Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd

1. [1]

   BASTEN JA: The appellant, Icon Co (NSW) Pty Ltd (“Icon”), is the head contractor under a construction contract entered into with the respondent, Australia Avenue Developments Pty Ltd (“Australia Avenue”). The contract related to the construction of the Opal Tower at Sydney Olympic Park. The contract provided for monthly progress payments, with a reference date of the 25th day of each month.

2. [2]

   On 30 July 2018 Icon served a payment claim on the respondent under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“Security of Payment Act”) in an amount of $3,331,744 (without GST). The reference date for the claim was 25 July 2018.

3. [3]

   On 13 August 2018 Australia Avenue served a payment schedule, which identified the total amount of the claim as $3,664,918.40 (with GST) and the scheduled amount, being the amount that Australia Avenue proposed to pay (and has in fact paid) as $1,161,143.50. It followed that the amount in dispute was a little over $2.5 million.

4. [4]

   On 27 August 2018 Icon lodged an adjudication application, to which Australia Avenue lodged an adjudication response. The matter was referred for adjudication and a determination, made on 14 September 2018, awarded an amount of $2,638,287.58 in favour of Icon. The unpaid balance was a little over $1.477 million.

5. [5]

   On 19 September 2018 Australia Avenue commenced proceedings in the Equity Division seeking an order quashing the adjudication determination. Pursuant to a judgment delivered on 19 October 2018 Parker J granted the relief sought by Australia Avenue. [1] On 26 October 2018 Icon lodged an appeal in this Court.

6. [6]

   For the reasons which follow, the appeal should be upheld, the judgment below set aside and Australia Avenue’s summons dismissed with costs.

Statutory scheme

1. [7]

   Part 3 of the Security of Payment Act provides for the making of a payment claim and a response by way of a payment schedule. Sections 13 and 14, so far as presently relevant provide:

2. [8]

   Where a payment schedule has been served accepting an amount less than that claimed there is provision for an adjudication of the amount of the progress payment by s 17, which relevantly provides:

3. [9]

   Upon receipt of a claimant’s adjudication application, the respondent may lodge an “adjudication response”: s 20(1). An adjudication response is permitted only where a payment schedule has been provided: s 20(2A). The adjudication response cannot include reasons for withholding payment unless those reasons were included in the payment schedule: s 20(2B). Further procedural steps are set out in s 21. Importantly for the present matter, s 22 then provides:

4. [10]

   In Brodyn Pty Ltd t/as Time Cost and Quality v Davenport [2] Hodgson JA (with the agreement of Mason P and Giles JA) identified a number of basic and essential requirements of the Act, which included the following:

5. [11]

   Hodgson JA then identified certain “more detailed requirements: for example, s 13(2) as to the content of payment claims”, [3] as to which he said that “the reasons given above for excluding judicial review on the basis of non-jurisdictional error of law justify the conclusion that the legislature did not intend that exact compliance with all the more detailed requirements was essential to the existence of a determination”. [4]

6. [12]

   It has been understood since Brodyn, and was affirmed by the High Court in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd, [5] that judicial review of an adjudicator’s determination is available, but only for jurisdictional error on the part of the adjudicator.

7. [13]

   It is a fundamental principle that the engagement of a statutory power may depend either upon the existence of an identified state of affairs, or a state of satisfaction of the decision-maker as to an identified state of affairs. In the first category, the actual state of affairs, being the criterion of engagement of the power, is described as a “jurisdictional fact”, [6] meaning that the lawful exercise of the power may ultimately depend upon a finding of a court exercising judicial review as to whether or not the required state of affairs existed. The second category is sometimes also said to involve a jurisdictional fact, but only in the sense that the relevant fact is an opinion formed by the decision-maker; [7] in that case a reviewing court can only be concerned with the existence and lawful formation of the opinion.

8. [14]

   There are aspects of the Security of Payment Act which fall into each category. The first category includes the service of a payment claim within the period specified by s 17(2)(a) of the Act. [8] In most cases that matter is readily determined and little inconvenience is generally caused by identifying it as an essential precondition to the exercise of the relevant powers.

9. [15]

   The Security of Payment Act does not refer to the opinion or satisfaction of the adjudicator. Nevertheless, there being no right of appeal, the adjudicator’s findings with respect to matters of fact, within jurisdiction, will be unreviewable. Further, there being no review for errors of law on the face of the record, the adjudicator’s determination of legal issues will also be unreviewable.

10. [16]

    Relevantly for the present case, with respect to the function conferred on the adjudicator under s 22(1) of the Act (determining “the amount of the progress payment” which is to be paid), s 22(2) requires that the adjudicator “is to consider the following matters only”. Those matters include “the provisions of the construction contract” and “the payment claim”. The fact that the requirement is limited to considering the provisions of the construction contract and the payment claim leads to the inference that the adjudicator is to act upon his or her understanding of the contractual obligations and of the content of the payment claim. While the construction of a contract will usually involve questions of law, the Act implicitly confers on the adjudicator the power to form an opinion as to the meaning of the contract, for the purposes of the adjudication. The adjudication cannot be set aside because an error of law in construing the contract appears on the face of the record, including in the reasons of the adjudicator. The same is true with respect to the scope of the payment claim.

11. [17]

    The primary judge referred, correctly, to the reasoning of this Court in Downer Construction (Australia) Pty Ltd v Energy Australia. [9] In particular, the judge set out two paragraphs from the reasoning of Giles JA which were entirely pertinent to the exercise before him: [10]

12. [18]

    The correct approach was there identified in terms which have direct application to the present case. The primary judge in that case, having undertaken an exercise not dissimilar to that undertaken in this case, was found to have erred. Giles JA continued:

13. [19]

    It follows that it was no part of the primary judge’s function to examine the payment claim to determine whether he considered that the approach adopted by the adjudicator was erroneous. Even if it were erroneous, it would not constitute jurisdictional error to act upon such an erroneous view. The concept of “jurisdictional error” was recently explained in the joint reasons of three members of the High Court (Kiefel CJ, Gageler and Keane JJ) in Hossain v Minister for Immigration and Border Protection: [12]

Application of principles

1. [20]

   The primary judge noted that there were two bases of challenge to the adjudicator’s determination, each of which was said to involve jurisdictional error. The first was dismissed and is not the subject of these proceedings. The second ground, which was upheld, was identified in Australia Avenue’s pleading below in the following terms: [18]

2. [21]

   The argument put on behalf of the respondent, and ultimately accepted by the primary judge, was expressed in the following terms:

3. [22]

   Having identified the issue referred to above and having set out relevant provisions from the Security of Payment Act, the primary judge then noted that there were “five disputed backcharge items”, only one of which appeared in the “variation schedule in support of the payment claim.” [19] The judge concluded, consistently with Australia Avenue’s adjudication response, that “[t]he payment claim thus did not include any claim for the reversal of the backcharge items in question.” [20] The judge accepted that the adjudication application “was incorrect in asserting that the five backcharge items had been raised in the payment schedule as a credit against progress claim 33.” The judge said that “[t]he items did appear in the breakdown document for the contractual variations, but this was only a reconciliation of the figures in the project progress certificate which showed the breakdown of prior contractual claims and payments. It had nothing to do with the calculation of the scheduled amount.” [21] The judge held that the adjudicator “was wrong to say that the five backcharge items were referred to in the payment schedule. They were … referred to in the progress certificate, but not in the payment schedule.” [22]

4. [23]

   The references to “backcharge items” requires some explanation: the term is obscure. Indeed, it is not entirely clear that it is used consistently by the parties. Thus, in its written submissions in this Court, the appellant stated: [23]

5. [24]

   The submissions further stated: [24]

6. [25]

   It was part of the respondent’s case that the adjudicator allowed an amount on account of “backcharges” which was not to be found in the payment claim. If a backcharge were an amount which reduced the claim, it would not properly be described as an amount for which a claim was made. It would only be part of a payment claim if the claim included amounts which had previously been made and allowed, or perhaps disallowed and were now sought to be reinstated. It is not clear that either party used the language in that sense.

7. [26]

   In substance this case involved a dispute as to how the payment claim and the payment schedule should be understood.

8. [27]

   It was not, and is not, appropriate for the Court to engage in an analysis of the manner in which the adjudicator dealt with the payment claim in her determination. However, the respondent’s submissions require reference to submissions put in the course of the adjudication, which can best be identified by the passage in the adjudicator’s reasons in which she identified and addressed them:

9. [28]

   In short, to the extent that there was an issue as to whether or not there was a claim for backcharges, the issue was expressly addressed by the adjudicator and was resolved. The respondent did not identify error in how the adjudicator addressed the issues; rather it submitted that she should not have addressed the issues otherwise than by accepting the respondent’s position. Alternatively, the jurisdictional issue identified at 5.2.e could only be finally resolved by the Court on judicial review.

10. [29]

    This proposition gave rise to a debate as to whether the “progress certificate” was part of the payment schedule. The document identified as the respondent’s payment schedule in Icon’s tender bundle at trial commenced with the heading “Progress certificate/payment schedule”. In the course of submissions senior counsel for the respondent said that the certificate, although served with the schedule was “not the schedule”, but was “part of the schedule as an attachment.” [25] The reason for this coyness was that the certificate referred expressly to the backcharges; on any view they were before the adjudicator for consideration.

11. [30]

    The point of substance was identified by the respondent’s counsel on the appeal as follows: [26]

12. [31]

    Although this complaint had an implicit air of procedural unfairness, it was not articulated in those terms. That was understandable because the issue had been squarely raised by the respondent’s own document and the very same complaint had been raised in the respondent’s submissions to the adjudicator. It had to be addressed by her, pursuant to s 22(2), and was addressed.

13. [32]

    This was not a case in which it could be said that the adjudicator awarded more than the amount claimed; she self-evidently did not. Rather, it was a dispute as to the proper construction of the payment claim having regard to the contractual provisions. The statute requires that the adjudicator “is to consider” the provisions of the construction contract and the payment claim. [27] However, an error in construing the contract or in understanding the payment claim does not constitute jurisdictional error and therefore cannot form a basis upon which the adjudication can be quashed.

14. [33]

    In any event, it is tolerably clear that there was no error. There was a dispute between the parties in relation to what were described as “backcharges”. Once it was accepted that there was a dispute to be resolved, the respondent identified no error in the reasoning of the adjudicator, except to say that the backcharges were not part of the payment claim as served. The respondent accepted that the payment claim as served and adjudicated upon identified the construction work, as required by s 13(2)(a). It was not deficient in that respect. The dispute was as to the calculation of the value of that work, which was the very task vested in the adjudicator.

Orders

1. [34]

   There being no reviewable error on the part of the adjudicator, the Court makes the following orders:

   1. (1)

      Allow the appeal and set aside order (1) made on 19 October 2018 (quashing the determination of the adjudicator) and order (1) made on 24 October 2018 (as to costs).

   2. (2)

      In place of those orders, order that:

   3. (3)

      Set aside order (2) made on 24 October 2018 and the subject of a stay (ordering that the moneys in court be paid out to Australia Avenue).

   4. (4)

      Order that the moneys held in court be paid out to the appellant.

   5. (5)

      Order that the first respondent (Australia Avenue Developments Pty Ltd) pay the appellant’s costs of the appeal.

2. [35]

   MEAGHER JA: I agree with Basten JA.

3. [36]

   LEEMING JA: I agree with Basten JA.