New South Wales Supreme Court CITATION : De Martin and Gasparini v Ex Parte - Energy Australia & Anor [2002] NSWSC 55 revised - 21/02/2002 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 55053/01 HEARING DATE(S) : 9 January 2002 13 February 2002 JUDGMENT DATE : 15 February 2002 De Martin and Gasparini Pty Ltd PARTIES : Ex Parte - Energy Australia Pty Ltd (1st Defendant) Austin Australia Pty Ltd (2nd Defendant) JUDGMENT OF : Simpson J COUNSEL : RC McDougall QC (Plaintiff) MG Rudge SC (2nd Defendant) SOLICITORS : Minter Ellison (Plaintiff) Colin Biggers and Paisley (2nd Defendant) CATCHWORDS : Contractors Debts Act 1997 s 14(1) - attachment order - whether proceedings have been commenced - whether money claimed for work carried out and materials supplied - whether evidence establises that money is owing - discretion LEGISLATION CITED : Contractors Debts Act 1997 CASES CITED : Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd (unreported, 10 February 1999, WASC, per Master Sanderson) DECISION : Attachment order discharged IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION construction LIST SIMPSON J 15 February 2002 55053/01 De Martin and Gasparini Pty Ltd v Ex Parte – Energy Australia Pty Ltd (1st Defendant) and Austin Australia Pty Ltd (2nd Defendant) JUDGMENT 1 Her Honour: These proceedings require consideration (apparently for the first time) of the reach and application of s 14(1) of the Contractors Debts Act 1997 ("the Act"). That subsection is in the following terms: "If proceedings are commenced by an unpaid person against a person (the defendant ) for recovery of a money owed to the unpaid person by the defendant for work carried out or materials supplied by the person, the court may, on the application of the unpaid person, make an order under this section (an attachment order ) against any other person from whom the unpaid person may be able to recover the debt under this Act." 2 On 30 November 2001, pursuant to the subsection and on the application of the present plaintiff (De Martin and Gasparini Pty Ltd, to whom I shall refer as "DMG"), and with the consent of the first defendant (Energy Australia Pty Ltd ("Energy Australia")) but in the absence, and without the knowledge, of the second defendant (to whom I shall refer as "Austin") Bergin J made an order in the following terms: " By consent ATTACHMENT ORDER – s14 CONTRACTORS DEBTS ACT 1997 1. The defendant [Energy Australia], on service of this order, will retain and hold in its hands the amounts set out in the Attachment 'A' to this order, until Judgment or such earlier order of the court. 2. Costs reserved. 3. Liberty to apply on seven (7) days notice." Her Honour also ordered that Austin be immediately notified of the order. 3 Attachment A was identified as a "Schedule of money owed by Austin Australia Pty Ltd to De Martin and Gasparini Pty Ltd" and gave a total figure of $960,009.04. (The calculations by which this figure was arrived at were later agreed to have been erroneous in some respects, but this is immaterial to the present determination.) 4 The amount stated represented certain money that, in the absence of the attachment order, would have been paid by Energy Australia to Austin. Accordingly, Austin until that date having had no opportunity to be heard in respect of the application, on 7 December 2001 Bergin J ordered DMG to join Austin as a party to the proceedings, and otherwise continued the attachment order to 5.00 p.m. on 14 December 2001, on which day her Honour again (this time with the consent of both Energy Australia and Austin) continued the order, this time until further order of the court. In large part Austin consented to this order, and it was made, by reason of the exigencies of court lists at the time, and the unlikelihood that any time for a substantial hearing would become available. Austin's consent does not reflect upon the merits, perceived or otherwise, of DMG's application. 5 By Notice of Motion filed on 20 December 2001 Austin seeks the discharge of the attachment order. It is this application that is the subject of the present judgment. Energy Australia has played no part in the proceedings, having submitted to the order of the court. The issues in dispute are solely between DMG and Austin. Background 6 At some time not disclosed in the evidence (but before 5 July 2000) Austin contracted with Energy Australia to construct an electricity sub-station. The contract envisaged that Austin would engage sub-contractors to perform various aspects of the necessary work. By sub-contract dated 5 July 2000 Austin engaged DMG to supply labour, plant and materials to carry out certain concrete works associated with the projects. The contractual documents refer to Energy Australia as "the Principal"; to Austin as "the Main Contractor"; and to DMG as "the Sub-contractor". The value of the sub-contract between Austin and DMG was stated to be $3,660,000.00, excluding GST. Between 13 July 2000 and 22 September 2001 DMG performed work in accordance with the sub-contract, and rendered progress accounts to Austin from time to time. Each claim for payment was assessed by Austin's project manager, Mr Robert McQueen, and paid in accordance with his assessment. There do not appear to have been any disputes of significance in the early stages of the contract. 7 Disputes did later arise about DMG's claims and Austin's assessments. On 25 July 2001 and again on 21 November 2001 DMG served on Austin Notices of Dispute in accordance with cl 47.1 of the sub-contract conditions. In total, DMG claims that Austin is indebted to it in the amount of $960,009.05 plus GST. This figure is arrived at by the addition of various amounts, the bulk of which relate to claims by DMG for delay and prolongation. These were made under cl 33.1 of the sub-contract conditions. Relevantly, cl 33.1 permitted DMG to claim additional payment from Austin where Austin's directions as to the performance of the contract works caused DMG to incur additional cost. 8 Austin disputed DMG's claims and it was this that led to the service of the Notices of Dispute. 9 Since Austin declined to make the payments claimed, DMG invoked s 14(1) of the Act and claimed (and was granted) the attachment order referred to above. This had the effect of preventing payment to Austin of funds owed to it by Energy Australia under the contract, leaving those funds in the hands of Energy Australia. 10 On 14 December 2001 DMG sought leave to file in court an amended summons. A hand-written note on the document records that leave was given by Bergin J on that date. There was however, a question as to the accuracy of that note; on behalf of Austin is was contended that no final determination on the filing of the amended summons had been made, and that its rights to oppose such leave had been reserved. It is of some significance to note the nature of the amendments, and the differences between the summons and the amended summons. In the original summons the only order DMG claimed was an attachment order under s 14(1). In the amended summons DMG claimed an order that Austin was indebted to DMG in the sum already mentioned; declarations concerning its entitlement to the sums claimed; an award of damages, interest and the continuation of the attachment order. the relevant statutory provisions 11 It is necessary to set out some additional provisions of the Contractors Debts Act. " 5. Unpaid persons can obtain payment from principal (1) A person (the unpaid person ) who is owed money for work carried out for or materials supplied to some other person (the defaulting contractor ) can obtain payment of that money in accordance with this Act out of money that is payable or becomes payable to the defaulting contractor by some other person (the principal ) for work or materials that the principal engaged the defaulting contractor to carry out or supply under a contract. (2) However, the unpaid person can obtain payment from the principal under this Act only if the work carried out or materials supplied by the unpaid person are, or are part of or incidental to, the work or materials that the principal engaged the defaulting contractor to carry out or supply. Note. A typical example of an unpaid person is a tradesperson, labourer or supplier (including a corporation)." "7. Certification of debt by court (1) When judgment is given or entered up in any proceedings relating to the recovery of money owed to a person for work carried out or materials supplied, the court may, by order made on the application of the person in whose favour the judgment is given, issue a certificate (a " debt certificate" ) in respect of the debt under this section. (2) If the debt concerned consists of daily, weekly or monthly wages, and the debt exceeds 120 days' wages, the amount certified in the debt certificate is not to exceed 120 days' wages. (3) A debt certificate is not to be issued if the court is satisfied that the work was done on something moveable and it would be practicable for the applicant to exercise a lien by retaining the thing in the applicant's possession. (4) A debt certificate is to be in an approved form. (5) In this section, " judgment" includes a default judgment." "14. Attachment order (1) If proceedings are commenced by an unpaid person against a person (the " defendant" ) for the recovery of a money owed to the unpaid person by the defendant for work carried out or materials supplied by the person, the court may, on the application of the unpaid person, make an order under this section (an " attachment order" ) against any other person from whom the unpaid person may be able to recover the debt under this Act. (2) An application for an attachment order: (a) may be made on the commencement of the proceedings or at any time before judgment is given in the proceedings, and (b) may be heard in the absence of other parties, and (c) is to be verified by oath or affirmation. (3) The court may make an attachment order only if it is satisfied, on the basis of the application, that: (a) the defendant owes the unpaid person money for work carried out or materials supplied by the unpaid person, and (b) the work or materials are, or are part of or incidental