Quickway Constructions Pty Ltd v Electrical Energy Pty Ltd (No 2)

The parties have now submitted orders to give effect to the conclusions which I reached in my substantive judgment in this matter: Quickway Constructions Pty Ltd v Electrical Energy Pty Ltd [2017] NSWSC 1140. The orders are agreed by the parties except on one point.

The issue concerns the appropriate orders to be made to give effect to my conclusion that the Leichhardt adjudication determination involved a denial of natural justice. It is common ground between the parties that the result of this decision is that the determination is (to use a neutral term) invalid.

The plaintiff has submitted short minutes of order which provide for the Court both to declare the adjudication determination to be “void” and to make an order that it be quashed. The first defendant contends that the only order the Court should make is to quash the determination. I was provided with some references to authority by the parties. I have supplemented those references to authority with further research of my own.

In Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421, the Court of Appeal considered a case where a challenge was made to an adjudication determination on a number of grounds, including alleged denial of natural justice. Hodgson JA, on behalf of the Court, stated (at 442-443 [57]):

Hodgson JA had suggested that the Court might have no power to make an order in the nature of prerogative relief quashing the determination: see at 440-441 [49]-[51]. Ultimately, however, the challenge based on alleged denial of natural justice, and the other challenge made, failed and the appeal was dismissed.

In speaking of natural justice in Brodyn, Hodgson JA apparently had in mind a failure to receive the submissions required as part of the statutory scheme under the Building and Construction Industry Security of Payment Act 1999 (NSW). The present is not so much a case of failure to receive submissions as of the adjudicator deciding a case on a basis which had not been raised in the submissions put before him. However, no party suggested that this saved the determination from invalidity and I will proceed on the basis that it constituted a jurisdictional error.

Brodyn suggested that the only available form of relief for denial of natural justice might be the grant of a declaration that the determination was void, perhaps accompanied by an injunction restraining the party who had obtained the determination from acting on it. Orders of this type were made by Brereton J in Fifty Property Investments Pty Ltd v O’Mara [2006] NSWSC 428 where his Honour found that the adjudication determination in question was void both because there had been no construction contract between the relevant parties, and also because of breach of the rules of natural justice.

In Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393, the Court of Appeal reconsidered some aspects of the decision in Brodyn in the light of intervening High Court authority. The Court of Appeal concluded that the Court did have power to make an order quashing a determination if that determination was affected by a jurisdictional error. It is, therefore, clear that it is open to the Court in this case to make an order quashing the Leichhardt adjudication determination.

There are a number of first instance decisions in which orders have been made, in the case of an adjudication determination found to be invalid, that the adjudication determination both be declared void and quashed. Examples may be found in the decisions of McDougall J in Cardinal Project Services Pty Ltd v Hanave Pty Ltd [2010] NSWSC 1367 and Cranbrook School v JA Bradshaw Civil Contracting [2013] NSWSC 430 and of Vickery J in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd (No 2) [2015] VSC 500. On the other hand, in Parkview Constructions Pty Ltd v Total Lifestyle Windows Pty Ltd [2017] NSWSC 194, orders were sought that the adjudication determination in question be quashed, or, in the alternative, a declaration be made that it was void; Hammerschlag J made the order quashing it without any further declaration, but granted injunctions restraining the party who had obtained the determination from acting on it. More recently, in Mt Lewis Estate Pty Ltd v Metricon Homes Pty Ltd [2017] NSWSC 1121, where his Honour found both that no payment claim had been validly served and that the determination was out of time, his Honour declared that the determination was void, declared that the adjudicator was not entitled to be paid, and quashed the adjudicator’s determination as to costs. In none of these decisions is there any discussion as to the appropriate form of order.

A declaration that an adjudication determination is void does not of itself undo or set aside the determination in question. All it does is declare formally that the determination does not have, and never has had, any legal effect. For this reason, a declaration may need to be accompanied by an injunction prohibiting the party which obtained the determination from relying upon it. If, in breach of the injunction, the successful party were to proceed to register the determination, the party would be exposed to contempt sanctions, but that would not affect the validity of the judgment so registered: Brodyn at 443 [61].

By contrast, I think an order quashing the decision goes further: cf Chase at 449 [284]. It is a formal determination by the Court nullifying the adjudication determination and correcting the record in the adjudication proceedings: Chase at 448 [280]. Once an order is made quashing a determination, I do not think it would be open for the successful party to obtain registration of it.

In my opinion, there is some analogy with the equitable remedy of delivery up and cancellation of deeds. This remedy is available wherever a deed or other instrument which on its face would be effective at law has been avoided in equity. Equity could, in such circumstances, content itself with declaring the instrument to be unenforceable and injuncting the party having the benefit of the instrument from relying upon it. However, equity has always been prepared to go further by ordering the physical delivery up and cancellation of the offending instrument so that it cannot in future be used. The relief is available even where the instrument is void at law, not merely voidable in equity: see Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5th ed, 2015) at [28-015].

When the decision of McDougall J in Cardinal Project Services Pty Ltd v Hanave Pty Ltd [2010] NSWSC 1367 went to the Court of Appeal ((2011) 81 NSWLR 716), Macfarlan JA, with whom Tobias AJA agreed, referred to the distinction between an order quashing an adjudicator’s determination and a declaration that the determination was void. He said (at 735 [81]):

Although the distinction will usually be of no practical significance, that does not mean that it does not exist. Its existence was expressly recognised by Macfarlan JA. It was also recognised by Hodgson JA in Brodyn who repeatedly referred to the two forms of relief in the alternative: see at 436-437 [40]-[42].

In my opinion, the distinction remains relevant for the purpose of deciding what order to make in this case. I think a quashing order is the more complete form of relief. It formally nullifies the adjudication determination. It eliminates the possibility of the determination being registered as a judgment and it makes it unnecessary to order an injunction. And once a quashing order is made, it seems to me that a declaration is unnecessary.

For these reasons, I have concluded that the appropriate form of relief is simply to make an order quashing the Leichhardt determination. The other orders will be made in the form agreed by the parties.

The orders of the Court are: