Ceerose Pty Ltd v A-Civil Aust Pty Ltd

1. [1]

   WARD ACJ: I agree with Payne JA.

2. [2]

   PAYNE JA: The appellant/cross-respondent, Ceerose Pty Ltd (Ceerose) is a building contractor. The respondent/cross-appellant, A-Civil Aust Pty Ltd (A-Civil), was a subcontractor of Ceerose in relation to a development in York Street, Sydney (“York Street”) and a separate development in Greenknowe Avenue, Elizabeth Bay (“Elizabeth Bay”). The present dispute concerns two adjudication determinations made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“Security of Payment Act”) in relation to the York Street and Elizabeth Bay developments.

Contractual and procedural background

1. [3]

   The contract between the parties in relation to York Street was entered into on about 6 October 2021. On 30 May 2022, A-Civil served Ceerose with a payment claim under the Security of Payment Act. The payment claim was disputed by Ceerose. On 14 June 2022, Ceerose provided a payment schedule. On 28 June 2022, A-Civil filed an adjudication application. On 7 July 2022, Ceerose filed an adjudication response.

2. [4]

   The second respondent, Mr Tuhtan, was appointed as adjudicator of the York Street dispute. On 2 August 2022, Mr Tuhtan issued a Determination that Ceerose pay A-Civil $2,045,453.97. Proceedings were commenced in the Technology and Construction List of the Court seeking to set aside the Determination for jurisdictional error. Interlocutory and final injunctions were sought seeking to prevent A-Civil from taking any steps to enforce the Determination, pending resolution of contractual proceedings contemplated by s 32 of the Security of Payment Act which have yet to be commenced. Pursuant to s 25(4) of the Security of Payment Act, as a statutory condition of commencing the challenge to the validity of the Determination, Ceerose paid $2,045,453.97 into court.

3. [5]

   The contract between the parties in relation to Elizabeth Bay was entered into on about 2 December 2021. On 25 May 2022 A-Civil served Ceerose with a payment claim under the Security of Payment Act. The payment claim was disputed by Ceerose. On 2 June 2022, Ceerose provided a payment schedule. On 17 June 2022, A-Civil filed an adjudication application. On 21 June 2022, Ceerose filed an adjudication response.

4. [6]

   The second respondent, Mr Tuhtan, was appointed as adjudicator. On about 11 July 2022, Mr Tuhtan issued a Determination that Ceerose pay A-Civil $349,324.36. Proceedings were commenced in the Technology and Construction List of the Court seeking to set aside the Determination for jurisdictional error. Interlocutory and final injunctions were sought seeking to prevent A-Civil from taking any steps to enforce the Determination, pending resolution of proceedings contemplated by s 32 of the Security of Payment Act which have yet to be commenced. Pursuant to s 25(4) of the Security of Payment Act, as a statutory condition of commencing the challenge to the validity of the Determination, Ceerose paid $349,324.36 into court.

5. [7]

   On 20 March 2023, Darke J found that each Determination was affected by jurisdictional error: Ceerose Pty Ltd v A-Civil Aust Pty Ltd [2023] NSWSC 239. On 20 April 2023, Darke J set aside each Determination, but only in part: Ceerose Pty Ltd v A-Civil Aust Pty Ltd (No 2) [2023] NSWSC 401.

Security of Payment Act

1. [8]

   The Security of Payment Act was enacted in 1999 and has been adopted with variations in other Australian jurisdictions (although not all). The legislation has given rise to numerous questions of construction and many authorities have explained the legislative scheme: Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340; [2016] HCA 52; Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4 at [3] (Kiefel CJ, Bell, Keane, Nettle and Gordon JJ). The New South Wales legislation has been amended on several occasions, notably by the Building and Construction Industry Security of Payment Amendment Act 2002 (NSW), the Building and Construction Industry Security of Payment Amendment Act 2013 (NSW), and the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW).

2. [9]

   The High Court in Southern Han at [4] and again in Shade Systems at [39] quoted the explanation of the original design of the Security of Payment Act given by the responsible minister when introducing amending legislation in 2002:

3. [10]

   The Minister went on to say that cash flow was the “lifeblood of the construction industry” and that the government was “determined that, pending final determination of all disputes, contractors and subcontractors should be able to obtain a prompt interim payment on account, as always intended under the Act”: New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 12 November 2002 at 6542. Section 3(1) of the Security of Payment Act states that the object of the legislation is:

4. [11]

   As will become apparent, an allegation that jurisdictional error affects an adjudication decision under the Security of Payment Act must be viewed through the lens of the scheme of closely identified rights and obligations of a claimant and a recipient of a payment claim under the Act.

5. [12]

   Section 3(3) of the Act provides as follows:

6. [13]

   Section 4(1) defines “progress payment” to mean:

7. [14]

   Section 5(1) defines “construction work” to mean any of various activities identified in the provision, such as the construction, alteration or extension, or demolition of buildings or structures.

8. [15]

   Part 2 of the Security of Payment Act creates “Rights to progress payments”. Section 8 provides as follows:

9. [16]

   The amount of a progress payment to which a person is entitled in respect of a construction contract is to be the amount calculated in accordance with the terms of the contract (s 9(a)).

10. [17]

    Section 11(1) provides that, subject to s 11 and any other law, a progress payment is to be made in accordance with the applicable terms of the contract. “Due date” in relation to a progress payment is defined in s 4(1) to mean the due date for the progress payment as referred to in s 11.

11. [18]

    The procedure referred to in s 3(3) of the Security of Payment Act is set out in Part 3 (“Procedure for recovering progress payments”). Section 13(1) provides that:

12. [19]

    The payment claim must indicate, among other things, “the amount of the progress payment that the claimant claims to be due (the claimed amount)” (s 13(2)(b)). A payment claim may be served (relevantly) only within the period determined in accordance with the contract (s 13(4)(a)). Service by a claimant on the respondent of a payment claim for a claimed amount is therefore the trigger for the procedure set out in Part 3: Southern Han at [14].

13. [20]

    Section 14 deals with the requirements of a payment schedule as follows:

14. [21]

    Section 14(3) specifies an important requirement of a payment schedule. The person upon whom a payment claim is served, being in the best position to know the details of the progress of the building work, is required (if the scheduled amount is less than the amount of the claim) to indicate why the scheduled amount is less than the claim and, if the recipient is withholding payment of the full amount of the claim for any reason, must set out the recipient’s reasons for withholding payment.

15. [22]

    Section 15 creates immediate statutory consequences for a recipient of a payment claim who does not provide a payment schedule and who fails to pay the claimed amount on or before the due date, including that the amount of the payment claim is recoverable as a debt in a court of competent jurisdiction.

16. [23]

    Section 16 prescribes the consequences where a respondent provides a payment schedule but does not pay the scheduled amount. Section 16 provides as follows:

17. [24]

    Importantly, so far as the present case is concerned, the recipient of a payment claim must pay the scheduled amount, and, if that party fails to pay within the prescribed period, the section provides consequences including recovery of the scheduled amount as a debt in any court of competent jurisdiction and the making of an adjudication application.

18. [25]

    Division 2 of Part 3 is headed “Adjudication of disputes”. This heading is of some importance to this appeal. The heading is a matter able to be taken into account in construction of the Act: Interpretation Act 1987 (NSW) s 35(1). Section 17 details how a claimant may make an “adjudication application”. It relevantly provides:

19. [26]

    The expression “adjudication application” is defined in s 4(1) to mean “an application referred to in section 17”.

20. [27]

    Section 20 permits a respondent to lodge an “adjudication response” to a claimant’s adjudication application. Importantly in the present case, section 20(2B) provides:

21. [28]

    Complaints about a denial of procedural fairness by an adjudicator failing to seek further submissions about matters not raised in in a payment schedule must be considered in the context of the statutory limit upon the scope of the dispute referred for adjudication.

22. [29]

    Section 22 is a critical provision which relevantly provides:

23. [30]

    Section 22(1), in some decisions I will address, has been understood as requiring an adjudicator to investigate the “merits” of a payment claim and the value of the work the subject of that claim. In the usual case, failure to investigate the “merits” of a payment claim going beyond the scope of the matters identified as the subject matter of the adjudication is not jurisdictional error. I will return to this issue below.

24. [31]

    It is now well settled that whether a submission referred to in s 22(2)(c) or (d) has been “duly made” is a matter within the jurisdiction of an adjudicator and error in identifying a submission as having been “duly made” is not jurisdictional: John Holland Pty Ltd v Roads & Traffic Authority of New South Wales [2007] NSWCA 19 at [57]; Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157 at [65]; Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229 at [24]-[26]. It may be accepted that, despite the apparently emphatic language (“consider the following matters only”) in s 22(2), an adjudicator may in some circumstances take into account other matters: The Minister for Commerce (formerly Public Works & Services) v Contrax Plumbing (NSW) Pty Ltd [2005] NSWCA 142 at [33]-[36] per Hodgson JA (Bryson JA and Brownie AJA agreeing). This does not mean, however, that a failure to do so will amount to jurisdictional error.

25. [32]

    Section 23(2) provides that if an adjudicator determines that a respondent is required to pay an adjudicated amount, the respondent must pay that amount to the claimant on or before the relevant date. The “relevant date” is five business days after the adjudicator’s determination is served on the respondent, unless the adjudicator determines a later date (s 23(1)).

26. [33]

    Section 24 prescribes the consequences of the respondent not paying the adjudicated amount:

27. [34]

    Section 25 provides as follows:

28. [35]

    Section 27(1) states that a claimant may suspend the carrying out of construction work under a construction contract if at least two business days have passed since the claimant has given notice of intention to do so, for example pursuant to s 24(1)(b).

29. [36]

    Section 32 preserves the rights of the parties under the construction contract:

30. [37]

    As I will explain, s 32 was relied upon in the present case to support a stay of payment out to A-Civil of the amount of the payment claim paid into court on the basis that Ceerose’s rights under the construction contract may be prejudiced by that payment.

Jurisdictional error

1. [38]

   Jurisdictional error has been described as “a failure to comply with one or more statutory preconditions or conditions to an extent which results in a decision which has been made in fact lacking characteristics necessary for it to be given force and effect by the statute pursuant to which the decision-maker purported to make it”: Hossain v Minister for Immigration and Border Protection (2018) 264 CLR 123; [2018] HCA 34 at [24] per Kiefel CJ, Gageler and Keane JJ. Put simply, it involves a decision-maker exceeding the authority to decide conferred on them, or failing to exercise that authority when required to do so.

2. [39]

   A wrongful denial of, or failure to exercise, jurisdiction can be jurisdictional error. Constructive failure to exercise jurisdiction arises where the decision-maker purports to have exercised the jurisdiction but in substance has not undertaken or completed the task of doing so because of failure to address some essential matter. An example is a statutory precondition to the exercise of the power which it was necessary for the decision-maker to be satisfied of before the power is enlivened.

3. [40]

   Jurisdictional error in failing to address some essential matter can overlap with other types of jurisdictional error. One reason for the overlap is that the term “jurisdictional error” is to a significant extent a label or conclusion. It is not possible neatly to map out the metes and bounds of the notion of jurisdictional error: Kirk v Industrial Court of New South Wales (2010) 239 CLR 531; [2010] HCA 1 at [64], [66], [71]-[73].

4. [41]

   Jurisdictional error, in the sense of a constructive failure to exercise jurisdiction, was discussed in Dranichnikov v Minister for Immigration and Multicultural Affairs [2003] HCA 26; (2003) 77 ALJR 1088. Gummow and Callinan JJ, with whom Hayne J agreed, held that for an administrative decision-maker “[t]o fail to respond to a substantial, clearly articulated argument relying upon established facts” was both a constructive failure to exercise jurisdiction and a failure to accord natural justice: at [23]-[25]. Kirby J similarly found a constructive failure to exercise jurisdiction in that case where the decision-maker’s mistake “amounts to a basic misunderstanding of the case brought by an applicant”: at [88].

5. [42]

   The following observations relate to the claim that the adjudicator failed to accord the applicant procedural fairness. That language was used to encompass two quite different situations, namely (i) where the adjudicator addressed some point which, it was submitted, had not been raised by the parties, and (ii) where the adjudicator failed to consider a matter which he was obliged to consider. For present purposes, it is convenient to put the first formulation to one side: while it raises a familiar concept of procedural unfairness, it does not require explanation. The second formulation is problematic.

6. [43]

   Conventionally, procedural fairness has two limbs, namely the bias rule and the “hearing rule”. The bias rule is not presently relevant. The “hearing rule” does not necessarily require a hearing, but rather requires that the decision-maker afford a party an opportunity to address material likely to affect adversely that party’s interests or expectations. A breach of that duty is not concerned with the manner in which the decision-maker has processed the material and should, in principle be addressed separately.

7. [44]

   A more extended view of procedural fairness, incorporating obligations as to how the decision-maker is to process material, has been derived from the statement in the joint reasons of Gummow and Callinan JJ in Dranichnikov [1] that the Tribunal’s failure to “respond to a substantial, clearly articulated argument relying upon established facts was at least to fail to accord Mr Dranichnikov natural justice”. “Natural justice” is often equated with procedural fairness. The term natural justice was used in Dranichnikov because, at that time, the Federal Court had no statutory power to review for breaches of natural justice, [2] which was why Mr Dranichnikov had commenced proceedings in the High Court seeking review under s 75(v) of the Constitution.

8. [45]

   The joint reasons proceeded, having noted the absence of statutory review, to suggest that the failure to respond to a substantial, clearly articulated argument could be “either characterised as a failure to accord natural justice or as that, and more, which we consider it to be, including a constructive failure to exercise jurisdiction”. [3] The discussion which followed demonstrated that the Tribunal had failed to address the questions it was required to answer in the circumstances of the case.

9. [46]

   The phrase “constructive failure to exercise jurisdiction” provides a generic description covering most if not all, forms of “jurisdictional error”. In Dranichnikov it was used to identify a failure on the part of the Tribunal to address the central claim it was required to determine. Although the distinction may not matter in many cases, in principle there is a distinction between failing to address the claim and failing to consider material which must be considered in order to address the claim. A claim will seek the exercise of a specific power, such as the issue of a visa or the setting aside of a cancellation of a visa. In a particular case, that will require addressing a specific ground or grounds of eligibility relied on by the claimant. It was at that level that the Tribunal failed in Dranichnikov. However, the Tribunal might have addressed the correct question but failed to have regard to particular material which was said to support the claim and which the statute obliged the Tribunal to consider.

10. [47]

    The distinction is significant in a functional sense, as may be illustrated by the circumstances in Dranichnikov itself. The protection visa the applicant sought was available if he could establish that he was persecuted as a member of a particular social group. The Tribunal recognised and addressed that question. However, it did so on the basis that the group nominated by the applicant was “businessmen in Russia”. The Tribunal was not satisfied on the basis of material before it that such a group was subject to persecution. The Court, however, accepted that he had identified a narrower group, namely “of businessmen who publicly criticised and sought reform of the law enforcement authorities to compel them to take effective measures to prevent crime”. [4] A majority of the Court concluded that the Tribunal had not addressed that claim.

11. [48]

    One way to characterise the error is as a jurisdictional fact, which the Tribunal was required to identify correctly, and the existence of which was subject to review by the Court. However, that characterisation should not be over-generalised. The basis of an application requiring determination will often be unclear; the decision-maker must have authority to resolve such uncertainties. So much is recognised in the statement that error only arose because the applicant had presented a “substantial, clearly articulated argument relying upon established facts”. In other circumstances, as explained by Kirby J, fact finding will be a matter for the Tribunal and not the Court. [5]

12. [49]

    Translating this discussion to the present case, s 22 of the Security of Payment Act contains two separate mandates. First, s 22(1) identifies the matters which the adjudicator “is to determine”; secondly, s 22(2) identifies matters which the adjudicator “is to consider”, a formulation which covers five matters which are the “only” matters to be considered.

13. [50]

    Thus, the statute helpfully distinguishes between that which the adjudicator must determine and that which he or she must consider. Failure to determine the three matters set out in s 22(1), if required to do so to resolve a particular claim, would likely constitute jurisdictional error. Compliance with s 22(2) is less readily so characterised. Further, s 22(2) does not address the question of procedural fairness in the sense of the steps which the adjudicator must take to allow a party to address adverse material. Failure to comply with s 22(2) is not helpfully characterised as procedural unfairness, but rather as failure to comply with a mandatory statutory obligation, the scope of which will be identified on quite a different basis.

14. [51]

    Because procedural fairness is concerned with the conduct of the adjudicator towards the parties, once it is established what fairness requires in a particular case, the question of compliance will be readily determined by the objective facts, being primarily the communications, or lack of them, between the adjudicator and the parties. By contrast, the question whether the adjudicator has considered a matter for the purposes of s 22(2) will involve an inquiry into the private processes of decision-making, and even the mental processes of the adjudicator. While those processes may be revealed by the reasons required to be given under s 22(3), those reasons will not necessarily demonstrate a negative proposition, namely a failure to consider a particular matter required to be considered simply because it is not referred to in the reasons.

15. [52]

    A duty to “consider” material will itself operate differentially depending on the context. For example, s 22(2)(a) and (b) require that the adjudicator consider the provisions of the Act and the provisions of the construction contract. The obligation must be understood as referring to those provisions of the Act and of the contract which are engaged by the claim and the response to the claim. There can be no breach of the statutory obligation by failing to consider material which is irrelevant; further, the question of relevance will be a matter for the satisfaction of the adjudicator. Because the adjudicator can err on questions of law and fact, mistakes as to what may be relevant and what may fall within the obligation for consideration will only be reviewable where the error is of the kind which is apt to invalidate the determination.

16. [53]

    All aspects of the payment claim and the payment schedule will require consideration so long as they have been “duly made”, that is, made in accordance with the requirements of the Act, and, so far as relevant, the construction contract. On the one hand, if a challenge to a claim was not duly made, the adjudicator will not be required to address that factor. On the other hand, if a challenge is duly made, the merit of the challenge, both factual and legal, is a matter for the adjudicator.

