Witron Australia Pty Ltd v Turnkey Innovative Engineering Pty Ltd [2023] NSWCA 305
In 2023 the New South Wales Court of Appeal held that an email answering a payment claim was not a payment schedule under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act), because it gave no reason of the required kind for withholding payment of the variations, a distinct and substantial component of the claim. The court said that, in general, a response that gives no reason directed to such a component does not sufficiently indicate why the scheduled amount is less than the amount claimed.
What the court decided
Witron Australia Pty Ltd engaged Turnkey Innovative Engineering Pty Ltd for electrical installation work at a distribution centre being built at Kemps Creek, for a flat fixed price of $11.4 million excluding GST [6]. The works involved installing a series of "group controls" (GCs) [6]. The works were delayed, and in April 2023 Turnkey proposed revised pricing that would have taken the price to about $14.1 million [7]. The parties appeared by 17 April 2023 to have agreed to reprice the contract at that amount, but Witron disputed that a binding agreement had been reached [7]. On 1 May 2023 Turnkey sent progress claim 9 for $804,154.63 excluding GST, identified in small print at the foot of the page as made under the Act, and Witron accepted that it was a payment claim [9]. The claim had two separately identified components: $499,924.63 for "base contract works", calculated on the repriced contract sum, and $304,230 for "contract variation works" [10].
Witron replied by email on 3 May 2023 [11]. It said that Witron would review the variations and the new pricing "after we see real progress on the handing over of GCs" [11]. It also said Turnkey could claim progress for April on the original contract price less five deducted GCs, and asked Turnkey to adjust and resubmit its claim [11].
The primary judge, Stevenson J, held that the email was not a payment schedule [3]. He found that it conveyed that Witron would pay nothing, and that it gave a reason for withholding payment of the base contract works component, namely that Witron had not yet agreed to the new pricing [13]. He found that it gave no reason in respect of the variations, and that a document taking issue with part of a claim without addressing the balance was not sufficient [13]. On that point he relied on Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA) Pty Ltd, a decision of the Supreme Court of Queensland [13], [28].
Kirk JA gave the reasons of the Court of Appeal, and Leeming JA and Payne JA agreed [1], [2], [3]. On appeal Witron mainly challenged the finding about the variations, and in reply it also challenged the principle drawn from Minimax [14]. Turnkey filed a notice of contention challenging the findings that the email proposed to pay nothing and gave a reason about the base contract works [15], [38], [41].
Kirk JA identified three requirements for a payment schedule: it must identify the payment claim and indicate both the amount (if any) the respondent proposes to pay and the reason or reasons why that amount is less than the amount claimed [21]. The requirement of reasons applies even where nothing is to be paid [20]. Drawing on earlier authority, Kirk JA said the requirements are "undemanding", but "vague, generalised objections to payment" will not do [25]. If no payment schedule is provided in time, the respondent becomes liable for the claimed amount, which the claimant may recover in court without adjudication [22]. If the dispute goes to adjudication, section 20(2B) bars the respondent from raising reasons for withholding payment that its payment schedule did not include [23]. Kirk JA held that sufficiency of reasons is to be assessed purposively, taking account of the place of the payment schedule in that scheme [27].
In reply, Witron argued that Minimax was in tension with McDougall J's decision in Barclay Mowlem v Tesrol Walsh Bay and should not be followed [28]. Its example was a claim for painting two houses, answered only by a complaint that one house had been painted the wrong colour [28]. Kirk JA said the argument misapprehended Barclay Mowlem [33]. McDougall J was right that section 14(3) is not concerned with whether the reasons make out a good answer to the claim, which is a matter for the adjudicator, but a court may still consider whether reasons have been given sufficiently [33]. McDougall J had not said that failing to address a distinct component would not matter [33].
Whether a response is a payment schedule is a question of characterisation, and a failure to address some component may not be significant enough in context to be decisive, which answered Witron's point about a trivial component [34]. In general, however, a failure to give any reason directed to "a distinct and substantial component" of the claim is a failure to indicate sufficiently why the scheduled amount is less [35]. Such an omission leaves the parameters of the dispute unidentified, which impedes the claimant in deciding how to proceed and the adjudicator in identifying the reasons that may be raised [35]. Witron's argument that addressing one component was enough was rejected [36].
On the notice of contention, Kirk JA held that the email, though "not pellucid", communicated that Witron did not propose to pay any amount [39]. It was formalistic to insist on a particular figure, and the primary judge was right that the email satisfied section 14(2)(b) [40]. Read in its most reasonable sense, the email implied that Witron would not pay a claim based on new prices it had not agreed, and so gave a reason in respect of the base contract works, which meant that Turnkey's contention to the contrary failed [42].
Witron's own case was that the email gave three reasons that answered the whole claim [43]. In Kirk JA's view the first two, about the starting contract price and the five omitted GCs, were not stated or implied in the email in the terms Witron claimed, although the email did show that the new prices were not accepted [44]. At most, reasons of that kind answered the base contract works component, not the $304,230 claimed for variations, which was a significant part of the claim [45]. Any implied complaint about delay did not by itself explain why less was payable, and nothing in the email suggested that Witron was invoking a contractual right to liquidated damages [46].
As to the variations, Witron had said only that it would review them once progress was made, which meant it would not yet even consider them [47]. Kirk JA said that saying "we are not going to consider paying this until you do X" refuses to grapple with the claim [49]. It does not say the claim is not payable, and does not "apprise the parties of the real issues in dispute" [49]. It would be different if the respondent said that X was required under the contract before such a claim could be made [49]. The primary judge had correctly construed and characterised the email, which was not a payment schedule [50]. The appeal was dismissed, and Witron was ordered to pay Turnkey's costs [51].
Why it matters
Under the Act as it stood in 2023, a respondent answering a payment claim made up of distinct and substantial components should ordinarily give a reason directed to each of them. On this decision, a response that defers consideration of part of a claim until the claimant does something, without giving a reason why the claim is not payable until then (such as a contractual requirement that the step come first), does not give a reason of the kind the Act requires. The court accepted that questions of fact and degree may arise, so a failure to address a component that is not significant in context may not be decisive. 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.