TWT Property Group Pty Ltd v Cenric Group Pty Ltd

1. [1]

   The plaintiff, TWT Property Group Pty Ltd, is a developer. The defendant, Cenric Group Pty Ltd, is a builder.

2. [2]

   By contract dated 20 June 2017, TWT engaged Cenric to demolish a structure at a site in Harris Street Pyrmont and to excavate the site.

3. [3]

   By further contract, dated 6 November 2017 but backdated to 27 June 2017, Cenric entered into a subcontract with Bundanoon Sandstone Pty Ltd to excavate and sell sandstone harvested from the site.

4. [4]

   On 19 March 2018, TWT excluded Cenric from the site and, shortly thereafter, engaged Bundanoon directly to carry out the sandstone excavation.

5. [5]

   On 29 March 2018, Cenric commenced proceedings in this Court against TWT and Bundanoon (“the 2018 Proceedings”). In those proceedings Cenric claimed damages arising from its exclusion from the site on 19 March 2018. Cenric did not, however, make a claim for the work it did on the site up to 19 March 2018. But it did claim an entitlement to set-off the amount it then contended to be owing for that work in answer to a cross-claim brought by TWT.

6. [6]

   The 2018 Proceedings were heard by McDougall J over six days between 30 July 2018 and 12 September 2018. In final submissions, counsel for Cenric abandoned Cenric’s set-off claim.

7. [7]

   McDougall J delivered judgment on 18 October 2018: Cenric Group v TWT Property Group [2018] NSWSC 1570. The judgment was essentially in Cenric’s favour, in that McDougall J found that TWT was not entitled to exclude Cenric from the site. McDougall J did not, however, make any reference to any amount due to Cenric for work done to 19 March 2018, no doubt because Cenric had made no claim for that amount, otherwise than in its abandoned set-off to TWT’s cross-claim.

8. [8]

   There was an appeal from that decision. The outcome of the appeal has no bearing on the issues before me.

9. [9]

   These proceedings are concerned with a dispute that has now arisen between TWT and Cenric arising out of a payment claim dated 10 December 2018 that Cenric served on TWT on 14 December 2018 under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”).

10. [10]

    The payment claim was for $444,726.06, being the amount Cenric contended was owing to it by TWT for work done prior to its exclusion from the site on 19 March 2018. As I have said, Cenric did not make this claim in the proceedings before McDougall J otherwise than in the abandoned set-off.

11. [11]

    On 21 December 2018 TWT served a payment schedule certifying the amount of $Nil.

12. [12]

    On 14 January 2019 Cenric made an adjudication application.

13. [13]

    On 22 February 2019 an adjudicator found that:

14. [14]

    Thereafter Cenric purported to withdraw its 14 January 2019 adjudication application and lodged a further adjudication application on 1 March 2019, which was also based on the 10 December 2018 payment claim.

15. [15]

    In the meantime, TWT commenced these proceedings seeking to challenge the 10 December 2018 payment claim or, alternatively, uphold the 22 February 2019 adjudication.

16. [16]

    On 7 March 2019 orders were made by consent preserving the position pending the outcome of these proceedings.

The issues

1. [17]

   The parties have very sensibly reduced the issues requiring determination.

2. [18]

   There are two issues remaining.

3. [19]

   The first is whether it was an abuse of the process of the Act for Cenric to make the 10 December 2018 payment claim by reason of an Anshun estoppel arising from Cenric’s unreasonable failure to propound in the 2018 Proceedings the claim for work done prior to its exclusion from the site on 19 March 2018. That claim was made for the first time in the 10 December 2018 payment claim.

4. [20]

   It is common ground that if an Anshun estoppel did arise, Cenric may not proceed with the 1 March 2019 adjudication application.

5. [21]

   The second issue, which only arises if there is no Anshun estoppel, is whether the 22 February 2019 adjudication is amenable to challenge on the basis that, as a matter of objective fact, the 10 December 2018 payment claim does relate to work carried out within 12 months of service of the payment claim.

Decision

1. [22]

   Cenric’s failure to propound its claim for work done to 19 March 2018 in the 2018 Proceedings was unreasonable such that Cenric is now bound by an Anshun estoppel from making a claim for the work done on site to 19 March 2018.

2. [23]

   It follows that service of the 10 December 2018 payment claim was an abuse of process, as is the 1 March 2019 adjudication application, which is based on that payment claim. I shall make orders restraining it from proceeding with an application.

3. [24]

   It is accordingly unnecessary to decide whether the 22 February 2019 adjudication was valid, as it was based on the 14 January 2019 adjudication application which was also based on the 10 December 2018 payment claim.

4. [25]

   Were it necessary for me to reach a conclusion as to the status of the 22 February 2019 adjudication, I would have concluded that the determination was void on the basis of a breach of natural justice.

The first issue – the Anshun question

1. [26]

   On 9 March 2018 TWT sent to Cenric a “Notice to Show Cause” pursuant to cl 39.2 of the contract. In that notice, TWT contended that Cenric had “substantially departed from the construction program without reasonable cause” and required Cenric to show cause why TWT should not exercise its rights under cl 39.4 of the contract to take the work out of Cenric’s hands.

2. [27]

   On 19 March 2018, TWT served on Cenric a notice pursuant to cl 39.4 of the contract stating that it intended “to take the remaining works out of your hands”.

3. [28]

   On 20 March 2018, Cenric removed its equipment from the site and, since 23 March 2018, has not entered the site or carried out any work on the site.

4. [29]

   Also on 20 March 2018, TWT entered into a contract with Bundanoon under which Bundanoon agreed to carry out the relevant sandstone excavation work.

5. [30]

   On 29 March 2018, Cenric commenced the 2018 Proceedings against TWT and Bundanoon.

6. [31]

   As against TWT, Cenric claimed damages “by reason of” TWT’s alleged breach of contract “including royalties forgone” since 19 March 2018 because of TWT’s “unlawful attempt to take out the [contract] works from [Cenric]”.

7. [32]

   As against Bundanoon, Cenric claimed royalties in relation to the harvested sandstone.

8. [33]

   Cenric made no claim against TWT for the value of the work it had done on the site to the date of its exclusion from the site on 19 March 2018.

9. [34]

   TWT made a cross-claim against Cenric in which it alleged that Cenric had “failed to proceed with due expedition and without delay” and sought “liquidated damages”. It also sought “an account or inquiry into damages”.

10. [35]

    In its response to that cross-claim, Cenric alleged, under the heading “Nature of the Dispute”:

11. [36]

    Cenric made a corresponding allegation as a part of its “Contentions” as follows:

12. [37]

    Mr Hicks SC, who appeared with Mr Byrne for Cenric, submitted that these contentions should be read in the light of TWT’s prayer for an “account or inquiry into damages” and that the “reconciliation” sought by Cenric should be seen as one sought by Cenric in any such “inquiry” rather than in the 2018 Proceedings themselves.

13. [38]

    I do not accept that submission. There is no such qualification in Cenric’s contentions. Cenric was asserting that, as a matter of fact, and “on a proper reconciliation” (that is, one already performed by it), TWT “is liable” to pay it the sum referred to.

14. [39]

    The 2018 Proceedings were listed for hearing before McDougall J commencing on 30 July 2018.

15. [40]

    Two weeks earlier, on 16 July 2018, TWT’s solicitor wrote to Cenric’s solicitor pointing out that Cenric’s response to TWT’s cross-claim had raised “for the first time claims for payment [for amounts allegedly due for works done to 19 March 2018], not included in your client’s List Statement” and contending that Cenric was thereby splitting its case. TWT’s solicitor foreshadowed a possible application to strike out Cenric’s cross-claim response.

16. [41]

    Cenric’s then solicitor replied:

17. [42]

    On 29 July 2018, the day before the commencement of the trial before McDougall J, Cenric’s solicitor wrote to TWT’s solicitor as follows:

18. [43]

    An issue in the proceedings before me was whether TWT agreed to this proposal.

19. [44]

    Thus Mr Hicks submitted:

20. [45]

    For the reasons set out below, I am not satisfied there was any such agreement or convention.

21. [46]

    Cenric’s solicitor’s letter of 29 July 2018 was addressed to TWT’s solicitor Mr David Vaughan.

22. [47]

    Mr Vaughan deposed that he did not respond to the letter.

23. [48]

    Mr Hicks submitted that Mr Vaughan’s failure to go further and assert that TWT had not in the 2018 Proceedings agreed to the proposal in the 29 July 2018 letter gave rise to an inference that the proposal was accepted. Mr Hicks referred to the familiar observations of Handley JA in Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418 that the failure by a party to examine a witness in chief on some topic when the witness was likely to give evidence about that topic, indicates “as the most natural inference that the party fears to do so”.

