Equa Building Services Pty Ltd v A&H Floors 2 Doors Australia Pty Ltd

1. [1]

   HIS HONOUR: This is a two-pronged attack on an adjudication determination (the determination) made by the second defendant (the Adjudicator) on 15 September 2021 under the provisions of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) awarding the first defendant (AH) against the plaintiff (Equa) $72,656.53 (including GST).

2. [2]

   The first prong is that the machinery of the Act was not engaged because AH did not serve a payment claim, with the consequence that the Adjudicator lacked jurisdiction. The second is that the determination should be quashed on the grounds that the Adjudicator denied the plaintiff procedural fairness or considered matters outside those specified in s 22(2) of the Act.

3. [3]

   I find that no payment claim was served. It follows that the Adjudicator acted without jurisdiction and the determination falls to be quashed. This renders it strictly unnecessary to consider the second prong. However, if a payment claim had been served, I would in any event have quashed the determination because the Adjudicator denied Equa natural justice.

4. [4]

   A brief exposition of the relevant provisions of the Act will suffice.

5. [5]

   References to sections are to sections of the Act.

6. [6]

   S 8 provides that a person who, under a construction contract, has undertaken to carry out construction work is entitled to receive a progress payment. A construction contract means, relevantly, a contract or other arrangement under which one party undertakes to carry out construction work for another party (s 4(1)). S 13(1) provides for a claimant to make a payment claim for a progress payment on the person who, under a construction contract, is or may be liable to make the payment.

7. [7]

   Prior to an amendment to s 8, which took effect on 21 October 2019, the right to receive a progress payment was tied to a “reference date”, being a date determined under the contract for progress payments or, if a contract made no provision, the last day of the named month on which the work was first carried out under the contract and the last day of each subsequent month. Under para 2 of Sch 2 to the Act, a provision of the Act does not apply to a construction contract entered into before the commencement of that provision. The contract contended for by AH was entered into before commencement of the provision, as was, it would appear, the arrangement found by the Adjudicator to have been entered into between Equa and AH. It follows that s 8 in its pre-amendment form applies and AH’s payment claim had to be tied to a reference date.

8. [8]

   The respondent to a claim may reply by providing a payment schedule, which must indicate the amount of the payment (if any) that the respondent proposes to make (s 14). It is not uncommon for a respondent to indicate a nil amount. Where no payment schedule is served, the claimant may recover the unpaid portion of the claimed amount as a debt due in a court of competent jurisdiction or make an adjudication application in relation to the claim.

9. [9]

   The adjudication process entails the making of an adjudication application by the claimant and the appointment by an authorised nominating authority of an adjudicator (s 19).

10. [10]

    Under s 17(2), relevantly, an adjudication application cannot be made if the respondent fails to provide a payment schedule unless the claimant gives the respondent written notice within 20 business days after the due date for payment of the claimant’s intention to apply for adjudication and the respondent has been given an opportunity to provide a payment schedule within five business days after receiving the notice.

11. [11]

    The respondent may lodge an adjudication response (s 20). The Act provides for adjudication procedures (s 21) and for the adjudicator to determine the amount of the progress payment (if any) to be paid by the respondent to the claimant (s 22) and the issue of an adjudication certificate (s 24). Section 21(3) requires an adjudicator to determine an adjudication application within 10 business days after notifying the parties of his or her acceptance of the application or within such further time as the parties may agree. Section 21(4) makes provision for an adjudicator to request further written submissions from the parties and to call a conference of the parties.

12. [12]

    Under s 22(2), in determining an adjudication application, the adjudicator is to consider only:

13. [13]

    S 31 of the Act provides:

14. [14]

    Equa is part of a group of companies known as the Arden Group. Equa and a related company, Arden Group Services Pty Ltd, together developed a multi-unit development in Baulkham Hills, New South Wales known as Elora the Hills.

15. [15]

    Rockinghorse Construction Pty Ltd (Rockinghorse) is a company associated with one Alex Scionti. Under a written engagement letter dated 13 February 2018, Equa engaged Rockinghorse to provide construction management services including engaging contractors to design and build the development.

16. [16]

    Rockinghorse in turn engaged AH to do flooring work sometime in 2019.

17. [17]

    Rockinghorse and Equa fell into dispute and Equa terminated its retainer on 26 February 2020.

18. [18]

    After Rockinghorse’s departure from the scene, AH did some work on the project directly for Equa.

19. [19]

    Hakan Aydin is associated with AH.

