AM Darlinghurst Investment Pty Ltd as trustee for AM Darlinghurst Investment Trust v Growthbuilt Pty Limited

By a summons filed on 21 May 2024, the plaintiff, AM Darlinghurst Investment Pty Ltd, seeks orders quashing an adjudication determination issued on 13 May 2024 by the third defendant (the Adjudicator) under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) for the sum of $5,823,764.10 plus GST. The determination was made in respect of a payment claim made by the first defendant, Growthbuilt Pty Ltd, under a contract entered into on or about 10 February 2022 and varied on or about 23 December 2022 (the Construction Contract) by which Growthbuilt agreed to design and construct the redevelopment of three adjacent buildings in Oxford Street, Darlinghurst for a lump sum of $73.6 million.

The payment claim, which was for an amount of $18,418,735.34, was served on AM Darlinghurst on 7 March 2024. Relevantly, it claimed the following amounts in respect of variation works:

On 21 March 2024, AM Darlinghurst served a payment schedule scheduling a negative amount of $6,397,489.32. The negative amount arose from claims made by AM Darlinghurst for liquidated damages arising from delays in completing the work under the Construction Contract.

Clause 37.7 of the Construction Contract permitted AM Darlinghurst to deduct from moneys due to Growthbuilt any moneys which “the Principal [that is AM Darlinghurst] bona fide claims is or may become payable by the Contractor [that is Growthbuilt] to the Principal under or in connection with the Contract or otherwise …”.

The Construction Contract divided the work into three separable portions referred to as SP1A, SP1B and SP2, which corresponded to redevelopment of each of the three buildings. The contract provided different dates for completion of each separable portion and contained an elaborate regime for the payment of liquidated damages if there was a delay in what was described in the contract as “handover completion” for various components of each separable portion.

Annexed as Schedule 8 to the Construction Contract was a program for the works as at the Execution Date (defined as the date on which the contract was executed by the last party to do so). Under cl 32.2(g), Growthbuilt was required to “maintain the program up to date during the duration of the Contract and shall review and revise the program (as necessary) at least once every 14 days.” Clause 32.2 set out the information to be included in the program.

Under cl 34.3 of the Construction Contract, Growthbuilt was entitled to seek an extension of time if relevantly it was or would be delayed prior to the date for handover completion by a “qualifying cause of delay” (an expression which was defined in the contract) and the cause of delay impacted on an activity “on the critical path of WUC [work under contract]”.

Clause 34.5 of the Construction Contract relevantly provides:

Clause 34.7 provides that if WUC does not reach handover completion by the date for handover completion “the Principal’s Representative shall certify, as due and payable to the Principal, liquidated damages [as calculated in accordance with the contract] for every day after … the date for handover completion to and including the earliest of the date of handover completion or termination of the Contract …”.

At the time AM Darlinghurst served its payment schedule, the Principal’s Representative also served a certificate of liquidated damages under cl 34.7 stating that the liquidated damages were $7,360,000 (applying a cap in the Construction Contract of 10 percent of the value of the works) and providing a breakdown of the amount of liquidated damages to which AM Darlinghurst claimed to be entitled.

Growthbuilt lodged its adjudication application with the second defendant, Resolution Institute, on 8 April 2024. In that application, Growthbuilt sought determinations of claims for extensions of time. On that issue, it said:

In support of its application, Growthbuilt provided a statutory declaration from Mr Daniel Litchfield, the senior project manager with Growthbuilt, and expert reports from Mr Daniel Such and Mr Nick White.

In his statutory declaration, Mr Litchfield sets out the history of the project including the history of disputes that had arisen between AM Darlinghurst and Growthbuilt concerning the project. Relevantly, he says that at a joint site inspection on 19 May 2023 an employee of the plaintiff stated that AM Darlinghurst was not able to resolve claims for variations without understanding the likely completion date. Mr Litchfield says that in response he agreed to put together a program on a without prejudice basis and explained that he “was not able to issue the forecasted dates on an open basis until [Growthbuilt’s] claims had been submitted and assessed by the Principal”. As a result, he says that on 31 May 2023 he issued a document to AM Darlinghurst titled ‘Oxford and Foley Programme Analysis’ which was said to be issued on a ’without prejudice’ basis. Mr Litchfield explains that between May and August 2023 he issued a number of construction programs to AM Darlinghurst on a “without prejudice” basis which he says were “to assist the commercial discussions we were having about the Project”. Growthbuilt did not issue any other programs during that time. Mr Litchfield also gives evidence of discussions he had with representatives of AM Darlinghurst concerning those without prejudice programs – particularly one dated 15 August 2023.

