Clarence Street Pty Ltd v Isis Projects Pty Ltd [2005] NSWCA 391

What the court decided

Clarence Street and Isis had entered into a construction contract dated 17 May 2002 [4]. Isis served two documents called progress claims (numbers 12 and 13), and neither was answered with a payment schedule [4]. Progress claim 12 claimed $1,702,579.34 [9]. It comprised a cover sheet, supporting documents and a six-page tax invoice that described the work and a large number of variations in single line items, giving for each the previous claims, value to date and percentage complete [8]. Between 26 June and 4 July 2003 payments totalling $984,225.85 were made, leaving $718,353.49 unpaid [10]. Progress claim 13, which purported to be a final claim, sought $749,091.72, made up of the amount outstanding on the earlier claim and new work valued at $30,738.23 [11]. Clarence Street paid nothing on that claim and served no payment schedule for it [11]. Each claim described itself as made under the Act [12]. McDougall J, in the Supreme Court, gave judgment for Isis for $910,847.92, including interest, as a statutory debt [7], [8].

Clarence Street raised two issues on appeal [20]. The first was that neither document was a payment claim under the Act, because neither identified, as section 13(2)(a) required, the construction work that its claimed progress payment related to [20], [23]. The second was that the due date for the progress payments had not yet arrived when the proceedings were commenced [20].

On the first issue, McDougall J had found that claims in the same format had been used without apparent objection on 11 earlier occasions, and that the parties' previous conduct supported the conclusion that the work was sufficiently identified [33]. He had not regarded the evidence of Mr Tucker, a quantity surveyor retained by Clarence Street, as establishing the contrary, because the question was objective and Mr Tucker had not explained what distinguished these claims from the earlier ones [25], [33]. Mason P agreed with McDougall J's conclusion on the first issue [34].

Mason P agreed with the principles Palmer J had stated about payment schedules in Multiplex Constructions Pty Ltd v Luikens, which the parties accepted were generally applicable [29], [30], [31]. He drew attention to two matters in applying them to a payment claim [31]. The first was that a payment claim is "no more than a claim" and, unlike a payment schedule, does not have the function of identifying the scope of a dispute; it is for the respondent to state the extent of, and the reasons for, any withholding [31]. The second was that section 13(2)(a) requires the claimant to "identify" the work, while section 14(3) speaks of what a respondent must "indicate", although he found it unnecessary to consider that difference [32].

He described Clarence Street's submission, that a payment claim exists so that the recipient can provide a payment schedule, as "self-evident, but not very informative" and circular when used to decide the issue [35]. Its argument that the claims had to give enough detail for it to assess the amount payable tended to blur the distinction between the informative and persuasive roles of a payment claim; section 13(2) says what must be brought to the recipient's attention, but nothing about persuading it [36]. Mason P said that "There is a distinction between understanding a claim and accepting it", and that section 13(2)(a) is concerned only with identifying the construction work to which the claim relates [38]. The question turns on the objective circumstances rather than one party's subjective perceptions [39]. Payment claims are read in context, including industry conventions and the parties' earlier dealings, and the work may be identified through earlier documents, for example variation claims [40]. He held that the two claims "amply satisfied the statutory requirement" [42].

On the second issue, judgment for the statutory debt could not be given unless the court was satisfied of the circumstances in section 15(1), one of which was a failure to pay by the due date for the progress payment [43]. Under section 11(1), a progress payment became due on the date fixed by the contract or, if the contract made no express provision, 10 business days after the payment claim was made [44]. Clarence Street argued that clause 42.1 of the general conditions fixed the date for payment, and that it had not arrived because the claims were not supported by the evidence of the amount due, or the information the contract's Superintendent might reasonably require, that the clause called for [53], [54]. It conceded that the evidence point failed if the first ground failed [54]. McDougall J had been unable to resolve the experts' conflicting evidence on the evidence point [55]. He found no evidence that the Superintendent required any information and did not think the information point arose on the facts; he held that, even if it did, section 15(4)(b)(ii) barred the defence [55], [56].

Mason P rejected the argument for three reasons [60]. First, agreeing with the trial judge, it trespassed into the area forbidden by section 15(4)(b)(ii) [61]. That provision prevents a respondent in proceedings for the statutory debt from raising "any defence in relation to matters arising under the construction contract" [6]. Second, nothing in the facts suggested that any contractual precondition was unmet: each claim had the supporting evidence of the amount due, and the Superintendent had required no information before or after the claims were sent [62]. Third, the only payment date clause 42.1 expressed was 28 days from the end of the month after the Superintendent's receipt of the claim, even if, which he doubted, it made payment conditional on the evidence and information [63]. The contractual requirement to provide them did not make them part of the payment claims, and in the unlikely event of a gap in the contract, section 11(1)(b) supplied dates that had passed before the proceedings began [63].

Mason P found it unnecessary to resolve whether "terms of the contract" in the Act refers only to express terms, saying that even a wider view would need clear textual support [48]. The appeal was dismissed with costs [64], and Giles JA and Santow JA each agreed with Mason P [65], [66].

Why it matters

Under the Act as it then stood, the Court of Appeal held that whether a payment claim identifies the construction work under section 13(2)(a) is judged objectively, reading the claim in context, including industry conventions and the parties' earlier dealings. Mason P reasoned that it is not the function of a payment claim to define the scope of a dispute, and that section 13(2) prescribes nothing about persuading the recipient. The first of the Court's three reasons on the timing issue was that section 15(4)(b)(ii) barred a respondent who had served no payment schedule from relying on the contract's requirements for supporting evidence and information to say that the due date had not arrived.

Readers should check the current Act and later authority before relying on the decision.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.