17. [54]

    The concept of consideration is not obscure. Nevertheless, the duty to “consider” has given rise to an extensive history of judicial exegesis. Phrases derived from earlier cases were adopted in submissions in the present case in a manner which tended to obscure the proper understanding of the obligation imposed on the adjudicator by s 22(2). They usually constitute glosses which specify the intensity of consideration.

18. [55]

    One gloss relied on by the applicant was that consideration involves an “active intellectual process” of engagement with a particular document or matter. That phrase appears to have originated from the judgment of Black CJ in Tickner v Chapman: [6]

19. [56]

    As with most dictionary definitions, there is a choice of phraseology on offer. Interestingly, the adoption of “active intellectual process”, a phrase repeated in later judgments, is a riff upon the quoted terms. It assumes a high level of intensity, although the definition in the Dictionary permits varying levels. The adoption of any level is a choice made which may be justifiable in some statutory contexts but not others. Justification for such choices is rarely embarked upon: its use with respect to the obligation under s 22(2) will be discussed below. The High Court has warned about the use of labels or formulas such as “active intellectual process” in identifying jurisdictional error. In Plaintiff M1/2021 v Minister for Home Affairs (2022) 96 ALJR 497; [2022] HCA 17, Kiefel CJ, Keane, Gordon and Steward JJ said this:

20. [57]

    A particular risk with the claim that a decision maker has failed to engage in an active intellectual process is that the argument can readily shade into claims about arguments having been resolved incorrectly because misunderstood, or not really grappled with, which tends towards merits review.

21. [58]

    A second gloss on the requirement to consider proposes that a decision-maker should give “proper, genuine and realistic consideration” to the matters required to be considered. That phrase apparently first appeared in the field of administrative decisions in 1987 in a migration appeal, Khan v Minister for Immigration and Ethnic Affairs. [7] It has been treated with caution in later cases. In Minister for Immigration and Citizenship v SZJSS [8] the High Court accepted that the phrase, taken out of context, was apt to encourage a slide into impermissible merit review. As the High Court further noted, [9] the phrase was used in Khan in construing an improper exercise of a power as “including a reference to an exercise of a discretionary power in accordance with a rule or policy, without regard to the merits of a particular case”.

22. [59]

    Seven years later, in Carrascalao v Minister for Immigration and Border Protection [10] the Full Court of the Federal Court identified the observations in SZJSS and continued:

23. [60]

    The exercise in fact undertaken in Carrascalao, concerning the power of a Minister to grant or cancel a visa, was as follows:

24. [61]

    It appears that both alternative expressions were adopted. The Court also noted, correctly, that it was for the applicant for judicial review to establish the negative, namely that the decision-maker had not engaged in a consideration of what was required to be considered.

25. [62]

    The attempt to articulate, using other language, what is required by the verb “consider” will usually be misconceived. Certainly, it is misconceived in the present statutory circumstance. In a practical sense, the problem for a party challenging a determination is not to identify whether the mental process undertaken by the adjudicator was “active”, “intellectual” or “genuine”, but rather to identify a basis on which it could be said that consideration did not occur. The mental processes of the adjudicator will be entirely opaque, except to the extent that they are revealed in his or her reasons. However, as already noted, the failure to identify a particular claim or response in reasons will not of itself demonstrate that the adjudicator failed to consider it. That is so for a number of reasons.

26. [63]

    First, reasons are not necessarily, or even usually, a comprehensive statement of all aspects of a decision-maker’s thinking. Even judicial reasons, which are expected to be more comprehensive and detailed than those of an administrative decision-maker, are not required to deal with all the evidence or all the submissions. A process of selection is undertaken: that is a necessary part of the process and not merely a concession to judicial frailty.

27. [64]

    Secondly, the scope of the reasons will inevitably reflect the practical circumstances under which the adjudicator is operating. Section 21(3)(a)(ii) of the Security of Payment Act requires the adjudicator to determine an adjudication application “as expeditiously as possible and, in any case … within 10 business days after ... the date on which notice of the adjudicator's acceptance of the application is served on the claimant and the respondent as to his or her acceptance of the application”. One of the matters which the adjudicator is to consider is the “adjudication response” filed by the respondent to the claim. The adjudication response may be lodged five business days after receiving a copy of the application, or two business days after receiving notice of the adjudicator’s acceptance of the application, whichever is later: s 20(1). Thus, unless time is extended by the parties, the adjudicator may have as few as eight business days to determine the application by reference to the adjudication response.

28. [65]

    Thirdly, it is not unusual for the material supplied to an adjudicator to run into hundreds and even thousands of pages (as it did in this case). It is inevitable that, in accordance with this statutory scheme, an adjudicator will spend more time on some items within a claim than on others. The reasons may reflect such choices or they may not. It would, however, be entirely rational for an adjudicator to spend little time on an item of, say, $3,000 in a total claim of over $1 million, both in considering submissions and in preparing reasons.

29. [66]

    Fourthly, there is a question as to what specific inference is to be drawn from the absence of reference to a particular submission or contention in a set of reasons. There are a range of possible explanations, only one of which is that the material was not considered. Another is that the claim was readily seen to be well-founded and the submissions to the contrary as lacking in substance. However, the latter would be a good reason to omit reference to the issue in the reasons. If the submission had been misunderstood, the facts mistaken or the law wrongly identified, that might explain absence from the reasons of something expected to be addressed, but not lack of consideration. Of course, the duty to consider a submission is separate from the absence of any duty to deal with it correctly, whether in law or in fact. The point is rather that an unreviewable error may explain why the reasons do not advert to a particular matter.

30. [67]

    This is a situation in which the reasoning of Dixon J in Avon Downs Pty Ltd v Federal Commissioner of Taxation [11] may be turned on its head. In explaining why a decision may be reviewable even though the decision-maker has not given reasons, Dixon J stated:

31. [68]

    Often it will be equally likely that an adjudicator who does not refer in reasons to a particular matter mistook the facts or misunderstood the contractual provision or the legal principle to be applied, as that he or she did not consider the factor at all. In those circumstances, a complaint of failure to consider will not be proven.

32. [69]

    For all of these reasons, there are likely to be few cases in which an applicant for judicial review can establish a breach of the duty to consider the matters set out in s 22(2). That is not to say that there may not be circumstances in which the inference of omission to consider is demonstrated. Thus, failure to refer to a submission on a centrally important matter, clearly articulated and based on uncontested facts, may demonstrate a failure to consider at all. Such is likely to be a rare case.

Jurisdictional error found in the present case

1. [70]

   In the York Street proceedings, the primary judge found the adjudicator fell into jurisdictional error when he:

   1. (1)

      Accepted A-Civil’s claim for $145,790.50 for performing “hard demolition” work on the ground that Ceerose had advanced no good reason to withhold payment. The primary judge found that, even though the adjudicator had rejected Ceerose’s reasons for withholding payment, the statute required him to address the “merits” of A-Civil’s claim before accepting that claim. His failure to do so was jurisdictional error;

   2. (2)

      Accepted A-Civil’s claim for $11,700 for “render removal”, again on the ground that Ceerose failed to give a valid reason for withholding payment, and without determining the “merits” of A-Civil’s claim;

   3. (3)

      Accepted A-Civil’s claim for $6,750 for brick “cutouts” on the ground that he rejected Ceerose’s competing explanation of events and “preferred” A-Civil’s, again without investigating the “merits” of A-Civil’s claim;

   4. (4)

      Accepted A-Civil’s claim for $77,379 for additional “hard demolition” work, again because he rejected Ceerose’s explanation and “preferred” A-Civil’s, without investigating the “merits” of A-Civil’s claim;

   5. (5)

      Accepted A-Civil’s claim for $687,214.19 for a contract variation (the work involved demolishing a wall) without considering Ceerose’s duly made submission that the claim was time-barred; the Act requires adjudicators to consider all duly made submissions; ignoring a duly made submission amounted to jurisdictional error.

2. [71]

   In the Elizabeth Bay proceedings, the primary judge found that the adjudicator erred when he:

   1. (1)

      Rejected Ceerose’s set-off claim for $3,740 in concrete saw cutting costs by interpreting cl 52 of the parties’ contract in a way that neither party contended, thereby substantially denying the measure of natural justice which the Act requires to be given.

3. [72]

   The principles for identifying jurisdictional error in the context of the Security of Payment Act were set out by the primary judge. I am unable to agree with those principles, the ultimate source of which are dicta of Hodgson JA in Coordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd (2005) 63 NSWLR 385; [2005] NSWCA 228 at [50]-[53]. It is necessary to consider this passage in Hargreaves in a little detail as I have come to the view that the manner in which these dicta have been understood and applied in subsequent first instance decisions is inconsistent with the correct construction of s 22(1) and the scope of the obligation to “consider” matters provided for in s 22 of the Security of Payment Act explained above. The way in which the dicta in Hargreaves have been understood by later first instance cases is also inconsistent with authority in this Court.

4. [73]

   At [50]-[53] of Hargreaves, Hodgson JA under a heading “Possible error of primary judge” [12] said this:

5. [74]

   This view attracted no support from the other two judges in Hargreaves. Ipp JA confined his agreement in that case to the reasons Hodgson JA gave between [38] and [45]. Basten JA wrote in dissent, disagreeing in terms with the dicta at [52].

