OSB Group Pty Ltd v Complete Hire & Sales Pty Ltd [2024] WASC 310 is a decision of Musikanth J in the Supreme Court of Western Australia on an application for summary judgment by the plaintiff. The plaintiff brought proceedings against the defendant to recover an amount claimed as a statutory debt pursuant to s 17 of the Building and Construction Industry (Security of Payment) Act 2021 (WA) (‘the Act’ or ‘SOPA’).
Accordingly, the only issue considered in this matter is whether summary judgment should not be granted because there is a serious question to be tried.
The plaintiff claimed that on 2 June 2023 it entered into a ‘construction contract’ within the meaning of that term in the Act with the defendant. The plaintiff further claimed that it performed construction work for the defendant pursuant to that contract. In accordance with the Act, the plaintiff issued a payment claim to the defendant. The defendant did not respond to the payment claim by way of payment schedule, and nor did the defendant pay, and it continued not to pay, the amount claimed in the payment claim.
The decision is principally concerned with operation of the SOPA. This act is a scheme to regulate entitlement to payment and disputes concerning payment in the building and construction industry. It is principally concerned with securing payments for persons who undertake construction work in this industry: s 3.
The Act provides persons who undertake work under a construction contract a statutory entitlement to be paid on the last day of every month after the commencement of the work: ss 9, 17, and 23; this is known as a progress payment. This is a separate and additional right to any other right to payment under a construction contract, and it cannot be contracted out of: s 17(4) and s 111 respectively.
‘Construction contract’ is defined in s 5 as a contract, agreement or other arrangement1 under which one party undertakes to carry out construction work. For the purposes of the Act it does not matter whether a construction contract is written or oral: s 17(2).
In order for a progress payment to become due and payable, the claimant must follow a certain procedure provided in Part 3 of the Act: s 20. In essence, this procedure requires the claimant to issue a payment claim to the person liable to pay it; this payment claim can only be made at certain times; and it must contain certain content: ss 22, 23, and 24. Once a valid progress payment is made it is due and payable in 20 business days: s 20.
Other than the provision of progress payments, another principal feature of the Act is the provision of rapid adjudication options for a claimant where there is a dispute as to a progress payment. One of the ways this is achieved is limiting the way a respondent can respond to a payment claim. Once a respondent receives a progress payment, if it wishes to pay less than or none of the claimed amount it must issue a ‘payment schedule’ explaining why: s 25. A payment schedule has certain formal requirements; and, importantly, it must be given to the claimant before 15 business days after the claim for payment is made: s 25. Failure to issue a valid payment schedule within this time has three principle consequences for the respondent—
it becomes liable to pay the full claimed amount in the payment claim on the due date; this is a statutory debt in favour of the claimant: s 26; and
if the respondent fails to pay the full amount claimed by the due date, the claimant may either—
commence proceedings in a court of competent jurisdiction for the amount as a debt due to the claimant: s 27(2)(a); or
make an adjudication application in relation to the payment claim under Part 3 division 2: s 27(2)(b); and
if the claimant commences proceedings in a court, the respondent is prevented from bringing any cross-claim against the claimant, or raising any defence in relation to matters arising under the construction contract: s 27(3).
The plaintiff’s evident case from the report can be stated simply: it had entered into a construction contract with the defendant; it had completed work under that contract; it had made a valid payment claim; the defendant did not respond to the claim with a valid payment schedule within time; accordingly, the defendant became liable to pay the whole amount claimed; it did not pay the claim within time; this gave rise to a statutory debt against the defendant recoverable in the court; and because the Act prevented the defendant from bringing a defence or counter-claim, the plaintiff was entitled to summary judgment.
The first thing to note is that the Act does not give a claimant a right of summary judgment in such recovery proceedings. Accordingly, whether a summary judgment is to be granted is determined in accordance with the ordinary principles which govern summary judgments. In the Supreme Court of Western Australia, this is provided by O 14 of the Rules of the Supreme Court 1971 (WA). As stated by Musikanth J, summary judgment will only be granted where there is no real question to be tried.2
The defendant raised four matters that it said gave rise to serious questions to be tried.3 In short, these were—
whether a ‘construction contract’ existed in fact;
whether the defendant can raise an entitlement to relief under Schedule 2 of the Competition and Consumer Act 2010 (Cth) (‘ACL’ as a defence to the proceedings by way of equitable set-off;
whether a ‘construction contract’ exists if a court were to declare the relevant contract void ab initio as a remedy to a finding of misleading and deceptive conduct against the plaintiff in circumstances where the defendant can raise that as a defence to the proceedings; and
assuming the defendant is not permitted to raise a defence or cross-claim under the ACL as a result of the operation of the Act, whether that operation is rendered invalid by operation of s 109 of the Constitution to the extent of the inconsistency.