to, work or materials for which the defendant is to be paid under a contract with the person against whom the order is sought. (4) On service of a copy of the attachment order on the person against whom the order is made, any money that is payable or becomes payable to the defendant under the contract concerned, not exceeding the amount specified in the order, is attached for the purposes of the proceedings and is to remain in the hands of the person against whom the order is made until judgment is given in the proceedings or until the court otherwise orders. (5) An attachment order: (a) is to be in an approved form, and (b) is to specify the amount that is attached for the purposes of the proceedings (being the amount sued for by the unpaid person or such other amount as the court considers appropriate). (6) An attachment order may be varied or set aside on the application of any person." 12 Section 14 prescribes a number of pre-conditions which must be met before an attachment order may be made. These are: (i) that proceedings for the recovery of money owed to the claimant (the party claiming to be "an unpaid person") be commenced; (ii) that the money claimed is for work carried out or materials supplied by "the unpaid person"; (iii) that the court be satisfied that the defendant to those proceedings owes "the unpaid person" money for work carried out or materials supplied; and (iv) that the work or materials are, or are part of or incidental to, work or materials for which the defendant to those proceedings is to be paid under a contract with the person against whom the order is sought. 13 It is also to be observed that, notwithstanding the effect upon the contractor, the defendant in the proceedings for an attachment order is the principal contractor, with whom the sub-contractor has no direct contractual relationship. While the principal contractor (here, Energy Australia) is the person against whom the attachment order is sought, and is therefore the defendant in the proceedings for an attachment order, "the defendant" to whom reference is made in s 14 is the defendant in proceedings for recovery of money. The issues 14 Austin claims that, for a variety of reasons, the attachment order ought not to have been made, or, alternatively, ought now be discharged. The reasons it advances raise issues of the construction of the relevant statutory provisions and may shortly be outlined as follows:- (i) a necessary precondition to the making of an order is the "commencement of proceedings" by DMG at or before the time of the application for the attachment order, and no such proceedings had, as at 30 November 2001 (the date the application was made to Bergin J) been commenced; (ii) an order may not be made unless the court is satisfied that money is owed by Austin to DMG, and the court could (or ought) not be so satisfied; (iii) an order may not be made unless the court is satisfied that such money is owed by Austin to DMG for "work carried out or materials supplied" by DMG, and the court could (or ought) not be so satisfied; (iv) the making of an attachment order is discretionary and circumstances to warrant the exercise of the discretion in favour of DMG have not been shown to exist. 15 I will consider each of these in turn. (i) "Commencement of proceedings" 16 It is clear from the opening words of s 14(1) that the power to make an attachment order cannot be invoked unless proceedings have been commenced by an unpaid person (the plaintiff, here DMG) for the recovery of money owed to the plaintiff by the defendant to those proceedings (here Austin) for work carried out or material supplied by DMG. The original summons, filed on 30 November 2001, did not make any claim for the recovery of such money. If the only proceedings commenced by DMG were the proceedings commenced by the summons, then as at 7 December 2001 the court lacked jurisdiction to make the attachment order. This explains the significance of the proposed amended summons. The question which now arises is whether "proceedings … for the recovery of money owed to [DMG] by [Austin] for work carried out or materials supplied by [DMG]" had, at that date, been commenced. 17 The term "proceedings" is undefined in the Act. It was common ground that, at the time DMG filed its summons, it had not initiated any proceedings in this or any other court for the recovery of the money it claimed was due in respect of the work it had done under the contract. 18 DMG had, however, served the two Notices of Dispute to which I have already referred. In doing so DMG followed the procedures specified by cl 47 of the sub-contract conditions. Sub-cl 1 requires, where a dispute between the Sub-contractor and the Main Contractor arises out of or in connection with the sub-contract, either party shall deliver or send to the other a notice of dispute in writing adequately identifying and providing details of the dispute. There was no issue that DMG's notices of dispute complied with this sub-clause. 