Case note on Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWCA 211

Executive Summary

The Supreme Court of New South Wales has overturned part of the decision in Joye Group Pty Limited v Cemco Projects Pty Limited [2021] NSWDC 151. The decision in Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWCA 211 is a timely reminder that whilst payment schedules do not need to be extensive documents, they do need to comply with the requirements of s14 of the Building and Construction Industry (Security of Payment) Act 1999 (NSW) (Act) (or the equivalent legislation in the state or territory where the work is performed.

Particularly, the payment schedule needs to indicate any reasons for non-payment of a payment claim, in the document itself. Simply relying on earlier correspondence about outstanding or defective work might not be enough to justify non-payment.

Any reference in a payment schedule to earlier correspondence or reasons as to why payment might be withheld should be made clear within the payment schedule itself, as the court will likely be reluctant to read in any reasons for withholding payment.

When issuing a payment schedule, if a respondent intends to rely upon a document or piece of correspondence that they previously provided to the claimant, they should ensure the reference to that document is specific, or include a further copy, so as to avoid their payment schedule potentially being invalid.

Background

The parties entered into two written subcontracts, being for the supply and installation of tiling, and the supply and installation of timber, for a project in Alexandria. Joye Group Pty Ltd (Joye Group) issued four invoices endorsed as payment claims in March and April 2020 for tile and timber flooring work pursuant to the subcontracts.

Cemco Projects Pty Ltd (Cemco) failed to pay those tax invoices.

The tax invoices issued, and the Cemo’s responses, were as follows:

  • Invoice JS19774 was issued on 9 April 2020 as a payment claim. No payment schedule was served;
  • Invoice JSA19284 was issued on 9 April 2020 as a payment claim. A payment schedule was served scheduling an amount less than the amount claimed; and
  • Invoices JSA19293 & JS19794 were issued on 27 April 2020 and 28 April 2020 respectively as payment claims. On 8 May 2020, Cemco emailed Joye Group saying: “Please be advised that no payment for the above Invoices [will be made], until all works have been completed.”

At First Instance

The matter was heard in the District Court before Strathdee DCJ. By way of amended statement of claim filed 22 June 2020, Joye Group sought payment of the four payment claims from Cemco.

It was conceded by Cemco that invoices JS19774 and SJA19284 were valid payment claims and should have been paid. Judgment was subsequently entered against Cemco with respect to those invoices (Order 1). The issue before her Honour was whether the email sent by Cemco to Joye Group on 8 May 2020 was a payment schedule for the purposes of the Act.

Whilst the parties held different views as to the clarity of the 8 May 2020 email and whether it sufficiently identified the invoices for which Cemco purported to make no payment, Her Honour found at [21] that “It is hard to imagine how much clearer the defendant could make their position, that there will be no payment, thus the plaintiff must fail on this argument.”

Further, and noting the Act requires that a payment schedule must discuss the reasons for withholding payment, Her Honour’s view was that the use of the word indicate in s14 supports the proposition that full particulars are not required [at 24].

Her Honour’s finding was that prior correspondence between the parties gave sufficient context as to the reasons for withholding payment, and that the 8 May 2020 email complied with the requirements for a valid payment schedule. Accordingly, judgment was not entered with regard to invoices JSA19293 and JS19794 (Order 2).

The decision on appeal

Joye Group appealed the decision as it related to Order 2, with the matter being heard before Basten JA, Macfarlan JA and Emmett AJA. Basten JA gave the leading judgment. His Honour noted that the adequacy of the payment schedule turned on whether or not it indicated why the amount agreed to be paid was less than the amount claimed, as required by s14(3) of the Act [at 11].

The decision in Multiplex Constructions Pty Ltd v Luikens and Anor [2003] NSWSC 114 was cited as authoritative with regard to the contents of a payment schedule, particularly the explanation given by Palmer J as follows:

“[67] … The evident purpose of s 13(1) and (2), s 14(1), (2) and (3), and s 20(2B) is to require the parties to define clearly, expressly and as early as possible what are the issues in dispute between them; the issues so defined are the only issues which the parties are entitled to agitate in their dispute and they are the only issues which the adjudicator is entitled to determine under s 22. It would be entirely inimical to the quick and efficient adjudication of disputes which the scheme of the Act envisages if a respondent were able to reject a payment claim, serve a payment schedule which said nothing except that the claim was rejected, and then ‘ambush’ the claimant by disclosing for the first time in its adjudication response that the reasons for the rejection were founded upon a certain construction of the contractual terms or upon a variety of calculations, valuations and assessments said to be made in accordance with the contractual terms but which the claimant has had no prior opportunity of checking or disputing. In my opinion, the express words of s 14(3) and s 20(2B) are designed to prevent this from happening.

[76]   A payment claim and a payment schedule are, in many cases, given and received by parties who are experienced in the building industry and are familiar with the particular building contract, the history of construction of the project and the broad issues which have produced the dispute as to the claimant’s payment claim. a payment claim and a payment schedule must be produced quickly; much that is contained therein in an abbreviated form which would be meaningless to the uninformed reader will be understood readily by the parties themselves. A payment claim and a payment schedule should not, therefore, be required to be as precise and as particularised as a pleading in the Supreme Court. Nevertheless, precision and particularity must be required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute.”

Further, His Honour considered the judgment of Leeming JA in Style Timber Floor Pty Ltd v Krivosudsky [2019] NSWCA 171, which endorsed the reasoning in Multiplex Constructions Pty Ltd v Luikens & Anor:

“[45]   Fourthly, and perhaps most importantly for present purposes, the payment schedule serves two important functions under the Act. The first is to inform the claimant as to the metes and bounds of its dispute with the respondent, so that it can make an informed choice as to whether to engage the expedited pro tem adjudication procedures under Division 2. The second is to articulate the respondent’s case which will then be determined by the adjudicator. It will also enable adjudicators to assess whether to accept appointment as an adjudicator to a dispute. At the time an adjudication application is made, all that the claimant and the prospective adjudicator will know of the nature of the respondent’s side of the case is what is contained in its payment schedule.”

“[47] When dealing with the requirements of a payment claim, Palmer J’s analysis was endorsed by this Court in Clarence Street … at [31]. While it is clear that an abbreviated description, falling short of a pleading, will suffice, the passages emphasised indicate that the payment schedule must sufficiently describe the dispute so as to enable the claimant to determine whether to proceed in the knowledge of the nature of the case it will have to meet.

[48] It is established that even where a respondent proposes to pay no part of a payment claim, it is still required to indicate reasons in accordance with s 14(3). [7] That, with respect, must be so having regard to, inter alia, the limiting effect of s 20(2B). It was not suggested in this Court that s 14(3) did not apply to Style Timber Floor on the basis that it refused to pay the entirety of the claim.”

His Honour found that a statement to the effect of “we do not intend to pay your claim” does not provide a reason for non-payment, much the same as a statement along the lines of “we will not pay your claim until…” does not confirm that some or all of the claim will not be paid, as it leaves open the possibility that there is no dispute that the work subject to the claim has been carried out [at 19].

As to the primary judge’s reasoning, His Honour found that the inferences drawn from background of communications were not properly open for the purpose upon which it was relied [at 21]. There was no attempt by Cemco, either expressly or by necessary inference, to make refence to any of the supporting documents or prior correspondence in the 8 May 2020 email.

His Honour gave a useful insight into how the court views the content of a payment schedule at [24], stating that:

In principle, it may be accepted that not only communications but other contextual evidence may be necessary and relevant to allow an adjudicator (or the court) to understand the scope of terms used in a payment schedule (or in a payment claim). That is not this case: there was no term used in the 8 May 2020 email which required interpretation. Rather, what was sought to be achieved by reference to extraneous documents was to create a sufficient degree of particularly in the absence of incorporation. That course is not available. A payment schedule is not to be reconstructed by reference to external materials, so as to give it a degree of particularity which it simply did not enjoy.

Ultimately, His Honour formed the view that the 8 May 2020 email did not satisfy the purpose behind the statutory scheme that the Act was designed to implement, and did not conform with the requirements of a valid payment schedule. Judgment was entered for Joye Group with respect to invoices JSA19293 & JS19794.

Key takeaways

It is critical that a payment schedule makes abundantly clear any reasons for non-payment of a payment claim. Any assertions relied upon as to reasons for withholding payment should be express and any issues in dispute (such as outstanding work) clarified at the time of issuing the payment schedule.