Mr Such gives programming evidence. He expresses the opinion that Growthbuilt was entitled to an extension of time of 215 working days in respect of SP1A, 261 working days in respect of SP1B and 14 working days in respect of SP2.

Mr White is a quantity surveyor who provided an expert report on the costs of various disputed items included in the variation claims.

AM Darlinghurst served its adjudication response on 16 April 2024. The adjudication response included a number of appendices which dealt separately with the variation claims by Growthbuilt including the four variation claims in issue in this proceeding. The adjudication response also included statutory declarations from Mr Vincent Santos and Mr John Lyle. Mr Santos is the senior development manager employed by AMP Darlinghurst. He responds to the evidence given by Mr Litchfield. In response to the evidence given by Mr Litchfield in relation to the without prejudice programs, Mr Santos said (at para 114):

Mr Lyle was the principal’s representative under the Construction Contract in or about October 2023. He gives evidence in relation to the causes of delay.

The adjudication response also included an expert report from Mr Jonathan Shahady of TBH Consultancy, which responded to the report prepared by Mr Such.

The Adjudicator handed down her determination on 13 May 2024. Relevantly, she concluded that:

AM Darlinghurst takes issue with each of these conclusions.

The task of an adjudicator appointed under s 19 of the Act is to determine an adjudication application in accordance with the Act. In making his or her determination, the adjudicator must comply with the timetable set out in s 21 and “is to consider … only” the matters set out in s 22(2). It is well established that in undertaking that task, the adjudicator is required to observe the rules of natural justice: see Brolton Group Pty Ltd v Hanson Construction Materials Pty Ltd [2020] NSWCA 63 at [66-67] per Gleeson JA (with whom Meagher and Payne JJA agreed).

Relevantly to the present case, a number of matters follow from this statement of the adjudicator’s task.

First, it is accepted that the task of the adjudicator is to resolve the dispute between the parties as identified by the adjudication application and the response and in doing so is to determine the matters set out in s 22(1) of the Act – most relevantly, the amount of the progress payment (if any) to be paid by the respondent to the claimant. It would be a jurisdictional error for the adjudicator to determine an issue not raised by the parties — for example, to determine that the respondent owed an amount not claimed by the claimant. Conversely, it is not a jurisdictional error for an adjudicator “to fail to consider a matter outside the scope of the dispute presented by the parties as required by the statute” see Ceerose Pty Ltd v A-Civil Aust Pty Ltd [2023] NSWCA 215 (Ceerose) at [84] per Payne JA (with whom Ward ACJ and Basten AJA agreed). Consequently, “the absence of material including a reason put forward by the respondent for not paying the payment claim, entitles an adjudicator to award the amount of the claim without “addressing its merits””: ibid.

Second, in resolving the dispute, the adjudicator must generally only consider the matters set out in s 22(2) of the Act. However, that does not mean that the adjudicator must give any particular weight to the matters the adjudicator is required to consider. It is open to the adjudicator, for example, to reject material as being irrelevant or as carrying no weight or as being outweighed by other material; and in reaching conclusions on those matters it is irrelevant that the adjudicator has misunderstood the material or misinterpreted the construction contract or chosen to give some material weight that it does not bear: see Ceerose at [52]; Ausenco Operations Pty Ltd & Anor v Ferretti International Ottoway Pty Ltd & Anor [2020] SASC 46 (Ausenco) at [50] per Doyle J.

Third, as I have said, an adjudicator is bound by the rules of natural justice. One aspect of those rules is that the adjudicator must give reasons for his or her decision: s 22(3)(b) of the Act. Another is that the adjudicator must afford parties procedural fairness and in doing so must not decide an application on a basis not raised by the parties, and which could not reasonably have been anticipated by the parties, without first inviting submissions on that basis: JKC Australia LNG Pty Ltd v Inpex Operations Australia Pty Ltd [2018] 334 FLR 314; [2018] NTCA 6 at [38]; Rhomberg Rail Australia Pty Ltd v Concrete Evidence Pty Limited [2019] NSWSC 755 at [17] and the cases cited there; Ausenco at [50], [64].

