proceedings the respondent is not able to rely on a cross claim or to raise a defence based on matters arising under the construction contract. 15 The respondent does of course have the right to commence separate proceedings to litigate matters such as defective work, breach of contract and damages under the construction contract. THE FACTS RELIED UPON IN THIS MATTER 16 The claimant relies on the document (Annexure 'A' to the affidavit of Mohamed Mohamed Exh.1) headed 'Tax Invoice' dated 13 February 2007 directed to the respondent. The document states: (i) that it is a Payment Claim made under the Act, (ii) identifies the construction work to which the Progress Payment Claim relates, (iii) and indicates the claimed amount. On the face of it the Payment Claim appears to comply with the Act. 17 Mr Mohamed deposed that the Payment Claim was served on the defendant by facsimile on 15 February 2007 to the defendant's ordinary place of business. The respondent admitted receiving a copy of the document so that service could not be in dispute. 18 Mr Mohamed deposed that the claimant did not receive any Payment Schedule within 10 business days of service. The respondent does not allege that any Payment Schedule was served. 19 I am satisfied that the applicant, on the balance of probabilities, has satisfied the court as to the matter necessary for it to obtain a judgment under s 15(2) of the Building Payment Act. 20 As previously indicated the burden rests upon the applicant to persuade the court, that bearing in mind the above matters, there is no real question to be tried having regard to the Defence filed by the respondent. The question being tried is the applicant's right to a judgment pursuant to s 15(2) of the Act. 21 I summarised the filed Defence and Cross Claim in paragraph 2 hereof. The applicant relies on s 15(4)(b) of the Building Payment Act which provides that in proceedings for a judgment based on the service of a Payment Claim and the failure of the respondent to serve a Payment Schedule, the respondent is not 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. 22 I am satisfied the position is quite clear. The Defence and Cross Claim filed by the respondent clearly fall foul of s 15(4)(b) of the Act and cannot be relied upon. The matters relied upon should have been raised in a Payment Schedule leading to an adjudication under the Act. 23 I am satisfied the position comes clearly within the position set out by His Honour Ipp JA in Nepean Engineering Pty Limited v Total Process Services Pty Limited (In Liquidation) (2005) NSWCA 409 at para 76 as follows: [76) In regard to the issue the subject of this application for leave to appeal, for the reasons given by Hodgson JA I would construe the Building and Construction Industry Security of Payment Act 1999 (NSW) as follows. Provided that a payment claim is made in good faith and purports to comply with s 13(2) of the Act, the merits of that claim, including the question whether the claim complies with s 13(2), is a matter for adjudication under s 17 and not a ground for resisting summary judgment in proceedings under s 15. In particular, if no adjudication is sought summary judgment cannot be resisted on grounds that could have been raised by way of a payment schedule leading to adjudication. 24 For the above reasons I am satisfied on the basis of the Statement of Claim, Defence and Cross Claim filed, that the appellant is entitled to summary judgment as sought. THE RESPONDENT'S CASE BASED ON THE PROPOSED AMENDED DEFENCE AND APPLICATION TO THE FEDERAL MAGISTRATES COURT OF AUSTRALIA 25 The respondent tendered a proposed Amended Defence dated 8 May 2007 attached to which was a Draft Application to the Federal Magistrates Court of Australia. The document was tendered, over objection, as Exh.6. I am satisfied that the proposed Amended Defence does withdraw the admission that the defendant was served with the invoice constituting the plaintiff's Payment Claim. It follows that the leave of the court, is required under Uniform Civil Procedure Rule 12.6 to file such Amended Defence. I propose to deal with the matter on the basis of an application for leave. 26 It is settled law that a court should not permit an amendment if the amendment is futile and does not raise a triable issue. In Alamdo Holdings Ltd v Australian Window Furnishings (NSW Pty Ltd NSWSC 1073 His Honour Barrett J, at para 10 of his decision, adopted the four propositions generally regarded as defining the limits of the general discretion to grant leave to amend a pleading as summarised at p2530 of Ritchie as follows: (a) That the amendment is so obviously futile that it would be liable to be struck out if it had appeared in the original pleading. (b) That the application for leave to amend is made for an improper purpose. (c) That the amendment causes prejudice to the other party that cannot be compensated by appropriate consequential orders, including costs orders, and (d) The amendment is contrary to the interests of justice. 27 His Honour Barrett J went on to say in relation to the first principle the following: "As to the first of these (futility) it was submitted on behalf of the plaintiff (and I accept) that the question to be addressed is whether the added claim is of the character stated by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 at 129; The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'stand would involve useless expense'." 28 I do not propose to grant leave, because in my view, the proposed Amended Defence is obviously futile and does not raise a triable issue in this claim seeking judgment under s 15 of Building Payment Act. 29 Paragraph 2 of the proposed Amended Defence pleads that it was an express term of the contract that the plaintiff would have in place, prior to the commencement of any works, workers compensation insurance and third party liability insurance in respect of its employees and in respect of the works, and that Certificates of Currency in respect of such insurances would be provided to the defendant before any claim or entitlement to payment in respect of works under the Act. In paragraphs 4, 5 and 6 the respondent pleads that the failure to have the relevant insurances in place breached the provisions of s 163A of the Workers Compensation Act, and alleged that the plaintiff had acted illegally in undertaking the works under the contract, and was not entitled to make any claim under the contract. 30 Paragraph 7 of the Amended Defence pleaded that the plaintiff (incorrectly referred to in the Defence as 'the defendant') had failed to enter into a written contract in respect of the works such that by reason of s 10 of the Home Building Act, it was precluded from claiming under the contract as it purports to do. 31 I am not satisfied that even if the respondent was able to prove that the applicant did not have the relevant workers compensation insurance and third party liability insurance in place, that such failure would affect the legality of the contract or affect the ability of the applicant to claim under the contract. The Workers Compensation Act provides penalties for failure to have insurance. The Act in no way seeks to make illegal any work performed under a contract without insurance, and the proposition that the carrying out of the work was illegal and that the applicant would not be entitled to claim under the contract could not raise a triable issue in these proceedings see Yango Pastoral Co Pty Limited v First Chicago Aust Ltd (1978) 139 CLR at 428,436. In relation to paragraph 7 and the reference to the Home Building Act, the Court of Appeal specifically rejected the same arguments in Brodyn Pty Limited v Davenport (2004) 61 NSWLR 421 – Hodgson JA at paras 81 & 82. The same reasoning would apply to the respondent's defence in paras 4, 5 and 6. 32 Paragraphs 9 and 10 pleaded that the respondent entered into the contract with the applicant as a result of the representations that the applicant had in place workers compensation insurance and third party insurance, which representations were misleading and deceptive within the meaning of s 52 of the Trade Practices Act 1984. The proposed Amended Defence did not plead a claim for damages under s 82 in this court, but attached a draft application to the Federal Magistrates Court seeking damages and restraining orders under the Trade Practices Act in that court. 33 The proposed Amended Defence does not raise triable issues in the application for judgment under the Building Payment Act. This court does not have the power to make the restraining orders under the Trade Practices Act. The Defence concedes such lack of power, hence the attachment of the proposed application to the Federal Magistrates Court. 34 The filed Defence and Cross Claim clearly contravene s 15(4)(b) of the Building Payment Act. The proposed Defence is poorly drafted and does not raise triable issues for the reasons given, The proposed Defence arguably also contravenes s 15(4)(b) because any illegality must have arisen under the construction contract. The attempted reliance on the proposed filing of an application in another court, in my view, is embarrassing. 35 Mr Kalyk in his oral submissions sought to rely on the decision of the New South Wales Court of Appeal in Bitannia Pty Ltd & Anor. V Parline Construction Pty Ltd (2006) NSWCA 238. I propose to deal with such submissions shortly because neither the original Defence and Cross Claim nor the proposed Defence got anywhere near to pleading a Defence based on the principles in that case. It does not seek to plead an equitable setoff and does not seek to claim damages for a breach of s 52 of the Trade Practices Act in this court. 36 I have come to a preliminary view that even if the Defence had been properly drawn so as to reflect the principles in Bitannia Pty Ltd that such a defence would not be available to the defendant in this case. The facts in Bitannia were crucial. The court found that there was an arguable case that the plaintiff had engaged in misleading and deceptive conduct in serving the Payment Claim. The plaintiff had served the Payment Claim on a representative of the defendant different to that on which previous Payment Claims had been served. A Payment Schedule had been served in reply to the earlier Payment Claims. 37 As I understand the decision in Bitannia, the Court decided that the defendant/respondent on the facts in that case, raised by way of defence, the contention that service was not effective because it involved misleading or deceptive conduct. In other words, the misleading or deceptive conduct went to one of the matters which the plaintiff had to prove to obtain a judgment under s 15 of the Building Payment Act, namely the service of the Payment Claim under the Act. It did not go to a matter arising under the construction contract. 38 The respondent does not seek to rely on any similar issues or factual matters in this case. 39 The applicant's motion must succeed. 40 For completeness I should make clear that if I had granted leave for the amended defence to be filed, the ultimate result would be the same. For the reasons set out in paras 27 to 37, I would have found that the Defence did not raise a triable issue and the applicant's Motion would have succeeded in any event. 41 The respondent read the affidavit sworn 8 May 2007 of its project manager Anthony Sahyoun. A qualified carpenter Mr Sahyoun deposed to matters relating to the non-performance of work by the applicant, other defective work carried out, and the need for remedial work to be carried out by the respondent. I believe that evidence goes to a defence upon which the respondent is not able to rely in this matter, because of the provisions of s 15(4)(b) of the Building Payment Act. 42 I note the reservations expressed by Mr Sahyoun in paragraph 50 of his affidavit and to his concern that 7 Skyland Pty Ltd would not have the means to repay any judgment if entered in these proceedings in the event that K & H Jnaid Pty Ltd is successful in respect of its claim for damages. 43 I note that concern. His Honour Hodgson JA in Bitannia Pty Ltd had this to say: 4. If, through no fault of a respondent, a payment schedule is not served, the Act can work harshly: and this would be particularly so in the case of an extravagant payment claim. It is true that the payment required by the Act, for which judgment can be obtained, is only a provisional payment, which may later be adjusted through proceedings in which the final entitlements of the parties are determined; but this does not eliminate substantial detriment, particularly in cases where the claimant is impecunious and there may be a real question whether later proceedings, involving substantial expense and delay, are worthwhile pursuing. 5. Subject to what I say below about misleading conduct, it may be that in those circumstances the only remedy available is a remedy by way of stay or injunction, if the respondent can show a strong prima facie case to the effect that the result produced by the Act is unjust, that there is a substantial risk that money paid over would be irrecoverable, and that proceedings for a final resolution of the issues are being expeditiously pursued: see Brodyn Pty Limited v Davenport [2004] NSWCA 394, 61 NSWLR 421, at [84]-[88]. 44 In this matter there is no evidence that the failure to serve a Payment Schedule was through no fault of the respondent. 45 I am not satisfied that the respondent in this matter has proved the type of matters referred to in paragraph 5 of His Honour Judge Hodgson's judgment set out above, and I am not prepared to grant a stay. 46 I make the following orders: 1. Judgment for the plaintiff in the sum of $33,024.00. 2. The defendant is ordered to pay the plaintiff interest on the judgment from 1 March 2007 to be calculated by the Registry. 47 I would propose the following order in relation to costs: 1. Costs follow the event. The defendant is to pay the plaintiff's costs and disbursements of the proceedings, including the motion, as agreed. In default of agreement within 28 days, the costs are to be assessed under the Legal Profession Act. B.A. LULHAM 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.