Forte Sydney Construction v Lin Betty Building Group

1. [1]

   HIS HONOUR: The plaintiff (FSC) was the head contractor for the construction of a residential apartment project at Ryde. By subcontract dated 31 January 2018, FSC engaged the first defendant (LBBG) to perform Hebel block and Gyprock works. There is no doubt that the subcontract was a construction contract for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

The claim and its determination

1. [2]

   On 25 May 2018, LBBG served a payment claim on FSC. It is common ground that the time limited for provision of a payment schedule in answer to that payment claim expired no later than 8 June 2018. FSC did not provide a payment schedule within that time. It did provide, or purported to provide, a payment schedule on 15 June 2018.

2. [3]

   In the events that happened, LBBG decided to proceed to adjudication. It was accordingly required to give FSC a further opportunity to provide a payment schedule. LBBG did so, by notice to FSC dated 17 July 2018 of its intention to seek adjudication of the payment claim.

3. [4]

   It is common ground that the period of five business days after service of the notice to which I have just referred expired on 24 July 2018. FSC did not provide a payment schedule within that time.

4. [5]

   LBBG then made an adjudication application. It served the application on FSC. The authorised nominating authority to whom the application was made referred it to the second defendant (the adjudicator). The authorised nominating authority notified the parties of that on 7 August 2018.

5. [6]

   The adjudicator issued his determination on 10 August 2018. It was made available to the parties (following payment of fees) on 13 August 2018. It is common ground in those circumstances that the adjudicator determined the application within the time that FSC could have lodged an adjudication response, were it entitled to do so.

6. [7]

   The adjudicator concluded that LBBG had made good its claim. He determined the adjudicated amount at $314,463.49.

The dispute in this Court

1. [8]

   FSC has commenced proceedings in this Court seeking, in effect, to quash the determination. It raises three grounds in support of that application. For the reasons that follow, each of those grounds fails. The summons should be dismissed with costs.

2. [9]

   The first ground upon which FSC relies is, in substance, that the adjudicator denied it natural justice, and acted beyond jurisdiction, by failing to consider what I will call the 15 June payment schedule (see at [2] above).

3. [10]

   The second ground is that in those circumstances, the adjudicator determined the application before he was entitled to do so, having regard to the provisions of s 21(1) of the Act.

4. [11]

   The third ground is that the adjudicator failed to carry out his statutory task, because he failed to satisfy himself of the essential elements of the claim.

First ground

1. [12]

   The first ground requires consideration of the machinery of the Act, in particular, ss 13, 14, and 15. Section 13 provides for the service of payment claims. Since there is no issue raised as to the validity of LBBG's payment claim, there is no need to set out s 13.

2. [13]

   Section 14 gives to the respondent on whom a payment claim is served the opportunity to reply by providing a payment schedule. It says what the payment schedule must contain and specifies the time limit by which it must be provided. I set out s 14:

3. [14]

   Section 15 sets out what happens where no payment schedule is provided. In effect, the claimant has two alternative rights. One is to recover the claimed amount, or the unpaid portion of it, as a debt due, in a court of competent jurisdiction. There are restrictions on matters that can be raised by way of defence or cross-claim. The other right given is to make an adjudication application. I set out s 15:

4. [15]

   Section 16 applies where a payment schedule has been provided, but the scheduled amount has not been paid, or has not been paid in full. There is no need to set out that section.

5. [16]

   Section 17 deals generally with the adjudication of disputes. It applies in two separate circumstances. The first is where a payment schedule has been provided "under Division 1", but where the scheduled amount is less than the amount claimed or the scheduled amount is not paid. The other is where no payment schedule has been provided.

6. [17]

   In the event that no payment schedule is provided, an adjudication application cannot be made unless, in accordance with s 17(2), the respondent is given an opportunity to provide a payment schedule. I set out s 17(1), (2):

7. [18]

   The Act thereafter provides for the making of the adjudication application, the appointment of the adjudicator, and the lodging of an adjudication response. That last subject is dealt with in s 20. I set it out:

8. [19]

   Section 21 deals with "adjudication procedures". Subsection (1) is relevant in this case. I set it out:

9. [20]

   Finally, for present purposes, s 22 sets out what the adjudicator is to do and how he or she is to do it. Subsections (1), (2) are of present relevance. I set them out:

10. [21]

    The adjudicator noted that the 15 June payment schedule had been provided but concluded that it was not valid, because it had not been provided within ten business days after service of the payment claim. He noted, further, that no payment schedule had been provided in response to the s 17(2)(a) notice. That was correct, if the word "expressly" is inserted before the words "in response". It followed, in the adjudicator's view, that because FSC had not provided a valid payment schedule in either of the ways that the Act allowed, it was not entitled to serve an adjudication response. Thus, (although he did not say so) he concluded (or must been taken to have concluded) that he was entitled to determine the application forthwith, without waiting out the s 21(1) period.

11. [22]

    The real question is whether the 15 June payment schedule was valid or effective for the purposes of the Act. Mr Roberts of Senior Counsel, who appeared for FSC, submitted that there was nothing in the Act that rendered an out-of-time payment schedule invalid. Thus, he submitted, when the s 17(2)(a) notice was served, the payment schedule that had been provided (ineffectively for the purposes of s 14(4)) nonetheless stood as a payment schedule that was to be taken as an answer to the payment claim. In those circumstances, he submitted, the adjudicator was bound to consider it.

12. [23]

    Mr Roberts submitted that this approach to construction was supported by observations made by Hodgson JA in Falgat Constructions Pty Limited v Equity Australia Corporation Pty Limited [1] . In that case, his Honour referred at [43], [44] to a question of whether a payment schedule served out of time was valid. It appears that his Honour had expressed the view in oral argument that it was invalid. However, he said, he was not certain that this view was correct. His Honour dealt with that, and set out reasons why it may have been incorrect. Rather than summarise them, the simplest course is to set out those paragraphs of his Honour's reasons:

13. [24]

    It is clear from what his Honour said next, at the beginning of [45], that he was not expressing a concluded view. The other matter to be noted is that Handley JA agreed with the third member of the Court, Hunt AJA, and subject to what Hunt AJA had said, with the reasons of Hodgson JA. Hunt AJA disagreed with a particular part of the reasons of Hodgson JA, but not [43], [44].

14. [25]

    As Mr Roberts acknowledged, there is authority to the contrary. That is found in the decision of Einstein J in Taylor Projects Group Pty Limited v Brick Dept Pty Limited [2] . In that case, there was a dispute as to whether a payment schedule had been provided within the time authorised by s 14(4) of the Act. Einstein J held that it had not been.

15. [26]

    It was then necessary for his Honour to consider whether the document provided out of time could stand as an answer to the claimant's later notice under s 17(2)(a). His Honour held that it could not. That appears from his Honour's reasons at [40]. I set out that paragraph:

16. [27]

    Mr Roberts accepted that the paragraph to which I have referred set out the essence of the reasoning of Einstein J on the central point at issue in the case, having regard to his earlier conclusion that the payment schedule had not been provided within the time permitted by s 14(4). He accepted, further, that I should follow the views expressed by Einstein J unless I were persuaded that they were plainly wrong.

17. [28]

    Mr Hicks of Senior Counsel, who appeared for LBBG, supported the reasoning of Einstein J. He submitted that it was not merely correct, but plainly so. Further, Mr Hicks submitted, his Honour's observations were consistent with what he had said later in Rojo Building Pty Limited v Jillcris Pty Limited [3] at [18]. The observations were also consistent, Mr Hicks submitted, with what I had said in Chase Oyster Bar Pty Limited v Hamo Industries Pty Limited [4] at [221]. Mr Hicks noted that Basten JA had agreed at [96] with the reasons that I gave dealing with s 17(2)(a), which included what I said at [221].

18. [29]

    I am not sure that the observations that I made in Chase Oyster Bar can be given the significance that Mr Hicks sought to place upon them. I did say that s 17(2)(b) "is directed to shortening, as much as possible, the time within which the respondent can provide a payment schedule". That, I said, "is why the time for the provision of the payment schedule runs from receipt of the notice...". However, I was there dealing with a situation where no earlier payment schedule or purported payment schedule had been provided.

19. [30]

    It was clear that the time for provision could only run from receipt of the notice, because the earlier opportunity for provision of a payment schedule had lapsed.

20. [31]

    Nonetheless, I think, the construction for which Mr Hicks contended finds support in the structure and language of Division 1 of Part 3 of the Act: the division containing ss 13 to 16, and which is followed by Division 2 dealing with adjudication of disputes. Section 14(4) sets out the time limits within which a respondent to a payment claim must (should it wish to do so) serve a payment schedule. It specifies the consequences of failure: the respondent becomes liable to pay the claimed amount on the due date for payment.

21. [32]

    Section 15 then deals with the ways in which the respondent can enforce payment of the statutory debt that arises if no payment schedule is provided within the time limited by s 14(4). As I have noted, the claimant is given alternative rights.

22. [33]

    If the claimant chooses the "adjudication" right, then s 17 is engaged. However, the claimant cannot proceed to adjudication without giving the respondent notice of its intention to do so. The giving of that notice effectively triggers an opportunity for the respondent to provide a payment schedule. In effect, the respondent is given the opportunity to dispute its liability for the statutory debt that, otherwise, has arisen by operation of s 14(4) in the hypothetical circumstances with which I am presently concerned.

23. [34]

    The language of s 17(2)(b) is significant. The opportunity to provide a payment schedule that is given is one to provide it "within 5 business days after receiving the claimant's notice". Those words suggest strongly that the opportunity starts upon receipt of the s 17(2)(a) notice and lapses at the end of five business days thereafter. Adapting the language used by Mr Roberts in his submissions, those words are consistent with the opportunity being one that exists for a closed period (the approach to construction for which he did not contend) rather than merely providing for a deadline, or further deadline, for the provision of a payment schedule (the approach for which he did contend).

24. [35]

    Taking into account those matters of structure and language, it does not seem to me to be possible to say that the decision of Einstein J in Taylor Projects Group is "plainly wrong". I do accept that the reasons advanced, although by the way, by Hodgson JA in Falgat provide an alternative analysis. It may very well be that if his Honour had expressed a concluded view (being, as it was, in a judgment with which relevantly the other members of the court concurred), I should follow it even if it were not part of the ratio of the decision. But his Honour did not express a concluded view, and it does not appear that the Court had been referred to the reasons of Einstein J in Taylor Projects Group. In those circumstances, I do not think that the tentative views expressed in Falgat provide any sufficient reason for concluding that what Einstein J had said was plainly wrong.

25. [36]

    It follows that the first ground must be decided against FSC.

Second ground

1. [37]

   The second ground, relating to s 21(1), does not really arise. If the first issue had been decided in favour of FSC, then the s 21(1) point would provide an alternative basis for quashing the determination. But as Mr Roberts accepted, if I were to come to the view that I have just expressed, the s 21(1) argument would have no further work to do.

Third ground

1. [38]

   I turn to the third ground: that the adjudicator failed to perform his statutory function. That ground is based upon the brief reasons that the adjudicator gave for upholding the claim and determining that LBBG was entitled to be paid the claimed amount. Those reasons are found at [30] to [34] of the determination. I set out those paragraphs:

2. [39]

   It is well settled that an adjudicator is not discharged from considering the merits of the claim simply because no payment schedule has been provided, or because no arguments have been validly put (by which I mean to call up s 22(2)(d) of the Act) in answer to the claim. However, where no arguments have been advanced, it is not incumbent on an adjudicator to invent them and deal with them. The point is clearly expressed in the reasons of Hodgson JA in Coordinated Construction Co Pty Limited v J M Hargreaves (NSW) Pty Limited [5] at [52]. It should be noted that although the other members of the Court did not expressly agree with his aspect of his Honour's reasons, nonetheless what his Honour said does not appear to be at all contentious.

3. [40]

   Hodgson JA pointed out that the adjudicator's task was to determine the amount of the progress payment. That required, his Honour said, a determination to be made on the material available to the adjudicator and to the best of the adjudicator's ability. His Honour referred to s 22(2) and then said:

4. [41]

   Putting the matter shortly, an adjudicator cannot simply rubber stamp an adjudication application (and payment claim) only because there are no grounds of opposition properly put forward.

5. [42]

   In this case, reading the relevant paragraphs of the adjudicator's reasons fairly, it seems to me that he did consider the evidence on which LBBG relied. That evidence included, as Mr Hicks submitted, a statutory declaration annexing a considerable volume of material that substantiated the way in which its claim had been put. The adjudicator said, in effect, that he had considered that material: that is the obvious inference from [32], [33] of his reasons.

6. [43]

   Mr Roberts pointed to the circumstance that the payment claim was one for completed percentages of various work elements. He submitted that it was not apparent from the adjudicator's reasons how he had satisfied himself that the claimed percentages had, in fact, been completed. I do not think that this is a fair reading of the reasons given.

7. [44]

   The inference properly available from the paragraphs is that the adjudicator considered the material submitted in support of the payment claim, and that the material satisfied him that the claim had been made good. In particular, at [34], he expressed his satisfaction, based on those materials, that the values claimed were calculated in accordance with the contract according to a clear methodology.

8. [45]

   Returning to the language of Hodgson JA in Coordinated Construction at [52], the relevant paragraphs of the adjudicator’s reasons in this case make it clear that the adjudicator had considered the merits of the claim and come to a view as to what was properly payable. He did not simply award the amount of the claim without addressing its merits.

9. [46]

   In my view, the third ground fails.

Conclusion and orders

1. [47]

   It follows that the summons should be dismissed. In the ordinary way, costs should follow the event. In accordance with the Court's orders staying enforcement of the determination, FSC paid into court $319,573.89. It follows from my reasons that this amount ought be paid out forthwith to LBBG.

2. [48]

   I direct the orders be entered forthwith.