However, it is necessary to bear in mind that the content of these principles is affected by the context in which they are to be applied. An adjudication determination does not finally determine the rights and obligations of the parties. Normally, an adjudicator is not legally trained and is expected to bring his or her specialised knowledge to the task. The timetable placed on the adjudicator has been described as “brutally fast”: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4 at [40]. The adjudicator (as here) is often served with a vast amount of material running into hundreds if not thousands of pages which raise a broad range of issues that may not be clearly identified. Consequently, it is to be expected that an adjudicator’s reasons will be attenuated and will not necessarily be expressed with the degree of rigour that might be expected of a court: Cockram Construction Ltd v Fulton Hogan Construction Pty Ltd (2018) 97 NSWLR 773; [2018] NSWCA 107 at [17]; Southern Cross Electrical Engineering Ltd v Steve Magill Earthmoving Pty Ltd [2018] NSWSC 1027 at [33-34]. Accordingly, only in rare cases will be it possible, for example, to infer from the absence of reasons that an adjudicator failed to consider a matter that he or she was required to consider. The absence of reasons may simply reflect a conclusion by the adjudicator that the matter was not important or a misunderstanding on the part of the adjudicator of the facts or the legal principles to be applied: see Ceerose at [62]ff per Payne JA (with whom Ward CJ and Basten AJA agreed). Similarly, only if there has been a substantial denial of procedural fairness which leads to a substantial practical injustice will the court find that there has been jurisdictional error under the Act: see Demex Pty Ltd v McNab Building Services Pty Ltd [2023] NSWCA 261 at [14]ff, particularly at [32] per Kirk JA (with whom Mitchelmore and Adamson JJA agreed).

AM Darlinghurst identifies what are said to be four errors with the Adjudicator’s determination which affect its validity. First, it submits that the Adjudicator committed a jurisdictional error by concluding that she should not consider the expert report of Mr Shahady. Second, it submits in relation to variations V20034, V20061 and V20071 that the Adjudicator failed to consider material provided by it. Third, it submits in relation to variation V20052 that the Adjudicator relied on a ground for agreeing to the extension that was not advanced by Growthbuilt. It makes a similar claim in relation to variation V20071, although the complaint in that case is that the Adjudicator does not explain the basis on which she thought Growthbuilt was entitled to an extension. Lastly, AM Darlinghurst submits that the Adjudicator wrongly treated Growthbuilt’s claims for an extension of time as a complete defence to AM Darlinghurst’s claim for liquidated damages, whereas the issue between the parties was what amount should be deducted for liquidated damages (if any) given the extensions of time that were allowed.

AM Darlinghurst submits that the Adjudicator refused to consider Mr Shahady’s report because it was based on without prejudice communications and the Adjudicator did not have sufficient time to identify what parts of the report depended on the without prejudice communications. That is said to involve two errors. The first is that AM Darlinghurst was denied procedural fairness because it was not an issue between the parties, and it was not raised with AM Darlinghurst, that the Adjudicator should or might reject the report because it referred to without prejudice material. The only issue raised by Growthbuilt in relation to admissibility concerned a without prejudice program issued by it on 12 March 2024 for the purpose of settlement discussions. However, Mr Shahady did not rely on that document. The second is that the Adjudicator committed a jurisdictional error by failing to consider Mr Shahady’s report, which was one of the matters that the Adjudicator was required to consider by s 22(2) of the Act.

In my opinion, both those submissions must be rejected.

In its payment schedule, AM Darlinghurst had referred to the program dated 12 March 2024. In its adjudication application, Growthbuilt objected to those references. It said this:

In its adjudication response, AM Darlinghurst did not specifically refer to this submission. It did refer to the evidence concerning the earlier claims in relation to without prejudice privilege. In relation to those, it simply commented (at para 164(b)):

In my opinion, AM Darlinghurst was fairly on notice that Growthbuilt claimed that the programs prepared between May and August 2023 were the subject of a claim for without prejudice privilege. That is what Mr Litchfield asserts in his statutory declaration, and the passage quoted above from the adjudication response appears to acknowledge as much. Moreover, it appeared to be common ground between the parties that without prejudice material could not be relied on by either party in the material they submitted in relation to the adjudication determination. That is certainly what was asserted by Growthbuilt in its adjudication application on the basis of a number of authorities which it referred to and which AM Darlinghurst did not take issue with. It is true that in its adjudication application Growthbuilt only referred to the document dated 12 March 2024. But that was because the adjudication application was dealing with a specific reference to that document in the payment schedule. It did not become apparent until AM Darlinghurst served its adjudication response and Mr Shahady’s report that it intended to rely on other communications that were also marked “without prejudice”. But that does not alter the fact that it was apparent that Growthbuilt asserted that those other documents were protected by without prejudice privilege and that it appeared to be common ground that a party was not entitled to rely on material of that type. It was open to the Adjudicator in those circumstances to conclude that Mr Shahady could not rely on that material when preparing his report.

AM Darlinghurst’s real complaint appears to be that the relevant material was not properly the subject of a claim for without prejudice privilege or, if it was, the privilege had been waived by service of Mr Litchfield’s statutory declaration which refers to the material. But if that was AM Darlinghurst’s position, it was a position that needed to be put to the Adjudicator. On the material before the Adjudicator, AM Darlinghurst ought reasonably to have anticipated that the Adjudicator might conclude the relevant programs were the subject of without prejudice privilege and could not be relied on.

As to AM Darlinghurst’s second ground, the Adjudicator, after concluding that Mr Shahady had relied on the without prejudice programs in preparing his report said:

AM Darlinghurst submits that these paragraphs must be understood as a refusal by the Adjudicator to consider material she was required to consider under s 22(2) of the Act, which relevantly required the Adjudicator (in para (d)) to consider “the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the [respondent] in support of the schedule”.

I do not accept that submission. The Adjudicator plainly considered Mr Shahady’s report. However, she concluded that it was not practical in the time available to separate those parts of the report that depended on without prejudice communications from those that did not. Consequently, she decided to give the report no weight. Her decision to do so was within jurisdiction.

AM Darlinghurst submits that the Adjudicator failed to consider submissions and evidence given by it in relation to the reasons for the delay and, in particular, failed to consider evidence given by Mr Lyle in relation to concurrent causes of delay.

It is convenient to take variation V20034 as an example. As I have explained, AM Darlinghurst in its adjudication response provided general submissions and then attached a number of schedules which make specific submissions in relation to each variation claim. Paragraph 29(e) of the specific submissions in relation to variation V20034 said:

In his statutory declaration, Mr Lyle describes the history of the project and expresses the view that the critical works took much longer than they should have and involved a sequencing that was not reflected in any program provided by Growthbuilt. Specifically, he says that Growthbuilt failed to procure structural steel and scaffolding in a timely manner, and he gives details of those assertions. Mr Lyle also gives evidence (at para 41) that following visits to three of Growthbuilt’s subcontractors, it was “plainly obvious to me that at that time the base building and subcontract design was not complete, and Growthbuilt did not have an approved construction methodology on roof/façade construction”. He concludes (at para 43):

In relation to variation V20034, Mr Lyle refers to the relevant paragraphs of Mr Such’s report and says:

The Adjudicator does not refer to Mr Lyle’s evidence when considering variation V20034. AM Darlinghurst submits that the evidence was important and that the only inference that can be drawn from the Adjudicator’s failure to refer to the evidence is that she did not consider it.

I do not accept that submission. As Payne JA pointed out in Ceerose at [62]ff there may be a number of reasons why an Adjudicator does not refer to particular material. In the present case, AM Darlinghurst itself does not refer to Mr Lyle’s evidence in that part of its Adjudication Response dealing with variation V20034. There was clearly competing evidence from Mr Such on the causes of delay. Moreover, the Adjudicator did discuss Mr Lyle’s evidence in relation to V20052. In that context, she said:

The only conclusion that can be reached from these paragraphs is that the Adjudicator did consider Mr Lyle’s statutory declaration but for whatever reason chose not to deal with it specifically in relation to each variation claim. That is perhaps understandable when AM Darlinghurst does not specifically refer to it in its adjudication response submissions in relation to variations V0034, V0061 and V00071. Even assuming that the Adjudicator’s failure to refer to Mr Lyle’s evidence in relation to each variation was an oversight in drafting her report, that is not a jurisdictional error. The most that could be said is that the Adjudicator did not specifically refer to evidence that she had largely rejected in a related context.