6. [75]

   For the following reasons I am unable to agree with Hodgson JA’s dicta in [52] of Hargreaves. The essence of [52] of Hargreaves is that the “adjudicator’s duty is to come to a view as to what is properly payable, on what the adjudicator considers to be the true construction of the contract and the Act and the true merits of the claim” (emphasis added). There is a potential difficulty in this reasoning, at least in so far as it is being used as a test to identify jurisdictional error. The “true construction of the contract” and the “true merits” of the payment claim are, by reason of the structure of the Security of Payment Act I have set out above, matters where an error by an adjudicator will not be jurisdictional. As Basten JA explained at [66] of Hargreaves itself, in the light of the express restriction in s 20(2B) of the Act, there is merit in the conclusion that the adjudicator is not entitled to go beyond the terms of the adjudication response in rejecting part or all of the payment claim. Certainly, it is not a jurisdictional error for an adjudicator, having decided all the reasons advanced by the respondent were invalid, to then and without more, determine the amount of the progress payment in favour of the claimant based on the payment claim.

7. [76]

   This is because, in addition to s 22(2), which provides a limit on what an adjudication is obliged to take into account, sub-section 14(3) requires that where a payment schedule indicates an amount of a payment which is less than the amount of the claim, the schedule must indicate why the amount is less and, if a respondent is withholding payment, the reason for that action. The recipient of the payment claim is obliged to explain the reason why the payment claim (or any part of it) is disputed. Where the payment schedule indicates an amount which is less than the amount claimed, the claimant may apply for adjudication of its payment claim: s 17(1)(a). Where such an application is made, the respondent may lodge a response to the claimant’s adjudication application. That response may contain relevant submissions (s 20(2)(c)), but, as I have said, s 20(2B) provides:

8. [77]

   It is the dispute between the maker of the payment claim and the recipient of that claim which is referred for adjudication. In the light of this express restriction on the contents of the adjudication response, an adjudicator is not required to go beyond the terms of the payment schedule, repeated in an adjudication response, in accepting all or part of the payment claim. The requirement in s 22(1), that the adjudicator is to determine “the amount of the progress payment (if any) to be paid” by the respondent to the claimant, in context, is a requirement to determine the amount of the progress payment arising from the dispute submitted by the parties for adjudication. The notion that it is jurisdictional error for an adjudicator to fail to address what the adjudicator considers to be the “true construction of the contract” and the “true merits of the claim” outside the limited issues presented by the parties for determination is an invitation for the reviewing court to embark on an impermissible merits review.

9. [78]

   In addition, the views expressed by Hodgson JA in paragraph [52] are tentative and there is reason to doubt that his Honour intended to hold that it would always amount to jurisdictional error if an adjudicator failed to consider the “true merits of the claim”. The tentative view expressed in paragraph [52] of Hargreaves is arguably inconsistent with the view expressed by Hodgson JA in Climatech, where his Honour said at para [24] that the task of the adjudicator was in substance to determine the claimant's entitlement within the framework of the dispute that was propounded by the parties. His Honour’s conclusion in Climatech better reflects the role of an adjudicator given by the statute and is inconsistent with the tentative view about “possible” error expressed in [52] of Hargreaves. To conclude that an adjudicator is permitted in some circumstances to consider matters outside those referred to in s 22(2), which was the conclusion in Contrax, at [33]-[36], does not convert that ability into a duty, the failure to perform which amounts to jurisdictional error.

10. [79]

    Hargreaves at [52], at least as it has subsequently been applied in some first instance cases I will address below, is also inconsistent with subsequent unanimous authority in this Court. In Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWCA 211, Basten JA (with whom Macfarlan JA and Emmett AJA agreed) said:

11. [80]

    This unanimous conclusion in Joye, which is consistent with my analysis of the statutory scheme and the jurisdictional obligations of an adjudicator, is inconsistent with the dicta in [52] of Hargreaves. If paragraph [52] of Hargreaves is correct (at least as it has subsequently been understood), the reasons given in a payment schedule would impose no constraint on the scope of an adjudication at all. The adjudicator would, in the absence of any reason advanced by the recipient of a claim why a payment should not be made, nonetheless be obliged to investigate and give written reasons for a conclusion about the “true merits of the claim”, lest he or she fall into jurisdictional error.

12. [81]

    In Goodwin Street Developments Pty Ltd v DSD Builders Pty Ltd (2018) 98 NSWLR 712; [2018] NSWCA 276, Basten JA (with whom Leeming and White JJA agreed) explained some of the principles involved in a claim that an adjudicator has failed to “grapple with” a mandatory consideration:

13. [82]

    Section 22(1) does not create a free-standing jurisdictional obligation to consider the merits of a payment claim, and in particular whether the construction work identified in the payment claim has been carried out, and what is its value. The only matters an adjudicator is required to consider in determining an adjudication application are set out in s 22(2). As explained at [69] above, there are likely to be few cases in which an applicant for judicial review can establish a breach of the duty to consider the matters set out in s 22(2). Only sometimes is a failure to refer to relevant material evidence of a failure to refer to a mandatory relevant consideration. A fortiori, where there is no relevant material before the adjudicator, it cannot be a jurisdictional error to fail to refer to it. Paragraph [52] of Hargreaves, insofar as subsequent cases have understood that it suggests that s 22(1) provides a free-standing jurisdictional obligation to consider the merits of a payment claim, and in particular whether the construction work identified in the payment claim has been carried out, and what is its value, is not correct and should not be followed.

14. [83]

    At paragraph [34], the primary judge also relied upon the first instance decision of Brereton J in Pacific General Securities Ltd v Soliman & Sons Pty Ltd (2006) 196 FLR 388; [2006] NSWSC 13 where his Honour said this at [82]:

15. [84]

    This conclusion is inconsistent with the text, subject matter and purpose of the Security of Payment Act. It should not be followed. 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. 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”. The “dispute” which the Act has provided a mechanism for identifying and resolving is non-existent in such a case. A requirement that an adjudicator must determine “whether the construction work identified in the payment claim has been carried out”, in circumstances where a recipient of a payment claim has not made any suggestion that it has not, despite the statutory requirements of s 14, subverts the statutory scheme for the swift payment of progress claims and speedy determination of disputes about those progress payments. The person best able to address the question of “whether the construction work identified in the payment claim has been carried out”, namely the recipient of the payment claim, has not, in the example posited by Brereton J, suggested the work was not carried out, as it was required to do by the Act if it wished not to pay the claim. The statutory task of an adjudicator is to determine the claimant's entitlement within the framework of the dispute that was propounded by the parties. The conclusion in Pacific General Securities is incorrect and should not be followed.

16. [85]

    In a number of first instance decisions, also cited by the primary judge in this case, paragraph [52] of Hargreaves, as understood in Pacific General Securities was also relied upon [13] . In Laing O’Rourke Australia Construction Pty Ltd v Monford Group Pty Ltd [2018] NSWSC 491, Stevenson J said this:

17. [86]

    This statement is not correct. First, the words quoted in [1] from Hargreaves are an excerpt and do not capture the whole of Hodgson JA’s reasoning. In particular the words “on what the adjudicator considers” are omitted from the explanation. Secondly, Hodgson JA’s tentative dicta about a possible error by the trial judge in Hargreaves were inconsistent with the statutory scheme and with subsequent authority. Thirdly, Ipp JA excluded this passage from his agreement, and Basten JA disagreed with it. Subsequent first instance decisions, like Acciona Infrastructure Australia Pty Ltd v Chess Engineering Pty Ltd [2020] NSWSC 1423 at [40], which in substance repeat the legal test identified in Monford and follow Brereton J in Pacific General Securities were equally wrong to follow Hodgson JA’s obiter remarks at [50]-[53] of Hargreaves and should not be followed.

The appeal in this case

1. [87]

   The principal subject matter of the appeal was the appellant’s claim that the primary judge erred in the application of s 32A of the Security of Payment Act. The appeal also alleged that the primary judge should have found further jurisdictional errors in relation to liquidated damages and the adjudicator’s costs. I have spent some time identifying the correct test for jurisdictional error in relation to the Security of Payment Act as s 32A, a relatively recent provision, applies when part of an adjudicator’s determination is affected by jurisdictional error. It is thus necessary to examine the correct test for jurisdictional error in relation to the Security of Payment Act in answering the question posed by s 32A.

Appeal Grounds 3, 5, 8 and 10 – Section 32A

1. [88]

   Section 32A of the Security of Payment Act provides:

2. [89]

   The section was introduced into the Security of Payment Act by the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) with effect from 21 October 2019. In the course of the Second Reading Speech in the Legislative Council, Mr Scot MacDonald (on behalf of the Hon Sarah Mitchell) stated (New South Wales Legislative Council, Parliamentary Debates (Hansard), 24 October 2018 at 62):

3. [90]

   It may be, on a correct understanding of jurisdictional error in the context of the Security of Payment Act, that the primary judge, in following Hargreaves at [52] and Pacific General Securities, incorrectly discerned jurisdictional error in the adjudication determination where none existed. As Mr Robertson SC for Ceerose pointed out, however, with the exception of the complaint made in the cross-appeal, to which I will return, no challenge was made by A-Civil to the findings of jurisdictional error made by the primary judge.