To briefly outline the jurisdictional operation of the ACL, the ACL relevantly applies to regulate the conduct of constitutional corporations pursuant to the legislative power of Commonwealth Parliament under s 51(xx) of the Constitution: Competition and Consumer Act 2010 (Cth) s 131. It accordingly applies to corporations engaging in trade or commerce wheresoever situated in Australia. It provides numerous prohibitions against conduct in the course of trade and commerce: Chps 2, 3 and 4; and it empowers courts to grant remedies to those who are affected by such conduct: see generally Parts 5.2 and 5.4. These remedies include the power to declare a contract, or any part of it, void ab initio or at a specified time: s 243.
An equitable set-off is an equitable defence against a monetary claim. It is not a denial of the debt alleged but a plea against its enforcement by the setting up of a cross-claim excusing the defendant from payment.4
Accordingly, it can function as a defence to an action.5
Musikanth J found that there was a serious question to be tried in relation to the defendant’s fourth point. Accordingly, the plaintiff’s application for summary judgment was refused, and the defendant was granted leave to defend the proceedings.
The defendant had argued that there was no ‘construction contract’ in existence in fact as the essential terms of the contract for the work were still being negotiated by the parties.
Irrespective of whether or not there was in place a contract between the parties, Musikanth J nevertheless found that there was at least an ‘arrangement’ within the meaning of ‘construction contract’ for the purposes of the Act. This was because on the defendant’s own evidence the plaintiff had undertook some construction work.6
While Musikanth J noted that an argument that a ‘construction contract’ did not exist is, at least in some circumstances, not a defence that would be prohibited by the Act as a defence ‘arising under’ the contract itself. Notwithstanding this potential scope, the inclusion of ‘other arrangement’ within the concept of ‘construction contract’ will limit the likelihood of disputes as to the legal character of the relationship between the parties.7
Musikanth J found that therefore there was no serious question to be tried in relation to the first point raised by the defendant.
In considering the applicability of the ACL as Commonwealth legislation in this context, Musickanth J gave principal consideration to Bitannia Pty Ltd v Parkline Constructions Pty Ltd (2006) 67 NSWLR 9.
Bitanna was an appeal from a judgment obtained by the plaintiff in recovery of a statutory debt arising from the operation of the New South Wales counterpart of the SOPA. The defendants had become liable to pay the entire amount of the relevant payment claim as it had not issued a payment schedule, and they had failed to pay any of that amount by the due date. At trial, the defendant sought leave to raise by way of defence and cross-claim that the plaintiff’s conduct in serving the claim was misleading and deceptive contrary to s 52 of the Trade Practices Act 1974 (Cth).8 That was refused by the primary judge. The primary judge’s decision was set aside by the Court of Appeal and leave was granted for the defendants to reopen their case.
The relevant question for the Court of Appeal was whether the bringing of that defence and cross-claim was precluded by s 15(4) of the act in question, the counterpart of s 27(3) of the SOPA (which was in identical terms). It was largely dispensed with by the court on the basis that (1) equitable set-off arising from an entitlement under the ACL may be pleaded as a defence in these circumstances; and (2) the bringing of such defence, because it imputed the performance of statutory preconditions for making a valid payment claim, would not be bringing a defence ‘in relation to matter arising under the construction contract’.9
However, Basten JA also considered the position if that conclusion was wrong, including that an equitable set-off in these circumstances can be pleaded as a defence,10 and in doing so confronted the constitutional question. If these conclusions were wrong, then then only way that a complaint under s 52 of the Trade Practices Act could be raised would be by way of cross-claim; and due to the operation of the act, this could only be done in separate proceedings due to the prohibition against cross-claims.11 This amounts to a practical impairment of the enjoyment of the rights conferred by Commonwealth legislation; s 15(4) of the act was therefore inconsistent with Commonwealth legislation; and by operation of s 109 invalid to the extent of that inconsistency.
Musikanth J, after making reference to Bitannia, immediately recognised that the defence seeking to be raised by the defendant here is of a different nature. Because the defendant raised the allegation of misleading and deceptive conduct in relation to representations made under or pursuant to a contemplated construction contract, this defence could not be other than one ‘in relation to matters arising under the construction contract.’ Unlike the case in Bitanna, s 27(3) does operate here to prohibit bring a defence of equitable set-off stemming from its entitlement to relief under the ACL.12
Notwithstanding this, the legal question is the essentially same as that which was considered by Basten JA: does the SOPA prevent a respondent from pursuing its rights under Commonwealth legislation that gives rise to constitutional inconsistency.13
Applying Basten JA’s obiter dicta, and assuming that the defendant’s affidavit evidence would be accepted, Musikanth J found that:14
the defendant has raised a serious question to be tried as to whether it is entitled to a remedy under the ACL that would neutralise the existence of, or substantially restrict the consequences of, any construction contract;
that it could not be said that, if the matter proceeded to trial, that the defendant would not have been permitted to raise its rights under the ACL for the purposes of pleading a defence; and
if such a defence would not be available, then there is arguably an inconsistency between s 27(3) of the Act and the ACL becuase it would prevent the brining of a cross-claim in the proceedings, which would amount to an impairment of an entitlement granted by Commonwealth legislation.
