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- Unreported Judgment
Australian Building Insurance Services Pty Ltd v CGU Insurance Limited QDC 18
DISTRICT COURT OF QUEENSLAND
Australian Building Insurance Services Pty Ltd v CGU Insurance Limited  QDC 18
AUSTRALIAN BUILDING INSURANCE SERVICES PTY LTD (ACN 162 498 599)
CGU INSURANCE LIMITED (ABN 27 004 478 371)
District Court at Brisbane
22 February 2019
10 August 2018, 1 February 2019
Written submissions: 6, 8 February 2019
CONTRACTS - NOVATION - where defendant consented to assignment of vendor’s rights and obligations under supplier agreement following sale of business - whether novation to plaintiff/purchaser effected
BUILDING CONTRACTS - whether supplier agreement constituted “contract or other arrangement for carrying out building work” under QBSA Act - whether “payment time” had passed when payments made - whether invoices “disputed invoices” under supplier agreement
BUILDING CONTRACTS - whether plaintiff “contracted party” under QBSA Act for pre-novation work completed by another party - whether entitled to interest at penalty rate on late payments for pre-novation work
EVIDENCE - QUANTUM – ONUS OF PROOF - whether rational evidentiary foundation on which Court could make proper estimate
Queensland Building Services Authority Act 1991, ss 67A, 67AAA(1), 67P, Sched 2
ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue (NSW) (2012) 245 CLR 338, applied
Ball Construction Pty Ltd v Conart Pty Ltd  QSC 124, followed
In the matter of FAL Healthy Beverages and FAL Retail Pty Ltd  NSWSC 476, followed
TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd  FCAFC 83, followed
IW & CA Price Constructions Pty Ltd v Australian Building Insurance Services Pty Ltd & Ors  QSC 39, referred to
S Couper QC and P Travis for the plaintiff
A Morris QC and A Harding for the defendant
Axia Litigation Lawyers Pty Ltd for the plaintiff
MCK Lawyers for the defendant
- The sole issue in this matter is whether the plaintiff has proven that the defendant is required to pay it “interest at the penalty rate” under section 67P (Late progress payments) of the Queensland Building Services Authority Act 1991 (QBSA Act). The plaintiff’s claim is for $242,032.14.
- Section 67P provides as follows:
“67P Late progress payments
- (1)This section applies if—
(a) the contracting party for a building contract is required to pay an amount (the progress amount) to the contracted party for the building contract; and
(b) the progress amount is payable as the whole or a part of a progress payment; and
(c) the time (the payment time) by which the progress amount is required to be paid has passed, and the progress amount, or a part of the progress amount, has not been paid.
- (2)For the period for which the progress amount, or the part of the progress amount, is still unpaid after the payment time, the contracting party is also required to pay the contracted party interest at the penalty rate, as applying from time to time, for each day the amount is unpaid.
- (3)In this section—
penalty rate means—
- (a)the rate made up of the sum of the following—
(i) 10% a year;
(ii) the rate comprising the annual rate, as published from time to time by the Reserve Bank of Australia, for 90 day bills; or
- (b)if the building contract provides for a higher rate of interest than the rate worked out under paragraph (a)—the higher rate.”
- As can be seen, the section requires the contracting party for a building contract to also pay the contracted party interest at the penalty rate (10% plus the Reserve Bank’s 90-day bill rate) on unpaid progress payments. That late-payment special interest rate was intended to be a “strong incentive for the contracting party to pay on time”: QPD, 21 July 1990, 2772.
- A “building contract” under the QBSA Act is a “contract or other arrangement for carrying out building work” (section 67AAA(1)) and “building work” includes “repair of a building” (QBSA Act, Schedule 2).
- In mid-2013, the plaintiff purchased from IW & CA Price Constructions Pty Ltd (Price Constructions) its building insurance claims repair work business (BIRS Queensland). At that time, the business was the supplier to the defendant (under a preferred supplier agreement) of various insurance-related property assessment, reinstatement and repair services. Price Constructions consented in writing to the assignment to the plaintiff of the former’s interest in the supplier agreement. The plaintiff delivered that consent to the defendant and requested its consent to the assignment. On 30 June 2013, the defendant informed the plaintiff that the defendant consented to the assignment to the plaintiff of Price Constructions’ rights and obligations under the supplier agreement.
- On 1 July 2013, settlement of the sale of the business from Price Constructions to the plaintiff was effected. At that time, there were various incomplete insurance repair jobs that Price Constructions had commenced but not completed. The plaintiff subsequently finished the incomplete jobs (and also started and finished various new jobs) and the defendant paid all of the issued invoices totalling $601,896.09. However, some payments were delayed until the Supreme Court declared (IW & CA Price Constructions Pty Ltd v Australian Building Insurance Services Pty Ltd & Ors  QSC 39) that the party entitled to the payments for the work done by Price Constructions was the plaintiff.
The Issues and Analysis
- There were four main points of contention between the parties.
- First, they differed about (a) whether the supplier agreement was a “contract for carrying out building work”, and (b) whether the supplier agreement, together with the events referred to in  and  above, constituted an “other arrangement” for carrying out building work.
- The defendant submitted that the supplier agreement was really just a master agreement, such that if the contractor were engaged to do building work, then the applicable terms for doing the work would be set out in that agreement. Thus, it was not a contract for carrying out building work and the combination of the supplier agreement and the additional matters relied upon by the plaintiff did not constitute an “other agreement” for carrying out building work.
- Although the supplier agreement (Exhibit 4) does say (clause 2.1(c)) that the agreement operates as a master agreement which sets out the overarching terms and conditions which apply to the provision of services by the supplier to the defendant, the agreement is replete with precise details as to how those services are to be requested and performed. The defendant prepares a service order (2.2) which it enters into with the supplier (6.1(a)) and requests the supplier to supply services (6.2(a)). A service order is an agreement between the defendant and the supplier for the supplier to provide services (the insurance-related property assessment, reinstatement and repair services and any service order (1.1 “Services”)) under the supplier agreement” (1.1 “Service Order”). If the supplier does not reject the request within 60 minutes (6.2(b)(i)), the services request is deemed to have been accepted and a binding service order formed (6.2(b)). The supplier then proceeds to carry out the services specified (6.3) and achieve or exceed prescribed service levels or standards (7.1, 17.1) and fix any defects (22). The parties agree that in consideration of the services, the defendant will pay the supplier the fees (9.1(a), 1.1 “Fees”) for the services in respect of which the supplier will invoice the defendant within 7 days of the completion of the work (9.2(a)). The defendant must pay all invoices (except disputed invoices (9.3)) within 14 days of receipt of a valid tax invoice (9.2(e)). If the defendant disputes any fees on an invoice, it must advise the supplier within 21 days and each party must use its best endeavours to resolve the dispute (9.3).
- Section 67A of the QBSA Act defines “carry out building work” as including “directly or indirectly, cause building work to be carried out”. By including the indirect causing of the work to be carried out, the definition embraces a very wide category of things that would cause (that is, bring about) the carrying out of the work.
- Where the section 67AAA(1) phrase “contract or other arrangement for carrying out building work” is examined, the preposition “for” can be seen as indicating the purpose or object of that contract or other arrangement—namely, to carry out building work. Thus, as a matter of language and logic, a contract or other arrangement for that purpose or object is a contract or other arrangement in order to carry out that work. In addition, because of (a) the breadth of the provisions contained in the supplier agreement (which sets out in detail how the work is to be requested and performed), and (b) the very wide categories of things which are embraced by the section 67A definition of “carry out building work”, the supplier agreement can readily be regarded as a contract or other arrangement entered into in order to (directly or indirectly) bring about the carrying out of the building work—and therefore, under section 67AAA(1), as a contract or other arrangement “for carrying out building work”.