24. [49]

    But, assuming that Mr Vaughan could have admissibly said anything on the topic, his failure to say that Cenric’s solicitor’s 29 July 2018 proposal had not been accepted cannot, without more, prove that it was.

25. [50]

    It may enable the Court to draw, with greater confidence, an inference to that effect if the evidence otherwise justified the inference: see Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 at [63]. But my attention has not been drawn to any evidence which would justify such an inference being drawn. To the contrary, there is evidence before me that suggests no such agreement was made.

26. [51]

    Cenric did not call its then solicitor or any other witness to prove the existence of any such agreement or understanding.

27. [52]

    The question of Cenric’s set-off to TWT’s cross-claim was mentioned during opening submissions to McDougall J.

28. [53]

    Counsel then appearing for TWT said:

29. [54]

    Counsel’s reference to a strike out application was, evidently, a reference to the threat made in TWT’s solicitor’s letter of 16 July 2018 to which I have referred at [40]. I was informed that a notice of motion to that effect had been served but not in fact filed.

30. [55]

    Counsel then appearing for Cenric said:

31. [56]

    Those statements by counsel contain no suggestion that there was any agreement in relation to the “Reconciliation Question” referred to in Cenric’s solicitor’s letter of 29 July 2018.

32. [57]

    Mr Hicks submitted that this exchange amounted to no more than “musings” of counsel in relation to the matters that should be in an agreed statement of issues. However, on my reading of the transcript to that point, that is not correct. Counsel were addressing the substance of the issues before the Court.

33. [58]

    The matter was raised again in final oral submissions when counsel for TWT said:

34. [59]

    In response to an enquiry from McDougall J, counsel for Cenric confirmed that:

35. [60]

    Mr Hicks submitted that TWT’s counsel’s statement to McDougall J that “we’ve dealt with and told them to retain in relation to set-off claims and retention monies” somehow bespoke an acknowledgment by TWT of an agreement or understanding to the effect proposed in Cenric’s solicitor’s letter of 29 July 2018.

36. [61]

    I am unable to glean such a conclusion from TWT’s counsel’s remarks.

37. [62]

    Overall, I am not satisfied that there was any agreement or understanding to effect contended for by Mr Hicks.

38. [63]

    McDougall J held that TWT was not entitled to issue the 9 March 2018 Notice to Show Cause and was not entitled to exclude Cenric from the site.

39. [64]

    His Honour concluded that:

40. [65]

    His Honour made no reference in the judgment to Cenric’s set-off claim, no doubt because he had been informed by Cenric’s counsel that the claim was not pressed.

41. [66]

    In a proceeding before a court of competent jurisdiction, the parties are required to bring forward their whole case.

42. [67]

    A party will not be permitted to raise, in a subsequent proceeding, a claim or an issue of fact or law that is so connected or so relevant to the subject matter of the first proceeding that it was unreasonable of that party to have not made the claim or raised the issue in the first proceeding.

43. [68]

    Factors relevant to that question include, but are not confined to:

44. [69]

    The principle applies whether or not the failure to propound the claim or issue was deliberate or as a result of negligence, inadvertence or accident.

45. [70]

    These principles derive from such cases as Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 598-602 (Gibbs CJ, Mason and Aickin JJ); [1981] HCA 45, Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; [2015] HCA 28 at [22] (French CJ, Bell, Gageler and Keane JJ), Champerslife Pty Ltd v Manojlovski (2010) 75 NSWLR 245; [2010] NSWCA 33 at [3] (Allsop P, Handley JA agreeing at [92]) and Zavodnyik v Alex Constructions Pty Ltd (2005) 67 NSWLR 457; [2005] NSWCA 438 at [34] (Handley JA, with Mason P and Latham J agreeing).

46. [71]

    Cenric’s claim for payment for work done on the site to 19 March 2018 arose out of the same facts as the claims it propounded before McDougall J in the 2018 Proceedings.

47. [72]

    On the face of it, it was unreasonable, indeed inexplicable, that Cenric did not include this claim in the 2018 Proceedings.

48. [73]

    The omission cannot have been a matter of oversight, as Cenric raised it as an answer to TWT’s cross-claim. That matter was abandoned by Cenric’s then counsel; presumably because he judged, correctly as it has turned out, that TWT’s cross-claim would fail.

49. [74]

    The only matter advanced before me to justify Cenric’s omission to make this claim in the 2018 Proceedings was the proposal made in Cenric’s solicitor’s letter of 29 July 2018.

50. [75]

    However, Cenric has failed to prove that that proposal was accepted or that there was any understanding or convention between the parties to the effect of that proposal.

51. [76]

    In any event, as Mr Docker, who appeared for TWT, pointed out, the proposal in the 29 July 2018 letter was that the Reconciliation Question be referred out for determination as a part of the 2018 Proceedings and in accordance with McDougall J’s findings in those proceedings about whether TWT had lawfully taken the works out of Cenric’s hands.

52. [77]

    The 29 July 2018 proposal did not suggest the possibility of the Reconciliation Question be determined otherwise than in the 2018 Proceedings.

53. [78]

    I am satisfied, in these circumstances, that Cenric is, by reason of its conduct in the 2018 Proceedings, estopped from bringing a claim for work done to 19 March 2018 in later proceedings.

54. [79]

    Mr Hicks accepted that, if that were my conclusion, it would follow that it was an abuse of process of the Act for Cenric to achieve a like result by propounding the same claim in the 10 December 2018 payment claim and thereafter in the 14 January 2019 and 1 March 2019 adjudication applications.

55. [80]

    As sought by TWT in its Summons, I propose to make declarations to this effect and to make orders restraining Cenric from proceeding with the 1 March 2019 adjudication application.

56. [81]

    Those conclusions are sufficient to dispose of the proceedings.

57. [82]

    However, in deference to the submissions advanced by both counsel in relation to the second issue, I will deal with it, albeit briefly.

The second issue – the 22 February 2019 adjudication

1. [83]

   Section 13(4)(b) of the Act relevantly provides:

2. [84]

   Section 13(4)(b) requires that some of the construction work for which payment is sought was performed within 12 months of service of the payment claim: Estate Property Holdings Pty Ltd v Barclay Mowlem Construction Ltd (2004) 61 NSWLR 515; [2004] NSWCA 393 at [18] (Hodgson JA; Mason P and Giles JA agreeing).

3. [85]

   An issue before the adjudicator was whether, for the purposes of s 13(4)(b), any or some work forming part of the payment claim was performed within 12 months of service of the payment claim; that is, since 14 December 2017.

4. [86]

   The adjudicator concluded that:

5. [87]

   The adjudicator was correct to conclude that “the only work undertaken during the 12 months preceding the payment claim was excavation of the sandstone”.

6. [88]

   But it was not correct for the adjudicator to conclude that:

7. [89]

   Thus, as Mr Docker accepted, as a matter of fact the payment claim did include a claim for work done since 14 December 2017.

8. [90]

   The payment claim specified two amounts for “Excavation” but did not state on its face whether the excavation related to sandstone.

9. [91]

   However, Cenric stated clearly in its 14 January 2019 adjudication application that the work it was doing in March 2018 involved “extraction of sandstone blocks”.

10. [92]

    Further, in a letter Cenric sent the adjudicator on 5 February 2019 in answer to the adjudicator’s request for further submissions, Cenric referred to the two “Excavation” amounts in the payment claim and said that those items related to “excavating material (which happened to be sandstone) from the site in March 2018”. Cenric continued by stating that this “should not be controversial” and, in a footnote to that statement, referred to “excavating sandstone” and to “sandstone blocks … being excavated and removed from the site”.

11. [93]

    An adjudication determination can be reviewed by the Court, but only for jurisdictional error on the part of the adjudicator: e.g. Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4 at [2], [29] (Kiefel CJ, Bell, Keane, Nettle and Gordon JJ).

12. [94]

    In Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2018] NSWCA 339 at [13]-[15] Basten JA (with whom Meagher and Leeming JJA agreed):

13. [95]

    The “jurisdictional fact” raised by s 13(4)(b) of the Act is whether the payment claim was served within 12 months after the construction work to which the claim relates was last carried out.

14. [96]

    A matter dividing the parties is whether this “jurisdictional fact” falls within Basten JA’s first category, which the parties referred to as “Category One”, or his Honour’s second category (“Category Two”).

15. [97]

    If this “jurisdictional fact” is within Category One, and as it is common ground that as a matter of fact the payment claim did include a claim for work done since 14 December 2017, the adjudication must be set aside.

16. [98]

    On the other hand, if the “jurisdictional fact” in question is within Category Two, and as there was no doubt that the adjudicator formed an opinion about that matter, albeit an erroneous one, the only question is whether the opinion was formed “lawfully”.

17. [99]

    The majority of the Full Court of the Supreme Court of South Australia has expressed the view, albeit in obiter and at a level of generality, that the question of the time for service of a payment claim is a jurisdictional fact within Basten JA’s Category One.

18. [100]

    Thus Blue J, with whom Lovell J agreed (Hinton J dissenting), said in Maxcon Constructions Pty Ltd v Vadasz (No 2) (2017) 127 SASR 193; [2017] SASCFC 2 at [119]-[120]:

19. [101]

    In Fitz Jersey v Atlas Construction Group [2017] NSWSC 340 at [25]-[26], McDougall J said in the context of an amendment application:

20. [102]

    My attention was also drawn to what fell from Sackar J in Bauen Constructions Pty Ltd v Sky General Services Pty Ltd [2012] NSWSC 1123. His Honour said at [60]-[63]:

21. [103]

    I do not think that his Honour was intending to express a view about whether or not the adjudicator’s decision in that case was “subject to review”. As I read his Honour’s reasons, his statement that “I do not agree” was directed to the submission that his Honour recorded in the last sentence of the previous paragraph to the effect that the adjudicator had “properly considered and applied s 13(4)(b)”.

22. [104]

    Section 13(4)(b) of the Act posits an enquiry as to whether, as a matter of fact, the payment claim relates to work carried out within a particular period. That involves consideration of the payment claim itself. This is clearly a Category Two matter and one for the adjudicator: e.g. Downer Construction (Australia) Pty Ltd v Energy Australia (2007) 69 NSWLR 72; [2007] NSWCA 49 at [87] (Giles JA). It also involves consideration of the factual question of when the “construction work” took place. That factual enquiry might be quite complex.

23. [105]

    The nature of that enquiry may be contrasted with matters “readily determined” with “little inconvenience” such as whether an adjudication application was notified within 20 business days following the due date for payment (see s 17(2)(a) of the Act), a matter which, as Basten JA observed, has been held to be within Category One: see Icon Co at [14]; Chase Oyster Bar at [53], [96], [285]).

24. [106]

    To my mind, the enquiry called upon by s 13(4)(b) is quintessentially one that the legislature left to the adjudicator and to thus be one within Basten JA’s Category Two.

25. [107]

    For those reasons, were it necessary for me to decide the question, I would respectfully disagree with the obiter remarks made by Blue J in Maxcon and with McDougall J’s tentative remarks in Fitz Jersey.

26. [108]

    In this case, the particular error that the adjudicator made was to overlook Cenric’s clear submission that the excavation it carried out, and to which the payment claim referred, was in respect of sandstone and to, wrongly and without notice to Cenric, conclude that it was “common ground” that it did not.

27. [109]

    The adjudicator could only have reached this conclusion by failing to consider Cenric’s clear submission to the contrary.

28. [110]

    Section 22(2)(d) of the Act requires an adjudicator to consider “the payment schedule … to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule”.

29. [111]

    A failure by an adjudicator to consider such submissions is a breach of natural justice and, if material, renders the adjudication determination void. Thus Hodgson JA in Brodyn Pty Ltd t/as Time Cost and Quality v Davenport (2004) 61 NSWLR 421; [2004] NSWCA 394 at [57] said:

30. [112]

    The error of the adjudicator could not have been a mere misunderstanding of Cenric’s submission. Rather it must have been a failure to consider the submissions at all. If the adjudicator had considered Cenric’s submissions, particularly those he received on 5 February 2019 in response to his request, he could not have failed to conclude that the payment claim related to sandstone excavation, and thus to work done since 10 December 2017.

31. [113]

    This was a breach of natural justice and one which was material. Had the adjudicator considered Cenric’s submissions, he was bound to have come to a different view: see Laing O'Rourke Australia Construction Pty Ltd v H&M Engineering & Construction Pty Ltd [2010] NSWSC 818 at [26]-[29] (McDougall J).

32. [114]

    It was also procedurally unfair for the adjudicator to say that it was “common ground”, when it was plainly not, that the payment claim did not include any amount for excavation of sandstone.

33. [115]

    For those reasons, had it been necessary for me to deal with the 22 February 2019 adjudication determination, I would have found it to be void.

Conclusion

1. [116]

   Counsel should bring in short minutes to give effect to these reasons.