Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (in liq) [2005] NSWCA 409

What the court decided

During 2004 Total Process Services Pty Ltd supplied and installed pipes as a subcontractor to Nepean Engineering Pty Ltd on the Eastern Creek UR 3R Facility, it being common ground that the work was done under a construction contract within the meaning of the Act [8]. It appears that Nepean paid $470,973.06 on Total's first four progress claims [9]. Progress claim 5, dated 30 September 2004, claimed $221,403.18 [10]. Progress claim 6, dated 17 November 2004, claimed $38,645.75 for variations 4 to 6 [12]. On 9 March 2005 Total served a document purporting to be a payment claim under the Act for $260,048.93, attaching copies of those two claims [13]. No payment schedule was served within 10 business days, and nothing was paid [14].

Total sued Nepean in the District Court for the claimed amount, relying on the cause of action in section 15(2)(a)(i) [1], [45]. Nepean's defence in substance raised one matter: that the document was not a payment claim because it did not identify the construction work as section 13(2)(a) required [15]. Garling DCJ granted Total's motion for summary judgment [2]. He reasoned that the parties had dealt with earlier claims in a similar form, on which about $470,000 had been paid, and that every item did not need to be itemised to the degree he thought had been required [20]. Nepean applied for leave to appeal, and the application was argued on the basis that, if leave were granted, the appeal would be decided without further argument [4]. Hodgson JA observed that the order appeared to be final rather than interlocutory, and considered it appropriate to proceed to the merits [5], [7].

Nepean argued that there was a triable issue unsuited to summary disposal, including whether progress claims 5 and 6 were as detailed as earlier claims and whether the material was sufficient for Nepean to understand what work was claimed [22].

Hodgson JA accepted that there was "force" in the submission that an issue had been raised that might lead to a finding that the work was not identified, but said that this would not necessarily justify allowing the appeal [28]. In his opinion, a document purporting to be a payment claim does not cease to be one merely because, after full investigation, it is seen not to identify all the work successfully [34]. A respondent unable to identify some of the work could say in its payment schedule that it proposed to pay nothing for that work because it could not identify it [35]. He concluded that a payment claim cannot be treated as a nullity for non-compliance with section 13(2)(a) unless the failure is "patent on its face", which is not so if the claim "purports in a reasonable way to identify" the particular work [36].

Hodgson JA considered that view consistent in result with Basten JA's reasons in Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd and Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd, which, as he read them, made successful identification depend on the adjudicator's satisfaction [37]. If a claim of that kind could support a valid determination, it would be "wholly inconsistent with the scheme of the Act" if it could not also support a cause of action under section 15 where no payment schedule was served [38]. Otherwise a respondent could avoid the Act by not serving a schedule and then disputing identification in the court proceedings [38].

Applying that view, Hodgson JA found that the payment claim, read with progress claims 5 and 6, met that standard, and Nepean had not submitted otherwise [39]. Even if whether the work was in fact identified might arguably need a final hearing, that did not raise an arguable defence [39]. Where a respondent cannot identify all the work in such a claim, its remedy is to serve a payment schedule, not to ignore the claim [39].

Santow JA agreed in the result but wished to say more about what a valid payment claim must at least contain [46]. He agreed that the identification requirement should not be so demanding as to preclude summary judgment in an appropriate case, and that this was such a case [47]. He respectfully disagreed, however, with Hodgson JA's view that only a failure apparent on the face of the claim could make it a nullity [47].

Santow JA's test, adopting Hodgson JA's words in Climatech, was whether the work was "identified sufficiently to enable the respondent to understand the basis of the claim" [48]. He described it as "a relatively undemanding test", but an objective one that takes account of the background knowledge the parties derived from their past dealings and exchanged documents [48]. In his view, identification called for no more physical detail than a particular category of construction work, and the claim need not include material aimed only at persuading the respondent to pay [65], [68].

On the facts, it was undisputed that the work claimed was welding and installing pipes, and, as to the welds, the only complaint Nepean articulated was that the claim did not specify where they were [55]. It was conceded in argument that the new welds could be identified, if inconveniently, by eliminating those claimed in earlier progress claims [55]. Santow JA considered that neither the physical location of the welds nor the precise location of the variations was necessary for the claim to identify the work [59]. If Nepean could not tell whether the variations were truly variations, it could have declined to pay on that basis in a payment schedule, after which the issue could have gone to adjudication under the Act [60].

Santow JA also said that compliance with section 13(2) could not be a matter solely for adjudication, because otherwise there would be no means of resolving it where no payment schedule was served [73]. In his view, summary judgment under section 15 can in an appropriate case be resisted on that basis, and here argument resolved the matter in favour of compliance [73].

Ipp JA, for the reasons given by Hodgson JA, construed the Act so that, where a payment claim, made in good faith, purports to comply with section 13(2), the question whether it actually complies goes to adjudication under section 17 and is not a ground for resisting summary judgment in proceedings under section 15 [76]. In particular, where no adjudication is sought, a respondent cannot resist summary judgment on grounds it could have raised in a payment schedule leading to adjudication [76].

Each judge agreed with the orders proposed by Hodgson JA: leave to appeal was granted, the appeal was dismissed, and Nepean was ordered to pay Total's costs of the application for leave and of the appeal [40], [74], [77].

Why it matters

Under the Act as it then stood, the Court of Appeal unanimously upheld summary judgment for a claimant under section 15 where the payment claim purported to identify the work, the respondent had served no payment schedule and in substance defended only on the ground that the payment claim did not identify the work. Hodgson JA asked whether the claim purported in a reasonable way to identify the work, and Ipp JA, stating his construction as following from those reasons, treated compliance as a matter for adjudication rather than a defence in the debt proceedings. Santow JA, agreeing in the result and with parts of Hodgson JA's reasons but differing on the test, applied an objective test of whether the respondent could understand the basis of the claim, and considered that compliance could in an appropriate case be contested in resisting summary judgment. Hodgson JA's practical point was that a respondent unable to identify the work should serve a payment schedule rather than ignore the claim.

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.