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Fitzroy Shopfitting and Building Pty Ltd v. Solene Investments Pty Ltd [2016] VCC 1352 (21 September 2016)

Last Updated: 21 September 2016

IN THE COUNTY COURT OF VICTORIA
Revised

(Not) Restricted

Suitable for Publication

AT MELBOURNE

COMMERCIAL DIVISON

GENERAL LIST

Case No. CI-16-03184

FITZROY SHOPFITTING AND BUILDING PTY LTD
Plaintiff

v.

SOLENE INVESTMENTS PTY LTD
Defendant

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JUDGE:
His Honour Judge Anderson
WHERE HELD:
Melbourne
DATE OF HEARING:
9 September 2016
DATE OF JUDGMENT:
21 September 2016
CASE MAY BE CITED AS:
Fitzroy Shopfitting and Building Pty Ltd v. Solene Investments Pty Ltd
MEDIUM NEUTRAL CITATION:

REASONS FOR JUDGMENT

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Catchwords: Building contract – Adjudication completed under Building and Construction Industry Security of Payment Act 2002 (Vic) – Cheque for much lesser amount sent by defendant to plaintiff – Accompanied by letter stating that presentation of cheque will be deemed acceptance in full and final payment – Whether accord and satisfaction – Whether purported settlement agreement breached section 48 by having “the effect of excluding, modifying or restricting the operation” of the Act.

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APPEARANCES:
Counsel
Solicitors
For the Plaintiff
Mr A. Beck-Godoy of Counsel
KO Construction Law

For the Defendant
Mr M. Dean of Counsel
Rennick & Gaynor Lawyers

HIS HONOUR:

  1. On 28 July 2016, I ordered that “judgment be entered in favour of the plaintiff against the defendant in the sum of $48,204.63” together with costs fixed at $1,500. The judgment was entered upon the ex parte application of the plaintiff pursuant to section 28R of the Building and Construction Industry Security of Payment Act 2002 (Victoria) (“the Act”). The judgment was based upon an Adjudication Certificate dated 16 September 2015 for $109,884.73.
  2. By Summons filed 15 August 2016, the defendant seeks to set aside the judgment. The defendant relies upon the defence of accord and satisfaction constituted by an offer made by the defendant on 7 September 2015 sending a cheque for $61,680.10 to the plaintiff with a letter explaining the basis upon which the cheque was offered and the acceptance of the offer by the plaintiff presenting the cheque for payment.
  3. The letter dated 7 September 2015 read as follows:

Please find attached a cheque in the amount of $61,680.10 being for full and final payment of works contracted at Solene Paris Knox.

We advise the tiles that still have not been supplied and fixed at the Salon together with the Air freight paid by Solene that you refused to pay have been deducted from the Invoice as well as the items that were part of the original quote pursuant to the plans.

We advise that presentation (depositing) of the attached cheque will deem considered acceptance of full and final payment in this matter.

After the experience we have had as a result of non-completion of contracted works including not supplying or fixing tiles aforesaid and the overcharging of items that were contained in the plans signed off by Westfield and quote of the original contract by Fitzroy Shop-fitting and Building Pty Ltd we again wish to convey our deep dis-satisfaction”.

  1. By email dated 15 September 2015, the defendant’s accountant responded, “Just letting you know we received your cheque in the mail”. The plaintiff banked the cheque and did not make its application for judgment for the balance until it filed the ex parte application on 21 July 2016.
  2. In support of the ex parte application, a director of the plaintiff, Terry Marsh, swore an affidavit which included the following statement, “Subsequent to the 16th September 2015, the Respondent paid to the Plaintiff, in reduction of the Adjudicated amount, the sum of $61,680.10”.
  3. In a recent affidavit in response to the defendant’s application to set aside judgment, Mr Marsh stated in relation to the defendant’s cheque sent with the letter dated 7 September 2015 that, “whilst the letter said the cheque attached was for full and final payment of the contracted works I did not accept that as I did not believe that the Defendant could unilaterally determine what was full settlement. The plaintiff therefore took the payment to be part payment on account of the amounts due rather than satisfaction of all claims and the adjudication determination. I say that under no circumstances did the Plaintiff advise the Defendant nor did it intend, by banking the cheque, to forgo its rights to the adjudicated amount of $104,721.10 (inc GST) plus interest and costs. The defendant’s cheque in the amount of $61,680.10 was banked by the Plaintiff on account of it being part payment of the monies owing and in order to reduce the Plaintiff’s financial duress”.
  4. In my view, the statements by Mr Marsh as to the plaintiff’s intention by accepting the payment cannot affect my determination as to whether the defendant has established an accord and satisfaction, being the acceptance of the payment on the terms contained in the letter dated 7 September 2015.
  5. The issue of whether there had been an accord and satisfaction was the issue upon which the parties came before the Court to argue on 9 September 2016. At that hearing, I raised with counsel the question of whether the “accord and satisfaction”, if established by the defendant, was a “contract” covered by section 48 of the Act which had the “effect of excluding, modifying or restricting the operation of this Act”, and was therefore void.
  6. This was an issue that had been raised before me in the matter of Simtec Group Pty Ltd v Ascot Building Pty Ltd [2016] VCC 1127. The parties requested the opportunity to file written submissions, including in relation to section 48 of the Act. Although it will be necessary to return to this issue, it is appropriate to first determine whether there has been an accord and satisfaction.

Accord and satisfaction

  1. Mr Dean, the defendant’s counsel relied on a number of English authorities including Bell v Galynski [1974] 2 Lloyd’s Rep 13 in which the English Court of Appeal found that the acceptance of a letter with an enclosed cheque had compromised a dispute. Lord Justice Megaw said that the crucial issue was to objectively assess what the written words would be understood to mean and how they would “be treated by a reasonable, sensible, unbiased, unprejudiced person with knowledge of the relevant facts”;
  2. In the present case “the relevant facts” include the following matters:
    1. at the time the defendant sent the letter and accompanying cheque, an adjudication had been made on 31 August 2015 pursuant to Division 2 of Part 3 of the Act, that as from 18 August 2015, the defendant was liable to pay the plaintiff the sum of $104,721.10;
    2. the plaintiff was entitled, pursuant to Section 28R of the Act to apply ex parte to have judgment entered for the unpaid balance of the adjudicated sum, including interest and costs;
    1. $104,721.10 was claimed by the plaintiff as a payment claim under the Act being the total of three invoices, numbers 5034 ($79,784.10), 5035 ($3,234) and 5037 ($21,703);
    1. the defendant had submitted a payment schedule by email on 12 August 2015 admitting that the total sum of $81,185.10 was owing. The filing of the payment schedule meant that the plaintiff could seek an adjudication under the Act;
    2. the explanation given by the defendant for only paying $61,680.10 on 7 September 2015 was set out in an attachment to the letter headed, “Fitzroy Shopfitting Final Payment”;
    3. the defendant’s attachment used the sum of $81,559.10, the “balance owing under the agreement”, as the starting point in the calculation of the cheque for $61,680.10. The table of calculations included two additions and four specific deductions and noted that a number of other stated variations were “in quote”, that is, included in the contract sum:
      1. additions: $3,234 as the “balance due on invoice 5035” and $400 for “cut/weld paint entry frame (as agreed with supplier)”;
      2. deductions: $1,815 for “installation of mosaic tiles”, $15,740 as the “cost of Baro 001 Tessuti tiles”, $3,608 “credit of feature wall” and $2,350 as the defendant’s “cost of freight for incorrect tiles”;
      3. deductions were apparently made in the calculation for a number of stated items which were noted as being “in quote”;
    4. the adjudicator’s “determination” (reasons for decision) were provided to the Court on the present application. The document indicates the scope of the defendant’s payment schedule under the Act, the issues raised for determination by the adjudicator and his consideration of these matters;
    5. the attachment to the defendant’s letter dated 7 September 2015 sets out matters raised before the adjudicator and also, it seems, further disputes;
    6. the defendant’s affidavit in the present application provides further explanations seeking to justify the quantum of the cheque profferred on 7 September 2015.
  3. In F. T. Jeffrey Pty Ltd v Evington Holdings Pty Ltd [1997] VicSC 616 (“Jeffrey”), a decision of the Full Court, Young CJ stated at pages 12 and 13, “When a cheque sent in full settlement of existing liabilities is retained, the mere retention is not conclusive that there is an accord between the parties: it is a question of fact to be determined by the tribunal of fact what are the terms upon which the cheque is retained. Put in another way, it is a question whether the recipient of the cheque agreed to take it in satisfaction of his claim”.
  4. In Wiseman v MQH Developments [1977] VicSC 190, Chernov J at page 7 referred to what Lush J had said in Jeffrey, namely that “it is not just a matter of analysing the question by analogy with offer and acceptance principles. Consensus or concurrence of minds has to exist (determinant on an objective basis) before it can be said that an accord has arisen”.
  5. In Ebbage v McMahon’s Transport Pty Ltd (1999) 1 QdR 185, Pincus JA delivering the judgment of the Court of Appeal, stated at pages 194-5:

The cases on conditional tender of payment, although numerous, give no clear guidance. I, like the primary judge, prefer to follow those in which the court has rejected the offeror’s assertion that there has been an accord; I do so on the basis that the question is whether there is a contract and that the answer to that question is that there is none, because in general the law does not allow the imposition of an obligation in contract to be achieved by a stipulation that it shall be deemed to be imposed if the prospective obligor performs a stipulated act...or does nothing”.

  1. In SNL Group Pty Ltd v CMA Corporation Ltd [2011] NSWSC 464, Sackar J at paragraphs 43 to 55, dealt with a line of authorities commencing with Penny v Cole (“Pinnel’s Case”) (1602) 5 Co. Rep. 117a and Foakes v Beer [1884] 2 AC 605.
  2. At paragraph 53, Sackar J noted the distinction “between the ineffective agreement to reduce or extinguish a debt owing and an alternatively binding agreement that purports to extinguish or reduce an existing debt whilst also providing fresh consideration”.
  3. In El-Mir v Risk [2005] NSWCA 215, McColl JA (with whom Handley and Ipp JJA agreed) stated at [54] that, “The question of whether there has been an accord and satisfaction is one of fact. It turns upon determining the parties’ intentions, which may be discerned from the terms of the document said to constitute all or part of the agreement or from the surrounding circumstances”.
  4. In the present case, the letter dated 7 September 2015 offered no more than payment of a lesser sum to extinguish an existing debt. There was no “fresh consideration” provided. Further, I consider that no “accord” was reached, having regard to the circumstances of the case.
  5. The parties were following the processes set out in the Act: 4 August 2015 – payment claim, 12 August 2015 – payment schedule, 13 August 2015 – adjudication application, 25 August 2015 – defendant’s adjudication response, 31 August 2015 – adjudication.
  6. In these circumstances, the letter by the plaintiff to the defendant simply acknowledging, “we received your cheque in the mail” together with the banking of the cheque, was plainly insufficient to indicate that an agreement had been reached or that there had been a “concurrence of minds” that the payment of $61,680.10 was to extinguish the adjudicated debt of $104,721.10 plus interest and costs.

Whether purported agreement contrary to section 48 of the Act

  1. Section 48 of the Act provides as follows:

No contracting out

(1) The provisions of this Act have effect despite any provision to the contrary in any contract.

(2) A provision of any agreement, whether in writing or not-

is void.

  1. In Simtec Group Pty Ltd v Ascot Building Pty Ltd [2016] VCC 1127, I considered the question of whether section 48 of the Act applied to an alleged settlement agreement which had “the effect of excluding, modifying or restricting the operation of” the Act.
  2. In that case, I stated as follows:

15. The terms of the section appear clear and unambiguous. They are consistent with the intended purpose of the Act which has been expressed to be as follows:

‘The Building and Construction Industry Security of Payment Act 2002 was introduced in Victoria to allow for the rapid determination of progress claims under construction contracts or sub-contracts, and contracts for the supply of goods or services in the building industry. The process was designed to ensure cash flow to businesses in the building industry, without parties getting tied up in lengthy and expensive litigation or arbitration. It was intended to establish a process for the fast recovery of progress payments payable under a construction contract. This was to be achieved by a novel procedure which provided for the rapid adjudication of payment disputes at a low cost to the parties’ (Grocon Constructors v Planit Cocciardi Joint Venture (No. 2) [2009] VSC 426, per Vickery J at para. 33).

  1. If a broad interpretation of the Act were to be applied, it may have the effect of preventing parties from compromising a proceeding brought under the Act. Such a result would appear to be inconsistent with the provisions of the Civil Procedure Act 2010 which encourages parties to resolve their disputes at the earliest possible stage.
  2. It is useful to consider the likely consequences if the facts of the present case had been slightly different. There may have been no dispute or ambiguity in the terms as to payment in the agreement, and Ascot might have actually performed its obligations under the agreement, for example by making the first payment of $35,000 it says was required of it. In those circumstances, it would be surprising, if a court were not to uphold the agreement and prevent the action proceeding. In such circumstances, that result might be achieved by a party making an application for the proceeding to be dismissed as an abuse of process”.
  3. After examining the circumstances of that case, I concluded that “it would be surprising ... if Simtec’s rights under the Act were to be curtailed”. Accordingly, it was not necessary for me to finally determine whether section 48 had application.
  4. Since delivering that judgment, my attention has been drawn to a line of authority in the Supreme Court relating to whether a settlement of a dispute as to the quantum of a costs order is itself a “costs agreement” which, if it involved a breach of section 3.4.31 of the Legal Profession Act 2004 (Vic) (“the LPA”) by purporting to exclude the statutory right to a “costs review” under the LPA, was therefore void (see Gardens Lawyers v. Beba Enterprises Pty Ltd [2012] VSC 519 per Emerton J, on appeal as Beba Enterprises Pty Ltd [2013] VSCA 136 (“Beba”) and GLS v. Goodman Group Pty Ltd [2015] VSC 627 per Macaulay J).
  5. In Beba, the Court of Appeal affirmed the correctness of Emerton J’s conclusion that “Beba, as a non-associated third party payer, was not precluded from entering into an agreement with the client by which it waived its rights to have the client’s legal costs reviewed”.
  6. Section 3.4.48A gave “an associated third party” the right to “contract out of this Division”. The Court of Appeal considered that Parliament could not have intended the section to prevent non-associated third parties desiring to bring “an end to a legal dispute, including its costs ramifications” from reaching “agreements settling costs issues (whether solely relating to costs, or part of a wider resolution) [which otherwise might] be at risk of being partly set aside at the instance of the payer [79]” per Ashley JA (with whom Redlich and Priest JJA agreed).
  7. In my view, the policy considerations raised by the Court of Appeal are relevant in the present case. Notwithstanding the special nature of the Building and Construction Industry Security of Payment Act 2002 (Vic), and the clear and direct wording of section 48, if the parties by their words and conduct have shown that their agreement was not directed to the exclusion, modification or restriction of the operation of the Act but rather the genuine resolution of a dispute, the parties should be bound by their agreement and section 48 would have no application.
  8. In this case, I have concluded that the parties did not enter into a “settlement” agreement. The adjudication process had recently concluded. The defendant had very limited rights (under section 28B) to review the adjudication. The plaintiff could make an ex parte application for the entry of judgment under section 28R. The plaintiff’s rights to pursue recovery for the adjudicated amount by payment or judgment (under Division 2B of Part 3) were not affected.
  9. In these circumstances, it is necessary to decide whether such an agreement would be contrary to section 48. In my view, if the reasoning of the Court of Appeal in Beba were applied, section 48 would not apply if there had been accord and satisfaction.

Orders

  1. In the circumstances, I propose to order that:
    1. The order of His Honour Judge Anderson upon the ex parte application of the plaintiff is affirmed.
    2. The defendant’s summons dated 15 August 2016 is dismissed.
    3. The defendant must pay the plaintiff’s costs of the summons, including the hearing on 9 September 2016 and the further submissions filed pursuant to the order make 9 September 2016, to be assessed by the Costs Court on a standard basis in default of agreement.
  2. The parties will be notified by my intention to hand down my reasons for decision in open court. If they wish, the parties need not attend as the reasons will immediately be emailed to them.
  3. If a party wishes to be heard on the form of the orders proposed, it must file further written submissions with my associate by 12 noon on 23 September 2016. Otherwise, I will make orders in the terms proposed.

- - -

Certificate

I certify that these 8 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 21 September 2016.

Dated: 21 September 2016

Carla Cianfaglione

Associate to His Honour Judge Anderson


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