19 Clause 47.2 provides for attempts to resolve the dispute, but concludes that, in the event that the dispute cannot be resolved in accordance with those provisions, either party may refer the dispute to arbitration or litigation. 20 In the second Notice of Dispute it served, dated 21 November 2001, DMG wrote: "DMG and the main contractor remain in dispute in respect of all matters referred to in the notice of dispute dated 25 July 2001 (Annexure A) and in this notice. DMG hereby refers the disputes to arbitration under cl 47 of the sub-contract." 21 Again, it was not suggested that this was not a proper compliance with the provisions of the sub-contract conditions. 22 Senior counsel for DMG argued that, in effect, the reference of the dispute to arbitration amounted to the commencement of proceedings for the purposes of s 14(1). In support of this argument he relied upon a decision of the Supreme Court of Western Australia in Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd (unreported, 10 February 1999, per Master Sanderson). 23 In relation to a contract in which the dispute resolution clause was substantially identical to the present, Master Sanderson held that once written notice was given by one party to the other of its intention to appoint an arbitrator, an arbitration had commenced. Senior counsel for Austin did not challenge the correctness (nor the applicability) of this decision. In my respectful opinion it is correct and I propose to adopt it. Nor was it argued that an arbitration was not a "proceeding" for the purposes of s 14(1). 24 The Macquarie Dictionary defines "proceedings" (in a legal context) as: "a. the instituting or carrying on of an action at law; b. a legal step or measure". 25 On a strict view it might be said that a "proceeding" involves the invocation of the curial system for the resolution of a dispute between parties. However, I am persuaded that it would be wrong to apply too strict a construction to the term as it is used in s 14. I am persuaded that the legislature did not intend to confine the procedures provided by the section to circumstances where a formal claim for recovery of money requires judicial determination. I take support for this view from the second reading speech in parliament on the Bill's introduction. The Bill in fact provided for the repeal of a previous Act (of 1897) of the same title, but the 1997 Act makes significant amendments to the provisions of the preceding Act. Introducing the Bill, the Minister referred briefly to the history of the 1897 Act which, he said, was introduced to protect the position of unpaid railway workers. Significantly, he added: "with the recent growth in the building industry of this State there has been cause to revisit the provisions of this Act to ascertain their relevance to the modern construction industry, particularly in relation to the broader issue of security for payment for participants." 26 To reinforce the point, a little later the Minister said: "while the Bill is targeted primarily at persons working in the building industry, …" 27 This, in my opinion, makes clear that the Act was intended to have application to, and was focussed upon, the construction industry. It is notorious that many, if not most, construction industry disputes are to be determined by arbitration. I consider it unlikely that the Parliament intended that s 14 would have application only where litigation in the court system, as distinct from arbitration as envisaged in many construction contracts, had been commenced. 28 I am, accordingly, satisfied that, prior to the filing of DMG's summons, proceedings within the contemplation of s 14 had been commenced. 29 That conclusion makes it unnecessary to determine DMG's alternative arguments on this issue, which involved, inter alia, the effect of the amended summons and DMG's proposal, as a last resort, to make a fresh application for an attachment order based upon the claim for recovery of money contained in the amended summons. ii) whether the court is satisfied that money is owed by Austin to DMG 30 By s 14(3) the court is not to make an attachment order unless it is satisfied "on the basis of the application" that the defendant to the proceedings for recovery of money (Austin) owes the claimant for an attachment order (DMG) money for work carried out or materials supplied, and that the work or materials are, or are part of or incidental to, work or materials for which the defendant is to be paid under a contract with the person against whom the order is sought (that is, in the present case, Energy Australia). 31 Austin's argument in this respect was that, on the evidence adduced, the most of which I could be satisfied is that DMG claims to be owed money by Austin, but that the evidence is insufficient to permit a conclusion that DMG is in fact owed such money. 32 The words "on the basis of the application" in sub-s (3) are significant. They convey that a conclusion that money is owed does not amount to a final determination of the dispute between the parties, but is, rather, a preliminary assessment based on the limited evidence that would ordinarily be adduced on an application for an attachment order. 33 Even so, substantial difficulties lie in the path of DMG (upon whom the onus of proof lies) in establishing that money is in fact owing by Austin to it. It is clear that there is a genuine dispute between the parties as to DMG's claim, and Austin's liabilities. This can, I think, be shortly outlined. 34 DMG's claim is, in substance, for payment for work carried out and materials supplied under the sub-contract. Austin's response to the claim is a denial of liability. It bases its denial on certain additional provisions of the sub-contract conditions. 35 Clause 35.6 provides that where a sub-contractor (in the position of DMG) fails to reach substantial completion by the due date, it will be liable to pay liquidated damages at a specified rate. Austin asserts that delays were caused by DMG in the course of the work, for which Austin is entitled to reimbursement under cl 35.6, and that it was entitled to make deductions from the amount claimed by DMG, or to set off its own claims against DMG's claims. 36 Mr McQueen, Austin's project manager, deposed that he had assessed DMG's claims of payment and had responded by itemising (as required by cl 42) the basis for Austin's counter claims. 37 Each party sought to have inferences adverse to the other drawn from certain facts and circumstances which emerged. For example, Austin urged (though with little conviction) that an inference adverse to DMG could be drawn from the fact that virtually all of the disputed amounts claimed by DMG were claimed in the closing stages of DMG's work, suggesting that the claims represented an attempt to squeeze every last dollar from Austin. I decline to draw any such inference. The circumstance that the matters in dispute related to accounts rendered in the final stages of the sub-contract is equally consistent with DMG drawing together the threads of its claim and presenting a final account. Moreover, the resistance of Austin to making the payments could equally give rise to an inference that, DMG having completed its part of the work, Austin had nothing to lose by challenging its final claims. I draw no inferences at all from the timing of the disputed claims. 38 DMG, in turn, urged that a different inference adverse to Austin be drawn. This was to do with the nature and quantification of Austin's claim against DMG. It comes about in this way. The stated value of the sub-contract, as initially agreed, was $366 million. Agreed and approved variations amounted to $483,000. Of these Austin had paid DMG $183,000, leaving an amount of $300,000 claimed and approved but unpaid. Coincidentally (or otherwise, according to DMG's argument) the amount claimed by way of set-off by Austin amounted almost precisely to $300,000, leaving (if Austin were to succeed in its claim for a set-off for delays) an even balance. DMG suggested that the claim ought to be seen as a sham designed to protect it against its otherwise admitted liability to DMG. 39 I do not think the evidence entitles me to draw this inference. Austin's claim for delays was comprehensively detailed in materials contained in six lever-arch folders (which, mercifully, the parties refrained from putting into evidence). 40 The upshot of all this is that the evidence establishes no more than that DMG has made a claim for payment on Austin; that Austin denies liability to pay the amount claimed; and that a genuine dispute exists (or genuine disputes exist) between the parties. Even bearing in mind the limited nature of the exercise contemplated by s 14(3)(a), I am unable to be satisfied that Austin does in fact owe money to DMG. 41 That conclusion makes it unnecessary to consider some further matters raised by Austin, which may, however, be briefly noted. Among these was that a substantial part of the amount claimed by DMG could be taken to be claimed in respect of wages paid to employees, but that s 7 of the Act places a (relatively low) cap on amounts that can be recovered for wages. I do not find it necessary to determine this argument, but merely note that there was no indication in the materials that identified what proportion of the amount claimed by DMG was referable to wages and certainly nothing to identify amounts that would encompass wages for a specified number of days. iii) were the amounts claimed for "work carried out and materials supplied"? 42 Having regard to the conclusions I have reached in relation to the question of whether money is owed by Austin to DMG, it is unnecessary to take too much time considering this question. The argument put by Austin was that the vast bulk of the amounts claimed by DMG was for delay and prolongation, said to have been occasioned by directions given by Austin in circumstances which would entitle DMG to compensation pursuant to cl 33 of the sub-contract. Austin argued that claims for delay and prolongation could not reasonably fall within the expression "work carried out or materials supplied". The response made on behalf of DMG to this argument was short and to the point. It was that, to the extent that DMG's disputed claim can be identified as a claim for additional remuneration by reason of delays caused by Austin, it is nevertheless a claim for the extra cost of doing work and providing material by reason of the passing of time. 43 A claim for additional payment related specifically to delays does not fit easily into the phrase "for work carried out or materials supplied". On the other hand, there is no reason to think that the legislature intended to treat a claim for payment under a clause such as cl 33 differently from a claim which may be more precisely related to the contract sum. When one bears in mind the purpose of the legislation it is difficult to see why the two should be treated differently. There is a level of artificiality in the position adopted by Austin. The purpose of the legislation was to protect an unpaid person and to secure the rights of such a person by restraining the payment of other funds to the contractor. 44 In my opinion s 14(3) ought to be read as including money which may be payable to "the unpaid person" for delays and prolongation associated with the performance of the work contemplated by the sub-contract. 45 On behalf of Austin it was also argued that, by reason of s 14(3)(b), the amounts payable by Energy Australia to Austin were not sums which may be attached pursuant to s 14(1). This, it was put, was because s 14(3)(b) requires that the work or materials for which DMG claims to be paid were not work or materials for which Austin was to be paid under a contract with Energy Australia. I reject this argument, and for similar reasons as I rejected the earlier argument. This legislation was intended to encompass moneys payable under construction contracts and the legislature did not seek or intend to differentiate between different aspects of the contracts. Certainly, the works or materials for which DMG claims are incidental to work or materials for which Austin is to be paid under the contract with Energy Australia. 46 I am therefore satisfied that there is no reason, as a result of the construction of sub-s(3), by which DMG would be disentitled to an attachment order to which it was otherwise entitled. iv) discretion 47 The final argument to be dealt with that was advanced on behalf of Austin concerned the exercise of discretion. It is not in doubt that the making of an order is discretionary. Factors relevant to the exercise of discretion include the security of the position of the "unpaid person" in the event that an order is not made. To this end evidence was adduced to demonstrate that the financial position of Austin is such that, if the dispute between the parties is resolved in favour of DMG, DMG is likely to recover the moneys owing. This is a factor of some weight. 48 Evidence was also produced to the effect that Austin anticipated a progress payment from Energy Australia of something over $400,000 which it proposed to use to pay other sub-contractors engaged in the project. Should the sum presently restrained by the attachment order not be available to it, Austin would find it necessary to make other credit arrangements in order to meet its obligations. In the absence of evidence of a sound financial position this circumstance would be given reduced weight, but the evidence, which was not challenged, is that Austin's financial position is relatively safe. 49 Nevertheless, in my opinion, if the circumstances were such that DMG was able to establish to the requisite degree that the money was owing I think there would be no discretionary reason why the attachment order should not be made. However, it is unnecessary to reach a concluded view on this question. 50 After judgment had been reserved, DMG's legal representatives sought to have the matter re-listed for the purpose of making an application to re-open. Austin did not oppose such leave being granted. DMG produced evidence relevant to the issue of Austin's solvency. The effect of this evidence was that, notwithstanding the evidence of Austin's apparently sound financial position, recent events cast some doubt on the accuracy or reliability of that evidence. In short, DMG produced evidence that a statutory demand pursuant to s 459E of the Corporations Law had been served upon Austin on or about 13 December 2001. Austin had, within the time provided by the Corporations Law, moved to set aside the statutory demand, and this application is to come before the court on 26 February 2002. 51 DMG's point in tendering this evidence was to undermine the previously strong and uncontroversial evidence establishing Austin's apparently sound financial position. 52 The evidence is material only in the event that DMG is otherwise successful in opposing the discharge of the attachment order, and that discretionary considerations become determinative. Since that is not the case it is unnecessary further to consider the impact of this evidence. 53 Because I am not able to be satisfied that Austin does in fact owe the money to DMG, the attachment order is discharged. I will give the parties an opportunity to be heard on the question of costs. ********** Last Modified: 02/22/2002 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.