CC Builders (Aust) Pty Ltd v Milestone Civil Pty Ltd

1. [1]

   These proceedings, commenced by Summons and by Technology and Construction List Statement, concern the Second Defendant’s determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the “Act”) on 30 May 2019 (revised on 3 June 2019).

2. [2]

   The Second Defendant is the Adjudicator (“the Adjudicator”) whose determination is the subject of attack by the Plaintiff, CC Builders (Aust) Pty Ltd (“CCB”). The Second Defendant has filed a submitting appearance, as is usual in these types of cases. Ms S. Foda of Counsel appears for CCB.

3. [3]

   The Adjudicator determined that CCB owed an amount of $113,767.87 (inclusive of GST) to Milestone Civil Pty Ltd (“Milestone”), the First Defendant, for whom Mr D. Hume of Counsel appears. Following the adjudication, Milestone was able to obtain payment of that amount from the head contractor, which then presumably deducted the equivalent amount from money due to CCB. CCB seeks to recover the adjudication amount from Milestone in these proceedings by having the Adjudicator’s determination set aside. CCB also seeks to attack the Adjudicator’s decision in relation to his fees for the adjudication that he directed be paid wholly by CCB even though Milestone did not recover all of the money that it claimed from CCB.

4. [4]

   Ms Foda identified the four areas of complaint in relation to the determination as:

   1. (1)

      A denial of natural justice and procedural fairness in that, it was submitted, the Adjudicator did not pay regard to or properly consider CCB’s payment schedule and/or the issue of delays alleged by CCB to have been caused by Milestone.

   2. (2)

      A jurisdictional error by the Adjudicator in allowing the sum of $18,561.25 as a variation in respect of pile bench rectification.

   3. (3)

      A jurisdictional error in relation to a claim for carry over work (“the Carry Over issue”) - an amount of $77,982.27 which was allowed by the Adjudicator.

   4. (4)

      The fees award to which I have early referred, being an amount of $10,000.

5. [5]

   In relation to the fees award, s 29(3) of the Act is in the following terms:

6. [6]

   During the course of the hearing, Ms Foda conceded that the complaint in relation to the second of the four items above could not be sustained. She also informed me that the fees award issue would not be pressed if CCB was unsuccessful on the other items.

7. [7]

   I received written submissions from both Ms Foda and Mr Hume, and oral submissions clarified aspects of the case.

8. [8]

   As Mr Hume pointed out, in considering the complaints made concerning the Adjudicator regard needs to be had to the purposes of the Act (and of security of payment legislation in general), namely to provide: “a speedy and effective means of ensuring cash flow to builders from the parties with whom they contract” (RJ Neller Building Pty Ltd v Ainsworth [2008] QCA 397; [2009] 1 Qd R 390 at [39] per Keane JA, cited in Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd [2017] NSWCA 53; (2017) 94 NSWLR 606 at [10] per Basten JA with whom Beazley ACJ agreed at [2]; see, also, All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd [2017] NSWCA 289 at [9] per Leeming and Payne JJA with whom White JA agreed at [48]), and that “pay now, argue later” is an underlying principle: see Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151; (2017) 95 NSWLR 82 (“Probuild v DDI”) at [102] per McColl JA with whom Beazley ACJ and Macfarlan JA agreed at [1] and [146] respectively.

9. [9]

   The Court of Appeal has described the effect of the scheme of the Act as “rough justice” (Probuild v DDI at [130] per McColl JA), but it needs to be borne in mind that the rights given by the Act are interim only and an adjudicator’s determinations have no force or effect on a final hearing: see ss 3 and 32 of the Act.

10. [10]

    Other matters of general principle relied on by Mr Hume, which Ms Foda did not contest, are:

    1. (1)

       The reasons given by an adjudicator are to be construed generously: see Iskra v MMIR Pty Ltd [2019] NSWCA 126 at [49].

    2. (2)

       Adjudicators are very often not legally trained and their reasons should not be viewed through the prism of legal concepts nor analysed too closely.

    3. (3)

       The whole adjudication process is supposed to be speedy, putting pressure on the adjudicator and discouraging lengthy legal analysis: Southern Cross Electrical Engineering Ltd v Steve Magill Earthmoving Pty Ltd [2018] NSWSC 1027 at [33]-[35] per McDougall J.

