Sunshine East Pty Ltd v CBEM Holdings Pty Ltd [2023] NSWSC 744

1. The Hamilton Mott team, acting for civil contractor CBEM Holdings Pty Ltd, recently instructed junior counsel Mark Sheldon in a Supreme Court of New South Wales appeal proceeding in which we succeeded.

2. The appeal concerned a contractor’s right to payment under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA). An issue in dispute was whether the works were for residential building work as defined under the Home Building Act 1989 (NSW) (HBA) and if so, whether the contractor was entitled to payment despite the contractor not maintaining the requisite Home Building Compensation Fund insurance (known as “home warranty insurance”) or maintaining a trade licence (required for performing residential building work).

3. We won. The contractor had statutory rights under SOPA, so it was entitled to the interim payment which SOPA afforded despite the insurance and licencing matters raised by the principal. Lessons learnt: SOPA rules. This is just one in another line of authority which serves as a lesson to principals and lawyers alike: seeking to thwart SOPA can be a futile and costly exercise for all involved.

4. What was particularly novel about this case was that it related to parties which had entered into trade contracts. That is, where a project manager had engaged the contractor on behalf of the principal. To our knowledge, such a trade contract arrangement has not been the subject of judicial commentary in the SOPA context.

Background

5. Parties:

(a) CBEM Holdings Pty Ltd – contractor (represented by Hamilton Mott and Mark Sheldon of counsel);

(b) Chunlin Fan (registered proprietor of the land at Dural where the works were performed);

(c) Sunshine East Pty Ltd (Chunlin Fan was one of the directors of this entity).

6. Chunlin Fan entered into a “Project Agreement” with ASY Constructions Pty Ltd in April 2021, to ostensibly construct a mansion in Dural, NSW together with a minigolf hole, tennis court and various other amenities. However, this contract was never truly relied on by the parties.

7. ASY and Chunlin Fan then also entered into a “Construction Management Contract” for ASY to act as a construction manager/project manager, with Fan as Principal. Fan owns the property in Dural. The form of this document specified that it is “not for use in non-residential building projects”.

8. The Construction Management Contract contemplated ASY, as the agent of Fan, entering into separate “Trade Contracts” for the performance of the works.

9. ASY then entered into a Trade Contract for civil and stormwater work with CBEM with a contract price of $1,611,078.51 (excluding GST). The Trade Contract was signed by ASY for and on behalf of the “Principal”, which nominated Fan but also Sunshine East Pty Ltd (despite Sunshine East Pty Ltd not being a party to the further upstream Construction Management Contract).

10. The Trade Contract provided for progress claims to be made monthly, with amounts corresponding with the extent of works completed. The first three payment claims were paid in full by Sunshine East Pty Ltd.

11. Payment claim no. 4 was served on 27 October 2022 in the amount of $420,952.39 but neither Sunshine East nor Fan responded to it as required by section 14 of the Act, triggering a right a statutory debt under section 15 of SOPA.

District Court of New South Wales proceedings

12. The Judicial Registrar of the District Court entered a summary judgement against Sunshine East and Fan. Sunshine East and Fan were ordered to pay $420,952.39 for the progress amount claimed due to CBEM. It was found that there was no triable defence for this by force of the Security of Payment Act, regardless of the insurance and licencing issues raised in defensive submissions.

Supreme Court of New South Wales proceedings

13. Sunshine East/Fan appealed to the Supreme Court of NSW. The appeal turned on whether there was a “triable defence”, given the District Court decided the matter on a summary judgment basis only. That is, the District Court decided the matter on the basis that there was no “triable defence”. Sunshine East/Fan appealed on three grounds:

(a) whether Fan was a party to the Trade Contract under which CBEM claimed the progress payment for building works completed;

(b) whether the work was “residential building work” under the HBA and if so, whether CBEM performed the work without having a contract of insurance that would prohibit CBEM from receiving payment by the operation of s94 of the HBA.

(c) whether CBEM was unlicensed for the purposes of the HBA in respect of the work and whether it was prohibited from recovering payment of the progress claim for that reason.

14. Fagan J found (in order of the three grounds of appeal):

(a) Chunlin Fan was a party to the Trade Contract with CBEM. Fan was named as one of two “Principals” on the Trade Contract. Fan’s agent, Mr Jianwei Bi, also the director of Sunshine East, gave evidence that he was present when the Trade Contract was signed. It was found to be totally incredible that now, many months later, Fan was denying that he had given authority for ASY to enter into the Trade Contract with CBEM on behalf of Fan.

(b) The compulsory insurance provisions set out in the HBA require that CBEM could not carry out residential building works unless there was a contract of insurance in force for the works. There was a breach of s92 of the HBA. Without this, Sunshine and Fan said CBEM was not entitled to claim payments unless a court considered it just and equitable (s94(1A)). However, CBEM’s quote expressly disavowed any obligation to obtain insurance – that was on ASY. And in any event, even without insurance, CBEM was expressly entitled, under the HBA, to recover money on a quantum meruit basis, despite the absence of the required insurance.

(c) The HBA requires that a person must not contract to do any residential building work except as, or on behalf of, a corporation that is the holder of a contractor license. CBEM performed the works without a license which would make it unable to claim damages in respect of a breach of the contract committed by another party. Except, s10 does not extend so far as to stop recovery of Security of Payment statutory debt: Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421. Justice Fagan was bound by this previous Court of Appeal decision.

15. A link to the case is here: Sunshine East Pty Ltd v CBEM Holdings Pty Ltd - NSW Caselaw.