- It follows that I do not accept the defendant’s argument on the first point.
- Secondly, the defendant drew attention to section 67P(1)(c). It submitted that the relevant “payment time” had not passed at the time that payments were made. Reference was made to clause 9.2(e) of the supplier agreement, which requires the defendant to pay all invoices (except disputed invoices) within 14 days of a valid tax invoice. It was submitted that the subject invoices were “disputed invoices” because there had been a dispute in the Supreme Court proceedings (see ) about the entitlement to payments for invoices. The parties in that matter were the plaintiff and Price Constructions. The defendant here was not a party, but it informed the Supreme Court that if the assignment of the supplier agreement to the plaintiff were held to be valid (as it ultimately was), it would pay the plaintiff’s invoices (which it subsequently did). No question of late progress payments or interest at the penalty rate arose in the Supreme Court proceedings.
- Clause 9.3 (Dispute of invoices) of the supplier agreement provides that (a) the defendant will advise the supplier of any disputed fees (and the reasons therefor) within 21 days of receiving an invoice from the supplier, and (b) the parties will use their best endeavours to resolve the dispute. Although the body of the clause refers to any disputed fees, it can only sensibly mean any disputed fees in an invoice provided by the supplier to the defendant. That is the context in which the term is used. Therefore, a “disputed invoice” should be regarded as an invoice which has been provided by the supplier to the defendant and in respect of which, the defendant has advised the supplier that some or all of the fees on that invoice are disputed.
- Therefore, I do not accept the defendant’s argument that (a) the Supreme Court proceedings resulted in those invoices being regarded as “disputed invoices” for clause 9.2(e), and (b) accordingly, the relevant “payment time” had not passed at the time that payments were made.
- Thirdly, the defendant initially disputed whether the sale of BIRS Queensland and all parties’ consent to the assignment to the plaintiff of Price Constructions’ rights and obligations under the supplier agreement effected a novation of that agreement. That was not surprising, given that the transactional terminology used in the statement of claim was “assignment” and not “novation”.
- However, as the argument progressed, the defendant conceded that a novation had been effected. In my view, that concession was correctly made. Once the defendant consented to the assignment to the plaintiff of Price Constructions’ rights and obligations (and especially, obligations), the defendant accepted (either impliedly or inferentially by conduct) that Price Constructions’ obligations under the previous contract had been released or discharged and a new contract with the plaintiff had come into effect—by novation: see ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue (NSW) (2012) 245 CLR 338, 346 , 350 -. Although the defendant’s final submissions emphasised that the language used by the parties was “assignment” rather than “novation”, that was also the case in ALH Group—but the High Court found that properly construed, the true nature of the documentation there was to effect a novation. I reached a similar conclusion in the present case.
- Fourthly, the plaintiff submitted that as a result of the novation, it (a) became the “contracted party” which was “to carry out the building work” under the contract, for section 67P(1)(a) of the QBSA Act, and (b) was therefore entitled to interest at the prescribed penalty rate. The plaintiff’s claim for such interest is in respect of work performed by both Price Constructions and the plaintiff. It includes interest on payments for work performed by Price Constructions prior to the 1 July 2013 novation date.
- The plaintiff argued that section 67P(1)(a) focusses upon the identity of the contracting party at the point in time when a particular payment was required to be made under section 67P(1)(c). The defendant was required by the supplier agreement (clause 9.2(e)) to pay on the invoice. Because of the novation, the party with the right to issue and deliver invoices (and the party which did that after 1 July 2013) was the plaintiff, regardless of whether any of the invoiced work had been performed by Price Constructions prior to 1 July 2013. As the plaintiff was the party which (a) assumed the obligation and responsibility to complete the work, and (b) was then entitled to be paid for that work, it was also the party which (c) had the rights given by section 67P.
- However, the defendant submitted that the correct focus of section 67P(1)(a) was upon the identity of the parties for the particular building contract and not upon the identity of the person with the right to issue and deliver invoices. According to its terms, the section applies if the contracting party for a building contract (namely, the defendant) is required to pay an amount (the progress amount) to the contracted party for the building contract. Section 67A defines “contracted party, for a building contract” as “the party to the contract who is to carry out the building work the subject of the contract”. That party, the defendant submitted, was Price Constructions and not the plaintiff because the contract which subsisted prior to 1 July 2013 was a contract between the defendant and Price Constructions.
- It was argued that the amount claimed by the plaintiff was (a) not for the building contract to which the plaintiff was a party—that is, the novated contract which came into existence on 1 July 2013, but rather (b) in respect of building work done by Price Constructions when it was the “contracted party” under its contract with the defendant before the novated contract came into effect. The defendant accepted that the plaintiff was entitled to payment in respect of the value of that work—but only because the entitlement had been assigned by Price Constructions to the plaintiff. In the Supreme Court proceedings (see  above), it was noted that after settlement of the BIRS Queensland sale contract on 1 July 2013, the defendant continued to make payments to Price Constructions despite the fact that they were payable to the plaintiff as “work in progress” under the standard conditions of that contract: see  QSC 39 at -. However for present purposes, and given that the defendant also later paid the plaintiff for the value of that work, nothing turns on whether the entitlement to payment had been assigned as well. The defendant further argued that (c) there was no logical basis for the plaintiff to be entitled under the novated contract to be paid penalty interest in respect of work which it did not perform.
- In my view, the defendant’s argument is correct. It is consistent with the precise wording of the statute and is also supported by authority. In Ball Construction Pty Ltd v Conart Pty Ltd  QSC 124, companies called Ball Construction, That Builder and Conart were in broadly analogous positions to the defendant, Price Constructions and the plaintiff in the present case. Relevantly, Douglas J said (at ): [emphasis added]
“The right to a progress payment under s 12 of the [Building and Construction Industry Payments Act 2004] arises if the person claiming the progress payment has undertaken to carry out construction work … under the contract. Conart had not so undertaken in respect of any rights of That Builder to the extension of time claim for the period before the novation [from That Builder to Conart]. It is difficult to see how it became entitled to a progress payment under the Act stemming from the period when That Builder was the contracting party, not Conart. It may be entitled to claim pursuant to the contract for the right assigned to it, as Ball Construction conceded through its counsel, but the submission was that those claims were not covered by s 12.”
- By parity of reasoning, just as Conart was not the contracting party under the construction contract prior to the novation, so too was the plaintiff in the present case not the contacted party for the building contract for the period before the novation. In each case, although the novation resulted in a new contract coming into existence, it did not transmogrify that new party (Conart, or the plaintiff) into the “contracting party” or the “contracted party”, respectively, for the pre-novation work. In my view, whilst the plaintiff became the “contracted party” upon the novation’s taking effect on 1 July 2013, there is no basis for concluding that the novation had some relevant retrospective operation with respect to the identity of the pre-1 July 2013 “contracted party”.
- Once it is concluded that the relevant contracted party for the pre-1 July 2013 building contract was Price Constructions, the plaintiff’s argument based upon its entitlement to deliver invoices becomes irrelevant. That is because, as a matter of language and logic, the obligation in section 67P(2) is an obligation to pay interest at the penalty rate to the contracted party. That can only mean the contracted party referred to in section 67P(1)(a)—namely, as I concluded for the pre-1 July 2013 building contract, Price Constructions.
- The plaintiff’s claim is comprised of section 67P interest on payments for the pre- and post-1 July 2013 work. Some of the work was done by Price Constructions (the pre-1 July 2013 work) and some of the work was done by the plaintiff (the post-1 July 2013 work). However, almost no evidence was provided to the Court as to the monetary breakup of those categories. That is something which could have been precisely calculated and proven by the plaintiff, but it was not. The defendant submitted that as a result, there was no basis upon which the Court could attempt those calculations and therefore the plaintiff’s claim must fail.
- At the trial, Mr Morris QC (senior counsel for the defendant) was granted leave to call Mr Bruce Carrigan (a director of the plaintiff company) as a witness for the defendant. Mr Morris QC asked Mr Carrigan if he was able to say how much of the total invoices related to work done by Price Constructions and how much related to work done by the plaintiff. Mr Carrigan said that he could not—“not off the cuff, no”, he added; but when asked if he could nominate “even a rough” percentage, he replied: “Let’s say fifty-fifty” (Transcript 2-33, lines 32-35). He did not give any evidence as to the basis for that estimate or suggest that he was sufficiently familiar with the detail to make an estimate that was anything other than an unsupported rough guess.
- The relevant principles to be applied in this regard were recently stated in In the matter of FAL Healthy Beverages and FAL Retail Pty Ltd  NSWSC 476. At , Black J said: [emphasis added]
“I recognise that the Court must do the best it can to make a reliable assessment of damages, even where damages are difficult to assess, including where the plaintiff has failed to lead the best evidence of damages: Commonwealth of Australia v Amann Aviation Pty Ltd  HCA 54; (1991) 174 CLR 64 at 83, per Mason CJ and Dawson J, 125 per Deane J, 153 per Gaudron J. At the same time, the authorities indicate that damages must be proved with a degree of precision which reflects the proof that is reasonably available to the parties and, if the evidence called on behalf of a plaintiff does not provide a rational foundation for a proper estimate of damages, the Court should decline to make one: Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd  HCA 10; (2003) 196 ALR 257 at ; JLW (Vic) Pty Ltd v Tsiloglou  1 VR 237 at 243; McCrohon v Harith  NSWCA 67 at .”
- Similarly, in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd  FCAFC 83, the Court (Allsop CJ, Middleton J and Foster J) said (at ): [emphasis added]
“As Pincus J said in Schindler [(1989) 89 ALR 275] at 319, the evidence brought by someone with an onus may be so inadequate in its totality, when the whole context is examined, that there can be said to be no rational foundation for any proper estimate. In other cases, the court is required to make its best estimate on the materials provided. The proper approach will, in any given case, be an evaluative one influenced by such considerations as the nature of the question, including its amenability to precise proof or assessment, the availability and control of evidence, and the onus of proof. Considerations such as the assessment of evidence according to the power of the party to adduce it will be important to such an evaluation”.
- The plaintiff bore the onus of proof. It could have provided the Court with details of the monetary breakup of its claim. It could have provided documentary evidence to show how much of the total invoices related to work done by Price Constructions and how much related to work done by the plaintiff. Such an apparently straightforward exercise was not even attempted. The only evidence on the point was Mr Carrigan’s unsupported rough guess of 50-50. In my view, that evidence is not a rational foundation on which the Court could make a proper estimate—and I therefore decline to make one.
- I have found that the plaintiff was not the “contracted party” for the pre-1 July 2013 work. It is therefore not entitled to interest at the penalty rate on the value of that work. However, the plaintiff failed to prove how much of the total invoices related to pre-1 July 2013 work (which was done by Price Constructions) and how much related to post-1 July 2013 work (which was done by the plaintiff). Therefore, it failed to prove the correct monetary amount of the invoices upon which interest at the penalty rate was properly payable. Those failures result in there being no rational foundation for the Court to make a proper estimate (and therefore, finding) on quantum.
- Accordingly, the plaintiff’s claim fails and there will be judgment for the defendant.
- I will hear the parties as to costs.
- Published Case Name:
Australian Building Insurance Services Pty Ltd v CGU Insurance Limited
- Shortened Case Name:
Australian Building Insurance Services Pty Ltd v CGU Insurance Limited
 QDC 18
22 Feb 2019