The Denial of Natural Justice Claim

1. [11]

   Section 22 of the Act provides:

2. [12]

   Section 20(2B) of the Act provides:

3. [13]

   CCB’s claim on this issue is made up of the following points:

   1. (1)

      By its payment schedule, CCB claimed that Milestone had delayed the completion of the Contract. There were two periods of delay asserted: one being 21 November 2018 to 22 February 2019 (the “First EOT claim”) and the second being a period of 23 February 2019 to 24 April 2019 (the “Second EOT claim”): see the letter at CB 115-118 dated 24 April 2019. The payment schedule has these two paragraphs on this point (CB 118):

   2. (2)

      The Adjudicator referred to the Second EOT claim at [133] of his reasons (CB 219) stating:

   3. (3)

      The Adjudicator’s view that CCB was prevented from including the Second EOT claim in its adjudication response is clearly founded on the view that CCB had not advanced the Second EOT claim in its payment schedule.

   4. (4)

      The view that CCB had not raised the Second EOT claim in its payment schedule is clearly erroneous, even having regard to the Adjudicator’s reasons themselves. By reason of that error, the Adjudicator has wrongly precluded himself from considering CCB’s submissions on the topic of the Second EOT claim.

   5. (5)

      The failure to consider CCB’s submissions on the Second EOT claim amounts to a failure to accord procedural fairness, amounting to a denial of natural justice that should lead to the setting aside of the Adjudicator’s rejection of CCB’s claim.

4. [14]

   I think that [13](1)-(4) above are made out but the question is whether the submission in [13](5) should be upheld.

5. [15]

   Mr Hume submitted that:

   1. (1)

      The determination of the scope and nature of the payment is a matter for the Adjudicator (Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157) and the Adjudicator construed the payment schedule as not claiming liquidated damages for the period after 22 February 2019. Errors in construing the Contract or in understanding the payment claim or payment schedule do not constitute jurisdictional errors: Iskra at [50]-[52]; Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2018] NSWCA 339 at [16]-[19], [27].

   2. (2)

      In relation to the payment schedule, the Court of Appeal said in Perform at [67] per Giles JA (with whom McColl and Young JJA agreed):

   3. (3)

      Whether a submission has been duly made is a matter for the Adjudicator: Downer Construction (Australia) Pty Ltd v Energy Australia [2007] NSWCA 49; (2007) 69 NSWLR 72 at [86]:

6. [16]

   I note that support for Milestone’s position is obtained from John Dorter and John Sharkey in Building and Construction Contracts in Australia (Thomson Reuters, loose-leaf, 2019) at 3-15123, who summarise the position as follows:

7. [17]

   I raised with Mr Hume the difficulty that the Adjudicator at para 136 of his reasons appeared to ignore the fact that CCB did raise the Second EOT claim in its payment schedule, inconsistently with para 133 of his reasons, and that the Adjudicator was obviously wrong to have concluded that CCB had not done so (and hence to have concluded that the submission was not “duly made”). Mr Hume accepted that the Adjudicator “might be wrong” and did not point to any other material which would explain how the Adjudicator arrived at his conclusion, but Mr Hume contended that it did not matter having regard to what had been said in John Holland Pty Ltd v Roads and Traffic Authority of New South Wales [2007] NSWCA 19 per Hodgson JA (with whom Beazley JA agreed) that an erroneous determination by an adjudicator as to whether a submission was duly made did not invalidate the adjudicator’s decision. In Basten JA’s judgment (concurring in the result), his Honour said at [71] said that “the scope of the payment schedule” and the identification of submissions “duly made” by the respondent in support of the schedule are “matters to be determined by the adjudicator.”