4. [91]

   The appellant raised what were described as a “cluster” of issues about the primary judge’s decision concerning s 32A in grounds 3(a)-(g) and 5 (concerning York Street) and 8 and 10 (concerning Elizabeth Bay). Those grounds are:

5. [92]

   The primary judge described the dispute between the parties about the correct application of s 32A of the Security of Payment Act by reference to item 4 of the payment claim:

6. [93]

   To be clear, before the primary judge and in this Court, Ceerose accepted that 65% of the contracted demolition works had occurred, for which Ceerose had already made progress payments of $349,897.20 to A-Civil. Nonetheless, Ceerose’s submission was that the effect of the primary judge’s finding that it was jurisdictional error for the adjudicator to find that 85% (and not 65%) of the contracted demolition works had been completed was that A-Civil’s entire payment claim for demolition works, including in relation to the 65% that Ceerose accepted had been completed, must be set aside.

7. [94]

   The primary judge identified the adjudicator’s “determination”, correctly, as follows:

8. [95]

   The primary judge was correct, in making orders under s 32A, to focus on the three matters referred to in s 22(1): the amount of the progress payment (if any) to be paid by the respondent to the claimant, the date on which such amount becomes payable and the rate of interest payable on any such amount.

9. [96]

   The correct approach may be illustrated by an example. In relation to item 4, the primary judge determined that the adjudicator was faced with a dispute in which A-Civil claimed that the work in relation to item 4 was 85% complete whereas Ceerose claimed that it was only 65% complete. In finding in favour of A-Civil, the adjudicator allowed an additional amount of $145,790.50 over the opposition of Ceerose who said the additional payment should be only $29,158.10 (being the amount in excess of the $349,897.20 already paid by Ceerose to reach the figure payable for the 65% of the demolition work that Ceerose accepted had been completed).

10. [97]

    Whether the amount of $116,632.40, in dollar terms being the difference between 85% and 65% of the demolition work, was payable represented the ambit of the dispute the adjudicator was called upon to determine in respect of item 4. The primary judge correctly found that the effect of the adjudicator’s finding in favour of A-Civil could be removed by deleting the sum of $116,632.40 (incorrectly recorded by the adjudicator as $116,632.60).

11. [98]

    Put another way, had the adjudicator not fallen into jurisdictional error, he would have awarded an additional amount of at least $29,158.10. This is because Ceerose in its payments schedule accepted that $29,158.10 (in addition to the $349,897.20 already paid) was payable as 65% of the demolition work had been completed.

12. [99]

    The primary judge was correct (at [42]) in relation to item 4 that, if $495,687.70 were deleted instead of $116,632.40, Ceerose would be substantially better off than had the adjudicator determined the dispute without error.

13. [100]

    The appellant’s submissions are inconsistent with the decision of this Court in Joye. The scope of the dispute referred for adjudication is identified by the reasons given in a payment schedule which impose a constraint on the scope of an adjudication. Addressing claim 4, the scope of the dispute was whether 85% of the demolition work (as A-Civil claimed) or 65% of the demolition work (as Ceerose’s payment schedule claimed) was payable to A-Civil. The value of the work was not in dispute. If 65% completion was the correct conclusion, $29,158.10 was payable. If 85% completion was the correct conclusion, $145,790.50 was payable.

14. [101]

    As I have explained, the adjudicator was not, in the absence of any reason advanced by the recipient of a claim why a payment should not be made, nonetheless obliged to investigate and give written reasons for a conclusion about the “true merits of the claim” (including parts of the claim already paid for), lest he or she fall into jurisdictional error.

15. [102]

    To be clear, the adjudicator here was not obliged to determine whether the 65% of the demolition work Ceerose had accepted in its payment schedule had been completed or what the value of that work was. The effect of the Security of Payment Act was that, having taken the position in its payment schedule that 65% of the demolition work had been completed and the value of that work was $29,158.10 more than the amount already paid, Ceerose was not permitted to complain in judicial review proceedings that the adjudicator, without error, could have awarded a lesser amount.

16. [103]

    I do not accept Ceerose’s submission that the primary judge’s approach involves any “rewriting” of the adjudicator’s determination. His Honour’s decision simply involves the deletion of what his Honour found was the amount of the adjudicator’s award “affected by jurisdictional error”, namely $116,632.40.

17. [104]

    Nor do I accept that the approach of the primary judge gives rise to uncertainty as to the reasons for the reduced amount. In circumstances where the Court has found jurisdictional error in relation to the item, the reduced amount reflects the Court’s assessment, pursuant to s 32A of the Act, as to parts of the adjudicator’s determination that are affected, or are not affected, by the error.

18. [105]

    No uncertainty is created as to what work is the subject of the reduced amount. At the risk of repetition, Ceerose accepted that 65% of the demolition had been completed and that the value of that work was $29,158.10 more than the amount already paid. The orders made by the primary judge give effect to Ceerose’s payment schedule, a complete vindication of the only matter within the scope of the dispute submitted for adjudication about item 4.

19. [106]

    It follows that grounds 3(a)-(g) should be dismissed.

20. [107]

    Turning to ground 5, the “orders sought” referred to in this ground were a lengthy series of declarations that jurisdictional error occurred in relation to numerous paragraphs of the reasons of the adjudicator. For example:

21. [108]

    Ceerose submitted that because s 22(3)(b) of the Security of Payment Act provides that the “determination” includes the reasons for the determination, therefore s 32A of the Security of Payment Act obliges the Court to identify the parts of the reasons which should be set aside.

22. [109]

    This submission may be addressed shortly. A judicial review is not of reasons; it is a review of determinations or orders. Section 32A permits a Court to identify the part of the adjudicator’s determination affected by jurisdictional error and set aside that part only.

23. [110]

    The primary judge found that:

24. [111]

    About a similar Queensland provision (Building Industry Fairness (Security of Payment) Act 2017 (Qld) s 101(4)), Bond J said in Acciona Agua Australia Pty Ltd v Monadelphous Engineering Pty Ltd (2020) 4 QR 410; [2020] QSC 133 that the “decision” referred to is the decision about the amount of the progress payment, if any, to be paid by a respondent to a claimant, the date upon which it becomes due and payable, and the rate of interest. That statement was correct.

25. [112]

    Like the primary judge, I do not agree that orders setting aside reasons assist in achieving certainty as to the reasons which would justify the adjudicated amount that exists following an exercise of power under s 32A. Ceerose argued that such certainty is necessary, for example, because the principles of issue estoppel apply to adjudication determinations. However, if an adjudication determination is set aside in part by the Court pursuant to s 32A, the reasons for the decision (which might give rise to an estoppel) will be those of the Court read, to the extent necessary, with the adjudicator’s reasons. Ascertaining the basis of the decision, for the purposes of identifying any issue estoppel, would not be aided by orders setting aside part or parts of the adjudicator’s reasons. They would remain the reasons of the adjudicator for the determination which has been set aside in part by the Court. The adjudicators reasons are not set aside, in whole or in part, by an order under s 32A.

26. [113]

    Ground 5 should be dismissed.

Elizabeth Bay Appeal

1. [114]

   The appeal as it related to Elizabeth Bay raised essentially the same grounds as already addressed in relation to York Street and need be addressed only briefly. The primary judge concluded:

2. [115]

   The primary judge was correct. The only jurisdictional error found by the primary judge was in relation to the adjudicator’s treatment of a concrete saw cutting costs item, the agreed value of which was $4,114. That was the only part of the adjudicator’s determination “affected” by jurisdictional error.

3. [116]

   Ceerose’s argument that jurisdictional error in the award of a concrete saw cutting costs item of $4,114 invalidated the entire award of $345,210.36 would set at naught the clear parliamentary purpose in enacting s 32A, as expressed in the second reading speech, of avoiding an unfair result where, as here, jurisdictional error is confined to one (vanishingly small) part of a determination and does not affect the remaining part or parts.

4. [117]

   For the same reasons as given in relation to York Street ground 3, ground 8 should be dismissed.

5. [118]

   In relation to ground 10, for the same reasons as in relation to ground 5 of the York Street appeal, it is the adjudicator’s decision which is set aside, in part, and not the reasons of the adjudicator.

6. [119]

   I would dismiss grounds 8 and 10 of the notice of appeal.

Appeal Grounds 4 and 9 – Costs payable to an adjudicator

1. [120]

   It is convenient to deal with Ceerose’s grounds 4 (York Street) and 9 (Elizabeth Bay) which address the question of the adjudicator’s costs together.

2. [121]

   Section 29 entitles an adjudicator to be paid.

3. [122]

   The primary judge found:

4. [123]

   That is, the primary judge found that the determination of the adjudicator of fees payable was “affected by jurisdictional error” within the meaning of s 32A and instead ordered that the part of the determination concerning fees be set aside, with the result that the parties would both be liable to contribute to the fees and expenses in equal proportions.