20. [20]

    AH says that on 30 June 2021 it sent an email to one Lindsay Gregory at email address lindsay@ardengroup.com.au enclosing for his attention, a payment claim (the payment claim) dated 30 June 2021 claiming $103,632.53 from Equa. The payment claim gave as its “reference date” 28/05/2021 and was marked for the attention of Lindsay Gregory and Alex Scionti. The email said that the payment claim had also been sent by express post to 56 Crosby Road, Albion, Queensland, which is Equa’s principal place of business. Equa did not accept that AH had proved that it sent the email because the actual email address does not appear on the face of the email. I am prepared to accept that the email was sent, although there is no metadata in evidence to prove this.

21. [21]

    The trouble with the posted payment claim was that it was sent to 54 Crosby Road (rather than 56) and therefore not received by Equa. The trouble with the email version was that Lindsay Gregory was never an employee of Equa or of any entity related to it, and he was neither a director of nor a shareholder in Equa.

22. [22]

    Unsurprisingly, Equa did not respond to the payment claim.

23. [23]

    On 11 August 2021, AH sent another email to Lindsay Gregory, but this time copied it to Sean Pasterfield, a senior development manager with the Arden Group, enclosing a notice under s 17(2) of the Act. To this notice Pasterfield, on behalf of Equa, responded on 17 August 2021 by serving on AH a payment schedule under s 14 of the Act, denying any liability.

24. [24]

    Pasterfield gave evidence. He said that he prepared the payment schedule without having the payment claim. He was able to do so because he knew the detail of what the payment claim comprised. He said that there had earlier been meetings between the parties. It was put to him (with scant foundation) that he had in fact received the payment claim, which he denied. No particular source from which he was said to have got it was identified during cross examination. However, AH submitted that he had received it from Lindsay Gregory. This was not put to Pasterfield. I found him a convincing witness and I believe him that he did not receive the payment claim.

25. [25]

    Para 37 of the Annexure to the contract identifies times for progress claims, one of which is the 28th day of each month for the work done to that day until the date of practical completion. The relevant reference date in this case is thus the 28th of the month. It has been earlier observed that the payment claim identifies the reference date as 28/05/2021. The significance of this is dealt with later.

26. [26]

    On 30 August 2021, AH made an adjudication application. It asserted the existence of a written construction contract between it and Equa, in the standard form AS 4903-2000, said by it to have been entered into in August 2019. A copy of this instrument was annexed to the application. It is signed by Hakan Aydin on behalf of AH but it is not signed by Equa. It is undated.

27. [27]

    Equa served an adjudication response on 9 September 2021.

28. [28]

    Equa argued, amongst others, that it had never seen the construction contract relied on, had not executed it, and it was not the basis on which the works were performed. It suggested that the document had been created and the term “fraudulent” was used. It said the works (after Rockinghorse left) were carried out in accordance with a series of oral arrangements between Equa and AH and that Equa had paid for those works in full.

29. [29]

    Equa also denied that it was ever served with the payment claim.

30. [30]

    On 9 September 2021, the Adjudicator called for further submissions from AH and Equa on, relevantly, Equa’s contention that the payment claim had not been served, that the construction contract advanced was not one that had ever been seen by Equa, and the Adjudicator would be entitled to draw the conclusion that it was something that had been created by AH.

31. [31]

    AH provided further submissions on 10 September 2021.

32. [32]

    On the question of service of the payment claim, AH maintained that it had been served by email because there was clearly a relationship between Equa and the Arden Group and that it seemed likely that Equa was under the control of Arden, related to it and operating from the same address and under the same controlling minds. It submitted that only staff from Arden Group had dealt with the claim and that email service was valid under clause 7 of the written construction contract (on which it continued to rely). That clause deems a notice to have been given and received on confirmation of transmission of an email.

33. [33]

    On the question of the construction contract, AH submitted that it had quoted to Rockinghorse but that the contract (meaning the formal written one) was ultimately made with Equa and that Rockinghorse staff were assisting “that transition”. It relied on emails in July 2019 passing between Rockinghorse and AH and in particular an email dated 10 July 2019 in which Steve Anderson from Rockinghorse wrote to Hakan Aydin stating that he had been advised “that your quote for Elora Apartments has been accepted” and one dated 18 July 2019 in which Steve Anderson from Rockinghorse wrote to Alex Scionti: “Hakan would like a formal contract agreement with Equa for RHC for the flooring contract at Elora Apartments B/Hills and also a deposit paid for the purchase of materials”. Notably, no one from the Arden Group or Equa is recipient of these emails.

34. [34]

    Equa made further submissions to the Adjudicator on 13 September 2021. Amongst others, it submitted that AH had failed to show how Lindsay Gregory was the person liable to make the payment and it repeated that Lindsay Gregory was never an employee of Equa. It drew attention to the fact that there was no evidence that the written contract relied on by AH was in fact entered into between the parties.

35. [35]

    The Adjudicator issued the determination on 15 September 2021.

Non-service

1. [36]

   The Adjudicator accepted that the envelope containing the payment claim had been incorrectly addressed and that there was no evidence that it was actually received by Equa (paras 53 to 55).

2. [37]

   The Adjudicator dealt with email service in paras 56 to 60 as follows:

3. [38]

   The Adjudicator’s conclusion is manifestly unsupportable.

4. [39]

   First, the service he found was not within any of the (facultative) methods provided for in s 31.

5. [40]

   S 31(d) permits service at an email address specified by the person to be served (in this case Equa) for the service of documents of that kind. The determination does not identify (and nor did AH) any specification by Equa of Lindsay Gregory’s email address for the service of the kind of document which a payment claim is.

6. [41]

   Additionally, there was no evidence and it was not suggested that the email (if it were sent) came to Lindsay Gregory’s actual attention, or to that of Equa via some other route: Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2006] NSWCA 259 at [58].

7. [42]

   Second, an entitlement on the part of the sender “to believe that Lindsay Gregory was a representative of the respondent for the abovementioned purposes” does not make him such a representative in the absence of him being specified by Equa.

8. [43]

   In para 56, the Adjudicator refers to the claimant (that is AH, not Equa) identifying Lindsay Gregory as the respondent’s representative.

9. [44]

   Third, that other persons involved in the project had email addresses ending “@ardengroup.com.au” says nothing of the particular status or position of Lindsay Gregory. If this reasoning were adopted, service on the janitor who had an email address with the same ending would be valid service on her or his employer.

10. [45]

    Fourth, on the material before him and on the uncontested evidence before the Court, Lindsay Gregory was never employed by Equa or any other related entity, and he was not a director. Equa’s sole director, Dereck McCartney, gave unchallenged evidence that he did not designate Lindsay Gregory’s email address as the address for service of payment claims.

11. [46]

    It is for the court to determine whether or not a jurisdictional fact (here, the service of a payment claim) exists on the evidence before the court, and not on the evidence before the primary decision maker, the Adjudicator: Woolworths Ltd v Pallas Newco Pty Ltd (2004) 61 NSWLR 707 at [105]; IWD No 2 Pty Ltd v Level Orange Pty Ltd [2012] NSWSC 1439 at [9].

12. [47]

    In my opinion, the Adjudicator wrongly determined that the jurisdictional fact of the service of the payment claim was present when it was not. He had no jurisdiction to adjudicate the dispute.

Procedural fairness

1. [48]

   The Adjudicator dealt with the issue of the construction contract in paragraphs 35 to 52 of the determination. Although it will add to the prolixity of this judgment, it is appropriate to set them out in full:

2. [49]

   The Adjudicator rejected AH’s contention of the existence of the written construction contract contended for by AH.

3. [50]

   But he went on to find that there was at least an arrangement, in terms of the provisions of s 4, for AH to carry out and complete the floor coverings work “as is inferred in the respondent’s submissions”. He found the arrangement to be based on AH’s quotes to Rockinghorse, drawings, and the acceptance given by Rockinghorse “taken over by the respondent” (para 46). The Adjudicator also relied on Pasterfield’s statement in the payment schedule that there had been a series of meetings (para 47).

4. [51]

   The Adjudicator appears to have determined that an agreement between AH and Rockinghorse in 2019 had been taken over by Equa. He does not identify the means by which this takeover happened. On one view, this may be a finding of a novation (for which it is to be observed neither party contended).

5. [52]

   Counsel for AH accepted, correctly, that neither party contended for the arrangement, which the Adjudicator found. It is also clear that the Adjudicator did not give Equa an opportunity to make submissions with respect to what he ultimately determined.

6. [53]

   AH submitted that there was evidence before the Adjudicator from which such an arrangement could be conferred or derived with the consequence that even if his determination was incorrect it is unreviewable. I reject this submission. It does not come to grips with the substance of Equa’s complaint that the Adjudicator did not give it an opportunity to be heard on a proposed finding which did not accord with the submissions of either party and that he acted inconsistently with s 22(c) and (d) by going beyond the submissions that had been duly made by the contestants.

7. [54]

   The denial of natural justice and the administrator’s failure to adhere to s 22 were material, at least because

8. [55]

   I find that there was a realistic prospect of a different outcome had Equa been given the opportunity to deal with the earlier agreement, and a strong prospect of a different outcome if it had been given that opportunity on the reference date question and the Adjudicator had decided that correctly: Brolton Group Pty Ltd v Hanson Construction Materials Pty Ltd [2020] NSWCA 63 at [66]; MZAPC v Minister for Immigration and Border Protection [2021] 95 ALJR 441.

9. [56]

   I make the following orders: