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

What the court decided

On 30 July 2019 Joye Group Pty Ltd entered into two subcontracts with Cemco Projects Pty Ltd for work at a development in Alexandria, one for supplying and installing timber flooring and the other for installing tiling [1]. Payment claim 7 under the timber flooring contract was made on 27 April 2020 for $112,043.11, about $59,000 of it for original contract work and the rest for four variation items [2]. Payment claim 7 under the tiling contract was served the next day for $54,517.65 and listed 10 items [3]. On 8 May 2020 an employee of Cemco emailed Joye, attaching the invoices, to say there would be "no payment for above Invoices, until all works been completed" [5].

Joye sued in the District Court of New South Wales on 22 June 2020 [6]. Liability on earlier claims was conceded, and the only question on the two claims still in issue was whether the email of 8 May 2020 was a payment schedule under the Act [6]. Cemco's defence alleged that it had suffered significant losses that it proposed to set off, but it accepted that those losses could be recovered only in separate proceedings [7].

The primary judge held that the email met the requirements for reasons, reading it as saying that payment was not then owed because the work was incomplete, and found that Joye would have understood it [20]. The judge called Joye's suggestion that it could not understand the issues "disingenuous" [20]. The judge then considered earlier communications said to show that the issues had been identified with clarity [21]. The District Court dismissed Joye's claims on the two payment claims [8].

On appeal, Basten JA gave the leading reasons, with which Macfarlan JA agreed while adding observations of his own, and Emmett AJA, who set out the facts and the legislation in reasons of his own, also agreed with Basten JA's reasons and orders [31], [33], [45].

No one argued in the Court of Appeal that the email failed to identify the payment claims or to indicate the amount Cemco proposed to pay, which was nothing, so section 14(2) was met [10]. The case turned on whether the email indicated why the amount to be paid was less than the amount claimed, as section 14(3) required [11].

Basten JA explained that the reasons mattered because, under section 20(2B), a respondent cannot put in its adjudication response reasons for withholding payment that its payment schedule did not include [12]. He relied on Palmer J's reasons in Multiplex Constructions Pty Ltd v Luikens and Leeming JA's reasons in Style Timber Floor Pty Ltd v Krivosudsky [13], [14]. On Leeming JA's account, a payment schedule informs the claimant of the "metes and bounds" of the dispute and sets out the respondent's case for the adjudicator [14]. Cemco did not suggest that its refusal to pay anything took it outside section 14(3) [16].

Basten JA held that a statement that a claim will not be paid until some event happens does not even say that any part of the claim will not be paid; it says only when payment may be made [18]. Even if a claim had only one item, the email did not deal with the possibility that some work had been done before the claim, had not been paid for and was payable under the contract and the Act [19]. Each claim had several items, and the email did not say whether Cemco disputed that any work was done or accepted that some was done but would still not pay [19]. It therefore did not serve the purposes of the statutory scheme [19]. He also said it was inappropriate to call Joye's conduct "disingenuous", as there was substance in its contentions [21].

Cemco's counsel identified two ways in which surrounding communications might be used [22]. The first was incorporation by reference, which, as Bell P said in Style Timber Floor, requires the document to be identified with sufficient particularity, but the email made no attempt to incorporate any other document [23]. The second was to explain terms used in a payment schedule, which context may in principle do, but nothing in the email needed interpretation [24]. What Cemco sought was to give the email a particularity it lacked, and Basten JA held that a payment schedule is "not to be reconstructed by reference to external materials" [24].

The attempt also failed on the facts [25]. The only timber flooring email relied on, of 30 March 2020, came four weeks before the claim and showed that work was continuing [25]. The tiling emails showed that work remained, but not which, if any, of the claimed items were undone at the reference date of 25 April 2020 [26], [27]. Basten JA did not decide whether the email of 6 May 2020 would have been enough had it formed part of a payment schedule, since it did not purport to [27].

Macfarlan JA added that the email either gave no reason or implied that Joye had no entitlement to progress payments until completion, which would contradict the right to progress payments that section 8 confers whatever the contract provides [32]. Cemco argued that the sufficiency of a reason was a matter for any adjudicator, but in his view that was not so where the reason "flies in the face of the statute" [32]. Emmett AJA agreed with Basten JA that neither the email of 8 May 2020 nor the other emails showed precisely what work Cemco said was incomplete [43], [45].

The appeal was allowed, and the District Court's order (2) of 30 April 2021 was set aside, together with its order (2) entered on 17 May 2021 [30]. The first had dismissed Joye's proceedings on the two claims, and the second recorded the parties' agreement that there be no order as to costs [8], [29]. Joye was given judgment for $175,190.55, the agreed sum of the two invoices and interest [28], [30]. Cemco was ordered to pay Joye's costs of the appeal and of the District Court proceedings [29], [30].

Why it matters

Under the Act as it then stood, and on the reasoning in this case, a response saying only that claims with several items would not be paid until work was completed did not indicate reasons for withholding payment. Correspondence outside a payment schedule may in principle explain terms the schedule uses, but it cannot be used to give the schedule a particularity it lacks where nothing has been incorporated. Macfarlan JA's further view, that a reason contrary to the statutory right to progress payments is no reason at all, was his own addition to the reasons of Basten JA, with which he agreed.

The decision applied the Act and the authorities as they then stood. Readers should check the current Act and later authority before relying on it.

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.