5. [124]

   Grounds 4 and 9 of Ceerose’s notice of appeal provided:

6. [125]

   In relation to the adjudicator’s fees, Ceerose submitted that the parties’ obligation to pay fees derives from s 29(2) (which Ceerose called the basic obligation) and s 29(3) (which it called the proportionate liability). The parties’ obligation to pay fees is a corollary of the adjudicator’s entitlement to be paid fees. Ceerose submitted that if there is no entitlement to fees (under s 29(1)), there could be no obligation to pay them (under ss 29(2) and (3)). The entitlement given by s 29(1) is subject to an exception in s 29(4). An adjudicator is not entitled to be paid fees if the adjudicator “fails to make a decision” within the permitted time.

7. [126]

   Ceerose submitted that an adjudicator fails to make a decision within the meaning of s 29(4) if the adjudicator’s decision is vitiated by jurisdictional error. Cardinal Project Services Pty Ltd v Hanave Pty Ltd (2011) 81 NSWLR 716; [2011] NSWCA 399 at [82]-[84], [104] was cited as authority for this proposition.

8. [127]

   Ceerose submitted that where the Court exercises its power under s 32A to confirm part of the decision, the decision is prospectively validated in part. However, that prospective validation does not change the historical fact that the adjudicator failed to make a valid decision within the permitted time. In that event, Ceerose said, an adjudicator has no entitlement to be paid fees, and there is no correlative obligation to pay them.

9. [128]

   Ceerose asserted that the ordinary practice in the security of payment context (which was followed here) is for the claimant to pay the adjudicator’s fees as a condition of the communication of the determination: s 29(5)(a). Where that ordinary practice is followed, on Ceerose’s approach, the claimant would not have been obliged to pay any fee to the adjudicator. Ceerose submitted that A-Civil might have a right of restitution, subject to the operation of the immunity in s 30. Ceerose asserted that it had no obligation to pay or contribute to any part of the adjudicator’s fees.

10. [129]

    In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11, Sackville AJA (with the agreement of four other members of the Court) said this:

11. [130]

    McHugh JA in GJ Coles & Co Ltd v Retail Trade Industrial Tribunal (1986) 7 NSWLR 503 at 525 observed as follows:

12. [131]

    Sackville AJA in Seymour White said of this observation by McHugh JA:

13. [132]

    An adjudication determination affected by legal error is not necessarily void for all purposes. One of those purposes is the obligation to pay costs of the adjudication provided in s 29(1)-(3). The adjudicator’s right to be paid is based on a fact: the adjudicator is “entitled to be paid for adjudicating an adjudication application”.

14. [133]

    To paraphrase Gageler J in New South Wales v Kable (2013) 252 CLR 118; [2013] HCA 26 at [52], the action so taken, adjudicating an adjudication application, has consequences for the creation of legal rights and legal obligations, as set out in s 29, which consequences do not depend on the legal force of the adjudication decision itself.

15. [134]

    The obligation of the parties to pay the “the adjudicator’s fees and expenses” being the subject matter of s 29(1), either “jointly and severally” (s 29(2)), or “in such proportions as the adjudicator may determine” (s 29(3)) is based on the fact underlying s 29(1), that the adjudicator is “entitled to be paid for adjudicating an adjudication application”. If that work is done, that remains a fact whether or not the decision is subsequently set aside for jurisdictional error.

16. [135]

    In context, s 29(4) is not engaged in a case where an adjudicator’s decision is subsequently struck down, in whole or in part, for jurisdictional error. Section 29(4) provides an exception to an adjudicator’s entitlement to be paid “if he or she fails to make a decision on the application (otherwise than because the application is withdrawn or the dispute between the claimant and respondent is resolved) within the time allowed by section 21(3)” (10 business days from the trigger event(s) in the section unless extended by agreement). The fact that an adjudicator has adjudicated an adjudication application creates rights to payment which do not depend on the legal force of the adjudication decision itself.

17. [136]

    Insofar as Ceerose relied on Cardinal at [82]-[84] and [105] for the contrary proposition, there is much force in the dissent of Basten JA in that case, as this Court explained in Parrwood Pty Ltd v Trinity Constructions (Aust) Pty Ltd [2020] NSWCA 172 at [44] (Meagher, Leeming and Payne JJA). If it were necessary to decide here, I would find that the majority in Cardinal should no longer be followed and Basten JA’s dissent is correct. As the Court said in Parrwood, Basten JA’s construction is more consistent with the High Court’s decision in Hossain at [24] [14] .

18. [137]

    I do not need to go so far, however, as the statutory language and purpose of ss 26 and 29 of the Security of Payment Act here engaged are quite different. Cardinal concerned s 26 and the question of when the time for filing a new adjudication application commenced to run. It was directed at rights of the parties to make a new claim. Those rights were engaged where the adjudicator “fails to determine the application”. Section 29, however, is addressed to the rights of a non-party, the adjudicator, to payment based on the factual premise that the adjudicator has conducted work he was asked by the parties to do. The s 29 payment obligation is predicated on the fact of that work being done, not upon production of what a court later finds is a “valid” adjudication.

19. [138]

    It would be a curious result for the rights to payment of a non-party to the dispute, for work he or she has in fact conducted, to depend on whether a court subsequently discerns jurisdictional error in some part of that work. No authority was cited by Ceerose for the proposition that an adjudicator under the Security of Payment Act is not entitled to be paid if a determination is ultimately set aside for jurisdictional error in the Equity Division, by this Court or in the High Court. The correct construction of s 29 is that a consequence of a finding of jurisdictional error is not that the adjudicator is not entitled to be paid.

20. [139]

    I would reject grounds 4 and 9 of the appeal. I will return to the question of the adjudicator’s costs in addressing the cross-appeal.

Appeal Grounds 1-2 and 6-7 – Liquidated damages

1. [140]

   Ceerose made two claims for liquidated damages which were rejected by the primary judge. The first related to the York Street development (grounds 1 and 2). The second related to the Elizabeth Bay development (Grounds 6 and 7).

2. [141]

   In its payment schedule, the appellant claimed $720,000 in liquidated damages under cl 34.7 of the York Street contract with the respondent. The basis for this claim was that the respondent had failed to achieve “practical completion” of the work by the “date for practical completion”. The payment schedule framed the claim for liquidated damages as follows:

3. [142]

   Paragraph [220] of the payment schedule provided: “due to the fanciful and speculative claim made by A-Civil, A-Civil has forced Ceerose to apply liquidated damages in accordance with Ceerose’s contractual entitlement”. Ceerose’s claim for liquidated damages did not, in terms, present itself as a “reason for withholding the payment claimed” by A-Civil within the meaning of s 14(2). Ceerose submitted that it was entitled to liquidated damages as “a set-off” against the payment claim A-Civil made. I will assume, without deciding, that a “set-off” was theoretically available to Ceerose in the adjudication.

4. [143]

   In its adjudication application, A-Civil responded to the claim for liquidated damages by contending relevant delays were caused by Ceerose, and that Ceerose had prevented A-Civil from carrying out works under the contract. A-Civil also contended that no entitlement to liquidated damages had arisen under cl 34.7 of the contract, or alternatively, any such entitlement had been lost by Ceerose’s failures to grant extensions of time.

5. [144]

   Ceerose’s adjudication response repeated, in greater detail, the submissions it had made in its payment schedule. It maintained that A-Civil was responsible for the delays and argued A-Civil had not discharged its onus of proving that Ceerose was instead responsible. It also denied that A-Civil had properly sought the extensions of time it now wished to rely on.

6. [145]

   In the adjudication response, Ceerose also made a different claim, namely that its entitlement to liquidated damages could be calculated at the date of A-Civil’s purported termination of the contract, which was either 30 June or 1 July 2022. Ceerose claimed that, at that date, it was entitled to $992,000 in damages. Ceerose did not in written submissions address the limitations of s 20(2B) of the Security of Payment Act, namely that the adjudication response cannot address matters not raised in the payment schedule but accepted, in oral argument in this Court, that the adjudicator had correctly addressed the argument presented by Ceerose in its payments schedule in paragraph [347] of the adjudication determination. At [347] the adjudicator set out his understanding of the dispute:

7. [146]

   It was common ground in this Court that the Date of Practical Completion had not been achieved. The adjudicator then explained:

8. [147]

   Ceerose’s complaint to the primary judge, repeated in this Court, was that it had been denied procedural fairness by the adjudicator as, having set out the times at which Ceerose was able to calculate liquidated damages in accordance with cl 34.7 of the contract, and having identified “termination of the subcontract” as being a time from which liquidated damages could be calculated, the adjudicator was obliged to give Ceerose an opportunity to make further submissions about the termination of the contract.

9. [148]

   The primary judge was unpersuaded by Ceerose’s submission:

10. [149]

    On the York Street appeal, the appellant submitted that the adjudicator denied procedural fairness in three ways:

    1. (1)

       No party contended that liquidated damages did not accrue under the subcontract until one of the three events specified by the adjudicator occurred.

    2. (2)

       The adjudicator failed to consider the adjudication response, and in particular Ceerose’s “substantial, clearly-articulated argument” that A-Civil had terminated the subcontract. Ceerose pointed to paragraph [30] of its adjudication response which said the contract had been terminated and attached a copy of the notice of termination.

    3. (3)

       The adjudicator found that Ceerose was disentitled from claiming liquidated damages because it “prevented” A-Civil from completing the work by engaging another contractor, O’Sullivan, to work on the same site. Ceerose complained that neither party had sought this finding or provided evidence of when O’Sullivan commenced work.

11. [150]

    The adjudicator was under no obligation to consider Ceerose’s submissions about the alleged termination of the contract where those submissions had not been made in the payment schedule: s 20(2B), Security of Payment Act. The availability of liquidated damages by reason of termination of the contract was outside the scope of the dispute presented for adjudication. The primary judge was correct so to conclude.

12. [151]

    The adjudicator did conclude, correctly, that Ceerose failed in the only claim that was made in the payment schedule, as the date of practical completion had not been achieved.

13. [152]

    Ceerose also complained about the passages in the adjudicator’s reasons between [353]-[363] in which the adjudicator found that Ceerose prevented A-Civil from carrying out its work under the contract by engaging O’Sullivan and that, as a result, Ceerose did not accrue any entitlement to liquidated damages for that period and, therefore, its claim to set-off liquidated damages must fail.

14. [153]

    The primary judge held about that complaint:

15. [154]

    The primary judge was correct in these conclusions. It is clear that the finding that engagement of O’Sullivan prevented the defendant from carrying out work could have made no difference to the outcome of this claim. No practical injustice has been shown: Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1; [2003] HCA 6 at [37]-[38]; Assistant Commissioner Condon v Pompano Pty Ltd (2013) 252 CLR 38; [2013] HCA 7; SDCV v Director-General of Security [2022] HCA 32; 96 ALJR 1002.

16. [155]

    If it were necessary to do so, I would also uphold ground 1 of A-Civil’s notice of contention. For the reasons given at [51]-[69] above, there was no obligation on the adjudicator expressly to identify each argument and expressly state whether he was accepting or rejecting it. As I have said, there are likely to be few cases in which an applicant for judicial review can establish a breach of the duty to consider the matters set out in s 22(2). Whilst failure to refer to a submission on a centrally important matter, clearly articulated and based on uncontested facts, may demonstrate a failure to consider at all, such is likely to be a rare case. This is not such a case.

17. [156]

    I would dismiss grounds 1 and 2 of the notice of appeal

18. [157]

    There was also a claim in liquidated damages for the Elizabeth Bay development, again as a set-off against A-Civil’s payment claim. These damages Ceerose calculated at $195,500, on the basis of a 23-day delay. In its payment schedule, it said the “practical date of completion” was 22 March 2022.

19. [158]

    In its adjudication application, A-Civil submitted that the date for practical completion was in fact 25 May 2022 and that completion was achieved on 14 April 2022. In its adjudication response, Ceerose responded that although the contract specified 25 May 2022 as the date for completion, that date was subsequently changed to a date 12 weeks after the site was established, which it said was 9 March 2022. As evidence for this change, Ceerose relied on Marking H to the contract, which was raised for the first time in the adjudication response; the marking was not mentioned in the payment schedule.

20. [159]

    The adjudicator found no entitlement to liquidated damages, reasoning as follows:

21. [160]

    Before the primary judge, Ceerose submitted that the adjudicator failed to consider its submission and evidence, in particular Marking H, that the date for practical completion was earlier than 25 May 2022.

22. [161]

    On appeal, Ceerose in substance repeated its arguments below. It argued the primary judge failed to construe the adjudicator’s reasons correctly. In particular, Ceerose pointed to paragraph [118], where the adjudicator found there was “no evidence” of a change in completion date. This, it argued, was different from a conclusion that the evidence did not support the alleged change. The language at [118], Ceerose submitted, showed that the adjudicator had not considered the evidence in Marking H.

23. [162]

    The primary judge made findings about the Marking H issue at [177] as follows:

24. [163]

    The primary judge was correct to conclude that the adjudicator’s reasons demonstrated that he considered Ceerose’s submissions. As I have said at [51] above, while the processes of decision making may be revealed by the reasons required to be given under s 22(3), those reasons will not necessarily demonstrate a negative proposition, namely a failure to consider a particular matter required to be considered, simply because it is not referred to in the reasons. The primary judge was correct to conclude that the present was such a case in circumstances where the thing allegedly not taken into account, Marking H, was set out in full elsewhere in the adjudicator’s reasons.

25. [164]

    The primary judge was correct to conclude that Marking H was concerned with the time for completion of demolition works and said nothing about the date for practical completion. It was not inaccurate for the adjudicator to conclude that there was no evidence of a change in completion date. Nor, if the adjudicator had erred in this respect, would it have been a reviewable error.

26. [165]

    Finally, if it were necessary to do so, I would also uphold ground 4 of the Notice of Contention. The adjudicator was under no obligation to consider the submission about Marking H. Neither Marking H nor the purported change of the completion date to 9 March 2022 was raised in Ceerose’s payment schedule. Accordingly, by reason of s 20(2B), Ceerose was unable to make the submissions now relied upon in its adjudication response. Even if Ceerose’s contentions about what was taken into account were correct, the adjudicator would not fall into jurisdictional error by failing to consider matters not contained in Ceerose’s payment schedule.

27. [166]

    I would dismiss grounds 6 and 7 of the notice of appeal.

Cross-appeal by A-Civil

1. [167]

   Although addressed in eight grounds, A-Civil advanced in its cross-appeal a challenge to only one of the findings of jurisdictional error made by the primary judge, relating to cl 36.6 of the York Street contract.

2. [168]

   A-Civil’s payment claim included the amount of $687,214.19 for “variation 6” to the stipulated work, which concerned the demolition of a wall. A number of documents were attached to the payment claim in support of the variation, including Attachment A03 which contained a calculation of the total wall area involved (917.77m2) and a calculation of the total additional cost of demolition based on specified rates for hand demolition.

3. [169]

   In the payment schedule, Ceerose objected to this claim on the ground that, inter alia, A-Civil was time-barred from making the variation claim by cl 36.6 of the contract:

4. [170]

   Ceerose in substance repeated this argument in its adjudication response:

5. [171]

   Clause 36.6 of the subcontract provided:

6. [172]

   The primary judge found:

7. [173]

   A-Civil submitted that the primary judge erred in concluding, by inference, that the adjudicator had failed to consider a mandatory matter pursuant to s 22(2)(d) of the Security of Payment Act. It was submitted that the primary judge had engaged in impermissible merits review.

8. [174]

   Ceerose’s submissions about the appropriate legal test should be set out here, as they contain references to many of the decisions that I have explained at [82]-[86] above should no longer be followed:

9. [175]

   Without repeating all that I have said at [52]-[69] above, Ceerose’s approach of demanding an “active intellectual process” on the part of an adjudicator is apt to mislead. As the High Court explained in M1/2021, “active intellectual process” is a phrase providing a kind of general warrant, invoking language of indefinite and subjective application, in which the procedural and substantive merits of any decision-maker’s decision can be scrutinised. As the High Court concluded, that is not the correct approach. [15]

10. [176]

    The observations made at [62]-[69] above about taking matters into account referred to in s 22(2)(d) of the Security of Payment Act are particularly apposite here. As I have said, for those reasons, there are likely to be few cases in which an applicant for judicial review can establish a breach of the duty to consider the matters set out in s 22(2). This was not a case where the inference should have been drawn that the adjudicator failed to consider the argument raised by cl 36.6.

11. [177]

    As Basten JA remarked (Leeming and White JJA agreeing) in Goodwin:

12. [178]

    This was not a case where it could be inferred that the decision-maker must have referred to the argument in his reasons, if it had been properly considered. This claim related to variation 6. The adjudicator did address Ceerose’s cl 36.6 argument at greater length when dealing with other variations [16] .

13. [179]

    The primary judge’s conclusion that cl 36.6 was not considered during the variation 6 claim is unsound. It is quite unrealistic in the context of the time sensitive and document heavy adjudication process required under the Security of Payment Act to require an adjudicator, lest he or she commit jurisdictional error, to treat minutely with repetitive arguments or repetitively reject what is essentially the same contention. The primary judge erred in concluding that Ceerose had shown that its cl 36.6 argument was not taken into account by the adjudicator in addressing the variation 6 claim.

14. [180]

    Properly understood, cl 36.6 does not impose a “time bar”. A subcontractor is not disentitled from making a variation claim if they do not do so in the progress claim immediately following the execution of the “variation” work. Rather, the clause is permissive; if a subcontractor does include the variation in the next progress claim, it allows the subcontract superintendent to determine the value of variation work. The payment schedule and adjudication response did not characterise cl 36.6 in that way or provide the adjudicator with any assistance about proof of any of the component parts of the requirements of cl 36.6. At [169] above what Ceerose said in its payment schedule about cl 36.6 is set out. Ceerose did not annexe to the payment claim relevant documents or cross-refer to those documents in any meaningful way to explain how it was that cl 36.6 imposed any constraint on A-Civil’s payment claim at all. For example, Ceerose did not seek to annexe or identify what it asserted was “the progress claim next following execution of that work (whether partly or wholly executed)” within the meaning of cl 36.6. Ceerose relied instead on assertion. The adjudicator was not required to wade through the voluminous material presented to him by Ceerose to try and find a basis for Ceerose’s contention which was not a substantial, clearly articulated argument relying upon established facts presented by Ceerose in its payment schedule. Much less was it jurisdictional error for the adjudicator to fail to engage in a search for material to support Ceerose’s claim.

15. [181]

    If it were necessary to do so, I would also conclude that paragraphs [228] and [229] of the adjudicator’s determination addressed the substance of the requirements of Ceerose’s cl 36.6 argument. The adjudicator said:

16. [182]

    Whilst cl 36.6 was not specifically mentioned in these passages, the substance of Ceerose’s case before the adjudicator was that A-Civil had failed properly to notify Ceerose of the variation claim in time. The adjudication determination addressed that complaint and determined the point at which Ceerose was “notified” about the conditions that made the demolition necessary and the demolition itself. That demolition was the subject of variation 6. The conclusion reached by the adjudicator may not be correct. That, however, does not mean that he fell into jurisdictional error because he failed to address a mandatory consideration.

17. [183]

    I would allow grounds 1-8 of the cross-appeal. The appropriate relief is that Ceerose be ordered to pay to A-Civil $687,214.19, the amount affected by the relevant order made by the primary judge. I reject Ceerose’s submission that $687,214.19 should be paid into court, pending the outcome of Ceerose’s application for a stay pending proceedings contemplated by s 32 of the Security of Payment Act. As I will explain, that stay application has now been determined and orders will be made in the Equity Division giving effect to Ball J’s reasons following delivery of this judgment.

18. [184]

    As I have said, in the York Street determination the adjudicator apportioned his fees and expenses as payable 80% by Ceerose and 20% by A-Civil. On the basis that he had found error in relation to five discrete aspects of the York Street determination, his Honour held that the adjudicator’s determination of fees and costs was affected by those jurisdictional errors and, pursuant to s 32A of the Security of Payment Act, set aside that part of the determination, with the consequence that each party would be responsible for 50% of the costs of the adjudication by reason of s 29(3) of the Security of Payment Act.

19. [185]

    The primary judge concluded:

20. [186]

    This finding was the subject of A-Civil’s cross-appeal.

21. [187]

    I reject A-Civil’s submission that a decision on apportionment, in principle, cannot be categorised as having been “affected by” an established jurisdictional error and therefore “is beyond review”. It was open to the primary judge to find that s 32A of the Security of Payment Act applied to this part of the adjudicator’s determination. However, whether the adjudicator’s order that Ceerose pay 80% of the adjudicator’s fees and expenses was equally “affected” by the four jurisdictional errors the primary judge found and that A-Civil did not contest in this Court requires further consideration. Success for A-Civil on grounds 1-8 of its cross-appeal had a significant monetary effect on the position between the parties but A-Civil did not seek to disturb the findings of jurisdictional error made by the primary judge in any other respect.

22. [188]

    The effect of A-Civil’s success with respect to grounds 1-8 on the cross-appeal is that the payment claim of $3,556,467 will be reduced by only a further $198,972 (between 5% and 6%) beyond the reductions made by the adjudicator. It is not possible to infer that the adjudicator, acting reasonably, would have reduced the apportionment of costs because of that variation in the degree of the claimant’s success, even if measured solely in monetary terms, which was not required as a matter of law and may not have been the sole basis on which the original apportionment was made. Accordingly, the order of the primary judge setting aside the adjudicator’s determination of responsibility for payment of his fees and expenses should itself be set aside, so that the adjudicator’s determination in that respect will stand.

23. [189]

    In the Elizabeth Bay determination, the adjudicator apportioned his fees and expenses to be payable in full by Ceerose. As the primary judge found jurisdictional error in relation to the Elizabeth Bay determination, his Honour held that the adjudicator’s determination of fees and costs was affected by jurisdictional error and, pursuant to s 32A of the Security of Payment Act, set aside that part of the determination, with the intention that each party would be responsible for 50% of the costs of the adjudication by reason of s 29(3) of the Security of Payment Act.

24. [190]

    The primary judge concluded:

25. [191]

    I am unable to agree with the primary judge that there was any realistic possibility that, in the absence of jurisdictional error about an item having a value of $3,740 in concrete saw cutting costs, only slightly greater than 1% of the Adjudicated Amount, the adjudicator’s fees and costs determination would have been different. Put another way, the determination under s 29(3) was not affected by jurisdictional error in any material way.

26. [192]

    I would allow the cross-appeal and set aside order 1(b) in the Elizabeth Bay proceedings.

Payment out of funds paid into court

1. [193]

   In relation to the York Street determination, pursuant to s 25(4) of the Security of Payment Act, as a statutory condition of commencing the challenge to the validity of the Determination, $2,045,453.97 was paid into Court by Ceerose. On 5 May 2023, as a result of the findings made by the primary judge, Stevenson J ordered that $1,001,203.05 of this amount be paid out to Ceerose forthwith.

2. [194]

   In relation to the Elizabeth Bay determination, pursuant to s 25(4) of the Security of Payment Act, as a statutory condition of commencing the challenge to the validity of the Determination, $349,324.36 was paid into court by Ceerose. On 5 May 2023, as a result of the findings made by the primary judge, Stevenson J ordered that $15,768.84 be paid out to Ceerose forthwith.

3. [195]

   A question arises about the payment out of the remanding funds paid into Court.

4. [196]

   At the conclusion of an application for judicial review of an adjudication determination made under the Security of Payment Act, the correct course is that orders be made for payment out of court of funds paid into court as a condition of commencing the judicial review application. Sometimes a stay is sought pending appeal to this Court or, pending determination of a case contemplated by s 32 of the Security of Payment Act. The principles which apply to each type of stay were outlined in A-Civil Aust Pty Ltd v Ceerose Pty Ltd [2023] NSWCA 144.

5. [197]

   This case has proceeded in an unusual way. It was pleaded in Ceerose’s Commercial List Statement that a stay should be granted in aid of Ceerose’s rights in proceedings contemplated by s 32 of the Security of Payment Act. Such proceedings had not then been commenced and, at the time this appeal was heard, had not yet been commenced. The primary judge did not address the stay but rather adjourned the application. The application for a stay was set down for a two-day hearing. That hearing was vacated by reason of the interlocutory appeal referred to at [197] above. The stay application was eventually heard on 14 August 2023 and judgment delivered by Ball J on 24 August 2023: Ceerose Pty Limited v A-Civil Aust Pty Ltd (No 5) [2023] NSWSC 1012. Ball J determined that he would refuse the stay pending completion of proceedings contemplated by s 32 of the Security of Payment Act but deferred making orders pending the determination of this Court.

6. [198]

   This litigation is a cogent demonstration of why the course here adopted in seeking a stay in aid of yet-to-be commenced proceedings contemplated by s 32 of the Security of Payment Act is inimical to the objects of the Act. It is unacceptable that in relation to a system designed to protect the cashflow of building contractors that, almost 16 months after the payment claim was made, the funds to which A-Civil was held by the adjudicator and by a judge of the Court to be entitled remain with the Court.

7. [199]

   This Court will ordinarily make orders for payment out of funds in court after the judicial review of an adjudication is complete. There is no reason not to make those orders for payment out to A-Civil in the present case. The original reason suggested for not making such an order, the existence of the application for a stay pending completion of proceedings contemplated by s 32 of the Security of Payment Act, no longer applies following the recent decision of Ball J. There is, however, a possible issue of timing as Ball J has not yet made orders. Accordingly, to permit orders to be made in the Equity Division, the orders for payment out to A-Civil of the funds in court will be effective 7 days after delivery of this judgment.

Conclusion and proposed orders

1. [200]

   For the foregoing reasons I propose the following orders:

2. [201]

   In the York Street proceedings:

   1. (1)

      Appeal dismissed.

   2. (2)

      Appellant to pay the respondent’s costs of the appeal.

   3. (3)

      Cross-appeal allowed.

   4. (4)

      Set aside orders 1(a) and (b) and 2(a) of the Court below made on 20 April 2023.

   5. (5)

      In their place:

   6. (6)

      Order that the appellant pay to the respondent the amount of $718,284.08, together with all interest earned thereon until paid out of court on or about 5 May 2023, together with interest from the date of payment out of court, until the date of payment to the respondent.

   7. (7)

      Order that 7 days after the making of this order, the remaining funds paid into Court, including any interest accrued thereon, be paid out to the respondent.

   8. (8)

      The cross-respondent to pay the cross-appellant’s costs of the cross-appeal.

3. [202]

   In the Elizabeth Bay proceedings:

   1. (1)

      Appeal dismissed.

   2. (2)

      Appellant to pay the respondent’s costs of the appeal.

   3. (3)

      Cross-appeal allowed.

   4. (4)

      Set aside order 1(b) of the Court below made on 20 April 2023.

   5. (5)

      Order that the appellant pay the respondent the amount of $11,650.56, together with all interest earned thereon until paid out of court on about 5 May 2023, together with interest from the date of payment out of court, until the date of payment to the respondent.

   6. (6)

      Order that 7 days after the making of this order, the remaining funds paid into Court, including any interest accrued thereon, be paid out to the respondent.

   7. (7)

      The cross-respondent to pay the cross-appellant’s costs of the cross-appeal.

4. [203]

   BASTEN AJA: I agree with Payne JA.