8. [18]

   In John Holland, the RTA claimed that part of the contractor’s claim could not be dealt with because of a lack of jurisdiction to deal with contested EOT claims (see [13] of the judgment and para 80 of the RTA’s submissions). The RTA contended that the adjudicator had failed to consider and deal with the jurisdiction point. An Associate Judge upheld RTA’s complaints concerning the issue and found that the adjudicator had failed to comply with a basic and essential requirement for the existence of the adjudication determination set out in the Act, that the adjudicator had not bona fide attempted to exercise the relevant power and that there had been a denial of the measure of natural justice that the Act required to be given. Hodgson JA held that the RTA submission was made in breach of s 20(2B) and was not duly made. His Honour went on to consider the consequence if the RTA submission had been duly made and said:

9. [19]

   It will be observed that in John Holland there were clearly reasons why the adjudicator was entitled to form the view that the “jurisdiction” submission was not duly made (the Court of Appeal itself holding that it was not duly made) but, importantly, I note his Honour’s use of the word “reasonable” in the phrase: “a reasonable if erroneous decision”. The same approach was taken by Giles JA in Downer at [87]:

10. [20]

    In Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd [2005] NSWCA 142 at [49], a case which was cited in Downer, Hodgson JA said of s 22(2) that it:

11. [21]

    In Brodyn Pty Ltd (t/a Time Cost & Quality) v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421, Hodgson JA summarised (at [55]-[56]) the basis on which the Courts might intervene in respect of adjudications made under the Act:

12. [22]

    In Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190; (2010) 78 NSWLR 393 the Court of Appeal confirmed that adjudicators under the Act are amenable to judicial review and Brodyn was held to be in error on several points: see [108] per Basten JA, with whom Spigelman CJ and McDougall JA agreed at [56] and [287] respectively. Basten JA (at [102]) expressed the view that an adjudicator could not determine the validity of an adjudication application but commented that if, contrary to his view, an adjudicator could determine the validity of an adjudication application, then:

13. [23]

    In Timwin Construction v Façade Innovations [2005] NSWSC 548; (2005) 21 BCL 383 (a case on which Ms Foda relies) McDougall J held that the adjudicator had denied the builder natural justice by virtue of how he dealt with Timwin’s submission in response to the subcontractor’s claims against it, and he set aside the determination. McDougall J (at [1]) summarised the bases upon which, according to Brodyn, a determination could be set aside:

14. [24]

    McDougall J in Timwin referred to the passages from [55] and [56] of Brodyn set out above and then said (at [29]) that the adjudicator:

15. [25]

    It will be observed that this case is similar to Timwin.

16. [26]

    In Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2007] NSWSC 941, an adjudicator excluded from consideration a relevant report and determined that the claimant had not substantiated the allegation that the tiles were defective. Hammerschlag J held (at [58]) that the adjudicator had not determined that the report was not part of a submission, or material in support of it, “duly made”. His Honour proceeded:

17. [27]

    It will be observed that Hammerschlag J (at [61]) accepted that, whilst natural justice might require the adjudicator to consider the report, if he determined (even erroneously) that a submission was not duly made, that would not produce the result that there was, for the purposes of the Act, a substantial failure to afford natural justice which would work practical injustice on the plaintiff and render the whole adjudication void.

18. [28]

    In Emergency Services Superannuation Board v Davenport [2004] NSWSC 697 McDougall J held that the decision of an adjudicator should be quashed by reason of the adjudicator’s failure to accord procedural fairness to the principal on two heads of claim because the adjudicator found against the principal on a basis expressly disavowed by the contractor: see [39], [50] and [62].

19. [29]

    None of the authorities referred to in Sharkey and Dorter at [16] above deal with circumstances similar to those in this case. I draw from John Holland and Downer the notion that whilst decisions on whether a submission is duly made is a matter for the adjudicator not the Court to determine, a decision that a submission was not duly made which is not reasonable or which is without foundation will not be immune from correction by the Court. I think that Timwin and Emergency Services offer support for this conclusion.

20. [30]

    CCB contends (in its submissions of 30 July 2019) that it cannot have been intended that the Court would not be able to correct a clear example of procedural unfairness which would otherwise:

21. [31]

    In the present case it appears that the Adjudicator did determine, in effect, that the submission by CCB was not duly made, but apparently because, inferentially, he took the view (for which there was no identifiable basis) that the payment schedule did not include the Second EOT claim.

22. [32]

    In a sense, this case involves the intersection of two important principles:

    1. (1)

       The clear restriction of intervention by the Court in adjudications under the Act; and

    2. (2)

       The need for “the measure of natural justice that the Act requires to be given” (per Hodgson JA in Brodyn) and adherence to the requirements of s 22.

23. [33]

    It is apparent that an adjudicator is required to take into account the submissions of the parties: s 22(2)(c) of the Act. If the submissions traverse a matter not contained in the payment schedule (or the payment claim) s 20(2B) prevents the respondent (or claimant) from including that matter in its adjudication response (or adjudication claim). I accept that if the Adjudicator has found that a submission was not duly made for reasons that are reasonable (albeit erroneous) it is not for the Court to determine whether or not the Adjudicator was correct to so conclude, and the Adjudicator’s decision would not constitute a denial of procedural fairness. However, if the Adjudicator does not explain how he has concluded that the adjudication response or submissions relate to a claim that has not been advanced in the payment schedule, but there is clear evidence that they do (and the Adjudicator’s own reasons confirm that they do), then there is a lack of reasonableness and rationality as to the determination that the submissions were not duly made because they were not contained in the payment schedule. The decision to exclude the submission amounts to a denial of procedural fairness establishing jurisdictional error (see Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379; (2016) 95 NSWLR 157 at [3] per Basten JA, with whom Macfarlan and Leeming JJA agreed at [91] and [92]) and the failure to consider the submissions, duly made, constitutes jurisdictional error on the issue of the Second EOT claim.

24. [34]

    I am fully aware of the considerable pressure on adjudicators and it can be seen that the Adjudicator in this case was called upon to determine many issues. Nevertheless, I am persuaded that his decision to reject CCB’s submission on the Second EOT claim had no rational or reasonable basis, taking this case outside of the strictures of John Holland, and cases such as Icon and Perform.

25. [35]

    I shall deal with the consequences of that conclusion after I have dealt with the Carry Over and Fees issues.

Carry Over

1. [36]

   One of Milestone’s claims was that CCB had not paid to it all of the monies that had been assessed as due to Milestone under the Contract. Ms Foda submitted that whilst Milestone claimed that $245,046 had been assessed as due (of which $168,000 had been paid), there was no evidence before the Adjudicator that the $245,000 had been assessed and, hence, that $77,000 was due.

2. [37]

   Mr Hume drew attention to CB 87, being a progress claim by Milestone recording the amount of $245,046.82 as agreed to be paid, but also CB 594 - “Assessment Progress Claim 05” - a document produced by CCB. The latter document shows a total assessed to be paid of $247,474.47 and an amount yet to be paid of $78,416.71, although that is stated to be inclusive of GST. There is not a precise correlation of figures but CB 594 constituted an admission by CCB and was a document on which the Adjudicator was perfectly entitled to rely in resolving the dispute on the Carry Over claim, and he dealt with that document at CB 228-229. CCB fails on this ground. Furthermore, no “jurisdictional error” has been identified: see Icon at [12]; Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4; (2018) 92 ALJR 248 at [2] per Kiefel CJ, Bell, Keane, Nettle and Gordon JJ.

Fees

1. [38]

   I was informed that there have been no cases on the question of the award of an adjudicator’s fees under the Act. The question of what costs (or fees) are payable is a matter of discretion and there are cases in the Courts in which the successful party has recovered all of its costs, even on matters on which it was unsuccessful: see e.g. Waters v P C Henderson (Aust) Pty Ltd (unreported CA (NSW), Kirby P, Mahoney and Priestley JJA, 6 July 1994) cited in James v Surf Road Nominees Pty Ltd [No 2] [2005] NSWCA 296. Based on the fact that Milestone had succeeded on its claims to an amount of $113,000, I would not have seen any basis to interfere with the Adjudicator’s decision. However, the success of CCB on the Second EOT claim in this Court affects the fees determination, and I shall return to that below.

Consequences

1. [39]

   There was no agreement as to the consequence of a finding that the Adjudicator breached the obligation of procedural fairness and natural justice. CCB contends that the entire adjudication should be set aside. Milestone contends that only that part of the adjudication relating to the delay claim should be set aside, since the maximum claim is $77,550 (incl. GST), leaving approximately $36,000 still payable.