Growthbuilt claimed that it was entitled to an extension of time (EOT) in relation to variation V20052. In relation to that claim, the Adjudicator said:

AM Darlinghurst submits that the Adjudicator must be understood as saying in these paragraphs that an EOT could be granted under cl 34.5 by the principal’s representative as a matter of discretion and that therefore Growthbuilt was entitled to an extension of time. According to AM Darlinghurst, in reaching that conclusion, the Adjudicator relied on a ground not advanced by Growthbuilt without giving AM Darlinghurst an opportunity to address that ground, with the result that it was denied procedural fairness.

I do not accept that submission. Growthbuilt claimed to be entitled to an EOT under cl 34.3 of the Construction Contract, and that is the basis on which the Adjudicator concluded that it was entitled to an EOT. That is apparent from the fact that the Adjudicator says (in para 442 of her Determination) that she considers that “this Variation V20052 has arisen under a qualifying cause of delay”. Whether there had been a “qualifying cause of delay” is only relevant to an extension under cl 34.3. It is irrelevant to an extension under cl 34.5.

The reference in para 441 to “this clause” is a reference to cl 34.9, which deals with Growthbuilt’s right to claim delay damages. The Adjudicator rightly says that she did not need to make a finding regarding the interpretation of that clause to determine whether Growthbuilt was entitled to an extension of time. The Adjudicator also refers to a right to seek an extension under cl 34.5 (although she does not identify the clause specifically). But the fact that she refers to the clause does not mean she relied on it.

The Adjudicator does not identify in the paragraphs quoted the qualifying event. However, it is reasonable to conclude that she accepted Growthbuilt’s submissions in that regard. That does not involve any error, let alone a jurisdictional one.

The same point applies to variation V20071. In concluding that Growthbuilt was entitled to the extension of time, the Adjudicator must be taken to have accepted Growthbuilt’s submissions in that regard.

The Adjudicator said this in relation to liquidated damages:

AM Darlinghurst submits that in reaching this conclusion, the Adjudicator decided the claim on a basis not in issue between the parties. It submits that it was common ground that liquidated damages could be set off against the amount claimed by Growthbuilt. It was therefore necessary to calculate the amount of liquidated damages to which AM Darlinghurst was entitled. That depended on the number of days delay that had occurred in achieving handover completion for various components of each separable portion, which in turn depended on the EOTs to which Growthbuilt was entitled in respect of each separable portion. Consequently, the issues between the parties were the number of days extension (if any) to which Growthbuilt was entitled in respect of each separable portion, the number of delays (if any) for which Growthbuilt was liable after taking account of those extensions and the amount of liquidated damages (if any) that was payable in respect of those days of delay, which was then to be deducted from the amount to which Growthbuilt was found to be entitled. Instead, the Adjudicator determined that because Growthbuilt was entitled to the EOTs it claimed, it was not liable to pay any liquidated damages. According to AM Darlinghurst, that was not a case advanced by Growthbuilt.

Growthbuilt, on the other hand, submits that it did advance that case. It says that the argument advanced by AM Darlinghurst was not put to the Adjudicator. Consequently, the Adjudicator could not have committed a jurisdictional error in failing to consider that argument.

AM Darlinghurst’s payment schedule stated that against the scheduled amount to which it accepted Growthbuilt was entitled ($1,058,761.75) should be set off liquidated damages “assessed to date per CL 37.7” of $7,360,000.00. As I have explained, that figure was broken down in a certificate of liquidated damages from the Principal’s Representative served on the same day.

In its adjudication application, Growthbuilt relevantly said this in relation to liquidated damages:

In response, AM Darlinghurst said this in its adjudication response:

It is apparent from the passages quoted above that Growthbuilt did advance a case that AM Darlinghurst was not entitled to any liquidated damages at least where she accepted all of Growthbuilt’s claims for EOTs. That was said to be so because “it will logically mean the Principal’s entitlement to certify and set off the liquidated damages is unfounded”. It may be that that submission had no merit. But that is beside the point. It was a submission made by Growthbuilt, which was not directly addressed by AM Darlinghurst. It was open to the Adjudicator in those circumstances to accept Growthbuilt’s submission, which is what she did.

It follows that AM Darlinghurst’s summons filed on 21 May 2024 must be dismissed with costs.

Accordingly, the orders of the Court are: