Castle Constructions Pty Ltd v Napoli Excavations and Civil Pty Ltd

By a Summons filed on 15 December 2022, the plaintiff (Castle Constructions Pty Ltd) seeks a declaration that an adjudication determination purportedly made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”) is void and of no effect. The adjudication determination (“the Determination”) was served on 8 December 2022. The adjudicator was Mr Callum Campbell of Adjudicate Today Pty Ltd, which has been named as the second defendant.

The adjudicator determined that the first defendant (Napoli Excavations and Civil Pty Ltd) was entitled to be paid a progress payment by the plaintiff in the sum of $48,362.05 plus interest. The plaintiff has not paid the adjudicated amount to the first defendant.

On 16 December 2022, the plaintiff obtained an order restraining the first defendant until 3 February 2023 from seeking an adjudication certificate in respect of the adjudicated amount. The plaintiff was at the same time ordered to pay the sum of $54,088.31 into Court pending the determination of the proceedings, or earlier order of the Court. The amount of $54,088.31 appears to be the sum of the adjudicated amount, interest up to 15 December 2022, and the adjudicator's fees. On 3 February 2023, the injunction against the first defendant was extended until the determination of the proceedings.

Also on 3 February 2023, the Summons was listed for hearing today, and directions were made for the plaintiff to file a List Statement and brief written submissions. By that time the second defendant had filed a submitting appearance save as to costs, but no appearance had been entered by the first defendant.

Affidavits of service on the Court file show that the sole director of the first defendant, Mr Antonio Guerrera, has communicated with the plaintiff by using a certain email address. In accordance with an order of the Court made ex parte on 15 December 2022, the Summons, the Notice of Motion seeking injunctive relief, and the affidavit in support of the application by the plaintiff's solicitor, Ms Samantha Peterson, was served upon the first defendant by email to Mr Guerrera's email address. There is evidence that shortly after the service by email, Mr Guerrera telephoned Ms Peterson and they had a brief conversation, in which Mr Guerrera confirmed that he had received the email, and was aware that Court proceedings had been commenced. The email also attached the orders made by the Court on 15 December 2022, and expressly stated that the proceedings were listed on 16 December 2022 at 2:00pm. Even though service by email to Mr Guerrera does not itself constitute personal service upon the first defendant, I am satisfied that the Summons and the other documents referred to have been brought to the attention of the sole director, and indeed sole shareholder, of the first defendant. I consider it appropriate in the circumstances to make an order under Uniform Civil Procedure Rules 2005 (“UCPR”) r 10.14(3) directing that the service of the Summons, Notice of Motion, and affidavit in support by email to Mr Guerrera on 15 December 2022 be taken as service upon the first defendant on that date. By UCPR r 10.14(4), such service is taken to constitute personal service upon the first defendant.

I note further that it appears from an affidavit of service on the file that on 6 February 2023, Ms Peterson sent an email to Mr Guerrera's email address notifying him of the orders made by the Court on 3 February 2023, including that the Summons was listed for hearing today. When the matter was called on for hearing, Mr Guerrera sought to represent the first defendant at the hearing. He accepted that he had been aware of the proceedings since December 2022, and it seems that he has had the benefit of some legal advice from a solicitor. However, as I have said, no appearance was ever entered by the first defendant. By virtue of UCPR r 6.1, the first defendant is not permitted to take any step in the proceedings, including any appearance in court, without the leave of the Court. I earlier declined to grant such leave. The hearing thus proceeded in the absence of the first defendant, although Mr Guerrera remained to observe the hearing, as he was invited to do.

The Determination was concerned with a payment claim made by the first defendant on 30 September 2022 in the sum of $48,362.05. That was the fourth payment claim made by the first defendant since the work under the relevant contract had ceased in May 2022. The third of those payment claims was made on 31 August 2022 in exactly the same amount.

In any event, the plaintiff served a payment schedule on 23 October 2022 in respect of the 30 September 2022 payment claim. The service of the payment schedule followed the issue of a notice to the plaintiff pursuant to s 17(2) of the Act. The payment schedule was in the following terms:

It is clear that the payment schedule included as a reason for withholding payment that the first defendant was not entitled to serve the same payment claim again. In paragraph 28 of the Determination, the adjudicator stated that:

After the matter became subject to adjudication under the Act, the plaintiff served an adjudication response in answer to the first defendant's adjudication application. The adjudication response dated 9 November 2022 runs to some 117 paragraphs. It contained nine submissions as to why the first defendant was not entitled to any payment. Those submissions are referred to in the Determination at paragraph 51 in the following terms:

The adjudicator held that some of those submissions could not be considered by him because they were included in the adjudication response contrary to s 20(2B) of the Act. The submissions the adjudicator did not for that reason consider were various submissions that concerned the following issues:

The third of the nine submissions made by the plaintiff was in the following terms:

At paragraph 91 of the adjudication response, the plaintiff stated:

The words in parenthesis are evidently a reference to the adjudication application. The final sentence on page 11 of the adjudication application was in the following terms:

However, at paragraph 57 of the Determination, the adjudicator stated:

The above statement appears to me to misunderstand the position of the parties and, in particular, overlooks the assertion made by the plaintiff that the contract had been terminated on 6 May 2022.

Further, no reference is made in the Determination by the adjudicator to the plaintiff's submission that as the contract had been terminated it was not open to the first defendant to serve the payment claim on 30 September 2022, as the claim was the fourth claim made since the asserted date of termination.

The plaintiff raised various arguments in support of the position that the adjudicator had committed jurisdictional errors. However, counsel for the plaintiff focused on two arguments as the main grounds to be relied upon. Each is related to the alleged termination of the contract on 6 May 2022.

It is clear that the validity of a determination of an adjudicator appointed pursuant to the Act can be challenged on the ground that is affected by jurisdictional error. One example of a jurisdictional error that may be committed by an adjudicator is a failure to consider one of the matters that is specified in s 22(2) of the Act. By s 22(2)(d), for example, an adjudicator in determining an adjudication application is bound to consider any payment schedule to which the application relates, together with all submissions that had been duly made by the respondent in support of the schedule.

As I have said, the plaintiff focused on two principal arguments in support of the position that the adjudicator had committed jurisdictional errors. First, the plaintiff submitted that it was clearly accepted by both parties that the contract had been terminated, and the Court should be satisfied that it was. It was then submitted that s 13(1C) of the Act operates so that where the construction contract has been terminated, a person who claims to be entitled to a progress payment can make only one payment claim. Stevenson J held that that was the case in BCFK Holdings Pty Ltd v Rork Projects Pty Ltd [2022] NSWSC 1706 at [57]-[70]. On the basis of that reasoning, a subsequent payment claim, such as the one served in this case on 30 September 2022, is not effective to enliven the operation of the Act, and any adjudication determination based upon it would be invalid.

Secondly, the plaintiff submitted that, in any event, the adjudicator failed to comply with his statutory obligation under s 22(2)(d) of the Act, by failing to consider its submission, set out above, that by reason of the termination of the contract only one payment claim could later be made, and hence the 30 September 2022 payment claim was invalid.

In my opinion, even if the first ground is not made out, the second ground is. It seems to me that the submission contained in paragraphs 95 to 98 of the adjudication response (set out above at [12]) was a submission duly made by the plaintiff in support of its payment schedule. I note that save for certain of the submissions identified by the adjudicator at paragraph 54 of the Determination, the adjudicator seemed to accept that the nine submissions made by the plaintiff (including those that raised "jurisdictional issues"), were duly made. Further I infer, principally from the failure of the adjudicator to make any reference to the submission based on the termination of the contract, and from the terms of paragraph 57 of the Determination, that the adjudicator entirely overlooked the submission. The terms of paragraph 57 of the Determination rather seem to suggest that the adjudicator proceeded on the basis that it was common ground that the works had merely been suspended, not that the contract had been terminated. That the adjudicator apparently held that view suggests that it is unlikely that the adjudicator would have considered the submission that was based on the contract having been terminated. As I have said, the Determination contains no reference to that submission.

In addition to concluding that the adjudicator failed to consider the submission, I am of the view that the failure is material. That is to say, had the adjudicator considered the submission he may well have come to a different conclusion. There has thus been a material failure on the part of the adjudicator to comply with s 22(2)(d) of the Act. That failure to discharge the statutory obligation amounts to jurisdictional error.

For the above reasons, the Court will make a declaration that the adjudication determination made by the second defendant (2022ADJT427) served on 8 December 2022 is void and of no effect.

The Court will also order that the money paid into Court by the plaintiff pursuant to the orders made by the Court on 16 December 2022 be paid out to the plaintiff.

The Court will further order that the first defendant pay the plaintiff's costs of the proceedings. There will be no order for costs against the second defendant which, as I have noted, filed a submitting appearance.