2. [40]

   There are a number of authorities which support CCB’s contention: John Holland at [55]; Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 at [92]; Watpac Construction (NSW) Pty Ltd v Austin Corp Pty Ltd [2010] NSWSC 347 at [28] and [33] per McDougall J; Parkview Constructions Pty Ltd v Total Lifestyle Windows Pty Ltd t/a Total Concept Group [2017] NSWSC 194 at [84] per Hammerschlag J, and see Dorter & Sharkey, Building and Construction Contracts at 3-15123. Mr Hume, however, relies on YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2019] NSWCA 110.

3. [41]

   In YTO the developer sought to set aside an adjudication award in the amount of approximately $1.6 million on the grounds that a sum of approximately $462,000 plus GST had been obtained by fraud of the contractor. Following dismissal of the fraud claims, YTO appealed and was successful on one of its grounds of appeal with the consequence that the matter was remitted for further hearing. Innovative, which in the meantime had obtained as a result of its success in defending the proceedings the sum of $1.5 million previously paid into Court, contended that it should not be required to repay into Court any amount beyond the $400,000 that, on YTO’s case, Innovative had fraudulently obtained.

4. [42]

   The Court of Appeal (per White JA, with whom Macfarlan and Emmett JJA concurred) expressed the view at [80]-[83] and [87] that:

5. [43]

   Mr Hume submits that YTO provides authority for the proposition that a Court can sever part of an award that has been set aside. Mr Hume draws attention to the fact that in Rhomberg Rail Australia Pty Ltd v Concrete Evidence Pty Ltd [2019] NSWSC 755, Ball J indicated that, had he found a denial of natural justice, he would have been willing to sever part of the adjudication, saying (at [25]):

6. [44]

   In John Holland, Hodgson JA, with whom Beazley JA concurred, said at [55]: “there is no basis for partial invalidation of a determination, that is, invalidation only of that part affected by the omitted submissions.” No case was cited to me in which the Court has quashed a decision of an adjudicator and substituted a different amount. Nor does the Act have any provision permitting the Court to make an adjudication award, and s 69 of the Supreme Court Act 1970 (NSW) speaks in terms of quashing a decision not substituting an amount for that previously determined.

7. [45]

   One considerable advantage of the approach in YTO, if it applies in cases of this kind, is that time would not need to be spent in a future adjudication on the issues which are not affected by any denial of natural justice. There are, however, several reasons why it might be thought inappropriate to treat YTO as departing from earlier authority. First, the Court was dealing with what amount should be repaid into Court not whether the adjudication should be set aside partially or wholly; second, the case was one involving a claim for recovery of money from the contractor consequent upon an adjudication award said to have been obtained by fraud which would involve a positive finding of fact in relation to the amount claimed; and, third, because these earlier authorities on severance were apparently not cited and, therefore, not considered by the Court of Appeal in YTO. There is a further aspect which is that to determine that the Adjudicator has not considered submissions that he was required to consider says nothing as to the potential effect that those submissions would have on the outcome of the matter – it is entirely possible that the Adjudicator will, on further consideration, reject the Second EOT claim, either wholly or in part, and there would seem to be a real obstacle in the Court now fixing what the amount of the adjudication determination should be when there is a real prospect that Milestone may be held to be entitled to more than just the Carry Over amount.

8. [46]

   In Emergency Services McDougall J said at [71]-[73]:

9. [47]

   It appears to me that the approach taken in Emergency Services is an appropriate course to take here as well, since it is consistent with both the underlying approach in YTO and the balance of authority to which I have referred, thereby avoiding the need for a decision as to whether YTO should be seen in its application as narrow (and, hence, distinguishable) or as wide (and, hence, to be followed, either as a matter of binding precedent or authoritative pronouncement).

10. [48]

    I am prepared to grant the relief sought by CCB but only on conditions. I will therefore ascertain whether CCB is willing to accept, as a condition of relief, that it will not seek to re-agitate the Carry Over claim at any further adjudication or to seek to recover the Carry Over amount from Milestone other than at a final hearing pursuant to s 32 of the Act.

11. [49]

    The issue of the award of fees is closely connected with the success or failure on issues before the Adjudicator. I am presently inclined to require as a further condition that CCB accept liability for 50% of the Adjudicator’s fee, which, in any event, is the default position specified in s 29 of the Act.

12. [50]

    I will hear the parties on the issue of the conditions to be imposed and the precise form of orders, and on the issue of costs.