Accordingly, the application for summary judgment was refused.
Given the conclusions reached in relation to points two and three, Musikanth J found that it was unnecessary to determine whether this contention gave rise to a serious question to be tried.
However, his Honour did proffer a preliminary view:
…it would in my preliminary view seem wrong to treat a construction contract presently in existence as ‘void’ merely because there is a chance that a court might at some future time, as a discretionary measure, make such an order should the representee in due course successfully prosecute a claim under the ACL.15
Section 109 of the Constitution operates to render invalid State laws ‘to the extent of the inconsistency’. Only to the actual extent of the inconsistency is a State law rendered ‘superseded’ or ‘suspended’;16 this suspension of operative force can be in whole or in part;17 and a law that can partially operate without offending Commonwealth legislation will continue to have operative force.18
This gives rise to the first observation: notwithstanding this decision, s 27(3) is likely to still have a significant operation. The operation of s 109 will only render inoperative s 27(3) of the Act to the extent that it operates to prevent a person from raising a defence or cross-claim open to it under a law of the Commonwealth, including the ACL. Where it does not have this effect it will still have operative force; and this operative force is still likely to be significant given that the most obvious defences are not likely to derive from Commonwealth statute but under the contract. And if it cannot operate to prevent the bringing of any defence, it can at least operate to significantly reduce the defences that can be pleaded. Indeed, even after the decision of Bitannia, the New South Wales counterpart to s 27(3) remains in the current version of that act, unamended and with the exact same wording. A point of further investigation will be considering what other Commonwealth legislation may provide a defendant entitlements that allow it to plead defences or cross-claims which may allow it to successfully resist summary proceedings.
The second thing to note in this respect is that the ACL as a law of the Commonwealth does not have absolute operation. Its operation is confined to regulating the conduct of those entities that come within the power of the Commonwealth Parliament. These are, most relevantly, constitutional corporations. The ACL also applies a law of the State of Western Australia by operation of the Fair Trading Act 2010 (WA). Plainly any defences or cross-claims relying on the ACL as it operates as a law of the State are liable to be disallowed, validly, by s 27(3) of the Act.
A few things follow from this:
where the plaintiff to proceedings for the recovery of a statutory debt arising out of the Act is not a constitutional corporation, the ACL as an act of the Commonwealth cannot operate to regulate its conduct;
such a plaintiff will be incapable of breaching the ACL as an act of the Commonwealth; and
in these circumstances, a defendant will not be able to resist against proceedings for summary judgment by this plaintiff by pleading a defence or cross-claim that arises out of conduct that would otherwise breach the ACL as an act of a Commonwealth; and s 27(3) will continue to operate to prevent defences or cross-claims from being pleaded arising out of the ACL as an act of the State.
However, practically speaking, in the vast majority of matters relating to the building and construction industry, the ACL as a law of the Commonwealth will be applicable to regulate the conduct of a plaintiff. Nearly all plaintiffs will be corporations that engage in trading and commerce. And this goes for any other Commonwealth legislation relying on the corporations power of Parliament.
The third thing to recognise is that although it seems that the Act can no longer operate to prevent a defence or cross-claim being raised where it derives from an entitlement granted under the ACL as an act of the Commonwealth, this does not necessarily mean that it can always be relied upon to successfully resist summary proceedings to recover a statutory debt under the Act. As the decision indicates, where the plaintiff provides evidence that the defendant has no defence to the claim—of which many defences will still be prohibited by the operation of s 27(3)—the defendant must demonstrate that there is at least a serious question to be tried. A defendant cannot simply claim an entitlement under the ACL or other Commonwealth legislation as defence or cross-claim without there being at least some factual and legal basis for the claim. A claim without any basis will not amount to a serious question to be tried. This fact also contributes to the continued significance of s 27(3).
The last thing to observe is that, given Musikanth J’s approval of the decision in Bitanna, it would appear that, notwithstanding the jurisdictional source of the defence, any defence that vitiates a claimant’s performance of the required statutory procedures that give rise to a valid payment claim will not be prohibited from being raised by operation of s 27(3). This is because such defences will not be ‘related to a matter arising under a construction contract.’
Ultimately, the impact of this decision on the operation of the SOPA is, in my view, mixed. In my view, it does not render s 27(3) totally irrelevant, and it appears that it is permitted to still maintain significant impact in proceedings to recover a statutory debt. This because many defences would relate to matters under the contract; and it will at least have the operation of significantly restricting the scope for defences where it cannot prevent any defence for being brought. However, given the ACL’s extremely broad operation, especially s 18, the operation of s 27(3) is still heavily compromised. And it remains to be seen whether there is additional Commonwealth legislation that may lend assistance to a defendant to such proceedings.
