YTO Construction Pty Ltd v Innovative Civil Pty Ltd

The Plaintiff, YTO Construction Pty Ltd (“YTO”), was the principal contractor for a commercial/residential development in Ashfield, New South Wales. It entered into a subcontract for civil works with the Defendant, Innovative Civil Pty Ltd (“Innovative”), for $1.28 million.

Mr I. G. Roberts SC appears (with Mr Shipway) for YTO. Mr M. Christie SC appears (with Mr Hume) for Innovative.

One of Innovative’s tasks pursuant to the contract with YTO was to remove soil and waste from the site. To that end, Innovative entered into further subcontracts with several haulage contractors, one of which is known as Elkordi Earthworx Pty Ltd (“Elkordi”).

A dispute arose between YTO and Innovative which led to Innovative making a payment claim upon YTO within the meaning of the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”). YTO disputed that it was obliged to pay the $1.5 million claimed and the dispute was the subject of an adjudication before the Second Defendant, the Adjudicator, who determined that $1,535,377 was payable by YTO together with costs of the adjudication and interest (“the Determination”).

In these proceedings, YTO claims that Innovative obtained the Determination by fraudulent means and seeks to have the Determination set aside.

I draw attention to the fact that under the scheme of the Act, the fact that a claim is required to be paid as a result of a determination now is in no way determinative of what amount ultimately will be payable to a claimant by the respondent to that claim. The purpose of the Act has been described by McColl JA in Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82 at [4] as providing a process (omitting footnotes):

YTO has paid into Court a sufficient sum to meet the liability imposed by the Determination, but there is an urgency about this matter because Innovative, having obtained the benefit of the Determination, does not yet have the funds to which the Adjudicator has found it entitled.

The allegation of fraud made by YTO relates to one part of the Determination, namely, in respect of removal of waste from site, for which the Adjudicator allowed an amount of approximately $466,000 (and which forms part of the total $1.5 million awarded). There is a significant issue thrown up as to whether YTO’s case, as advanced at the hearing, has been properly pleaded and to which I shall return, but in order to understand the case which YTO seeks to advance I shall set out its key elements:

Innovative’s response to these claims can be summarised as follows:

There is a dispute as well as to the precise form of relief to which YTO would be entitled if it establishes fraud on the part of Innovative; YTO asserting that the whole of the Determination should be set aside and Innovative asserting that, if YTO were successful, contrary to its contentions, YTO should be required as a condition of the setting aside of the Determination to pay the unimpeached part of the Determination to Innovative.

I shall turn now to the pleading issue. Mr Christie submitted that, in considering the pleadings and how strictly they are to be regarded as controlling the scope of YTO’s case, it is important to bear in mind that its case is that Innovative obtained the Determination by fraud, a most serious issue and one which a plaintiff must strictly plead. He referred in this connection to Quarter Enterprises Pty Ltd and Anor v Allardyce Lumber Company Ltd and Anor (2014) 85 NSWLR 404 at [123] per Bathurst CJ (with whom Gleeson JA and Sackville AJA concurred) and Spiliotopoulos v National Australia Bank Limited [2017] NSWSC 971 per Harrison J for the following propositions, namely, that:

Mr Roberts accepted that YTO had the onus and was required to particularise the claimed fraud, but he pointed out that there were no “pleadings” in the Technology & Construction List.

I accept that the Technology & Construction List Statement and Summons are not technically pleadings, but as the Chief Justice makes clear in Quarter Enterprises (supra) at [124], even in a case where there are no pleadings, it is incumbent on the relevant party “and their legal advisers to clearly articulate the alleged fraud.”

I proceed on the basis that YTO is required to strictly articulate its case of fraud and to stay within the confines of its articulated claims in the conduct of its case.

I will set out below the relevant paragraphs of the “Second Further Amended Technology & Construction List Statement” filed on 8 June 2018, and I shall refer to it as the “List Statement” from here on.

The allegation that the Determination was obtained by fraud is found at paragraph 21 of the List Statement, and I set it out in full (omitting items deleted by amendment):

I paraphrase, in truncated form, the allegations in the List Statement to assist in consideration of them:

YTO described, at paragraph 36 of the Plaintiff’s closing submissions (“PCS”), the three respects in which Innovative misled the Adjudicator as follows:

Mr Roberts contended that to be held strictly to a pleading does not mean that a plaintiff can only present evidence which is confined to the very precise words of the pleading with no latitude: see T203.31-39. He claimed, in answer to Mr Christie’s contentions, that YTO had not departed from the scope of the dispute “as disclosed in the List Statement”: see T203.41-204.9.

A comparison between the Defendant’s closing submissions (“DCS”), paragraph 36(a), and paragraph 21(a) of the List Statement reveals a shift from the assertion that Innovative falsely represented that each of the 66 loads were GSW, when it had itself concluded that 21 loads were VENM (and it had rejected a claim for a load on 30 August 2017) to Innovative, having claimed that it had removed 66 loads at a time when it “knew or had concluded” that a substantial number of the 66 loads were not GSW, but rather VENM.

The shift may have some subtlety, but, most significantly, the assertion that Innovative falsely represented that each of the 66 loads of excavated waste removed was GSW has been excised and the word ‘knowledge’, removed by an amendment to paragraph 21(c) of the List Statement, has crept back in. In my view, an allegation of ‘falsely representing’ cannot be airbrushed out of YTO’s case and an allegation of knowledge which has been deleted from the List Statement after due consideration cannot be added back in. This has particular significance here because Mr El Kordi was called as a witness in YTO’s case and he gave no evidence that the waste which he carried and for which he had claimed from Innovative as GSW was not GSW. The onus is on YTO to prove that Innovative’s representation that each of the 66 loads claimed to have been removed by Innovative was false. Not only has it not done so, but by calling Mr El Kordi and not having him give evidence on the topic leads to the conclusion that his evidence would not have assisted YTO’s case in accordance with Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd and Anor (1991) 22 NSWLR 389 at 419 per Handley JA, followed in Savage and Ors v Lunn and Ors [1998] NSWCA 203 per Handley JA, Sheller JA and Sheppard AJA. As Mr Christie pointed out, the PCS assert that “it is not necessary to conduct an assessment of the physical qualities of the material” in order to determine if the representation was false which highlights that what YTO is advancing in the PCS, at paragraph 49-53, is not the case articulated, but a different one.

In my view, it is not open to YTO to advance the case contained in paragraph 36(a) of the PCS and it cannot establish the claim asserted in paragraph 21(a) of the List Statement if it has not first established that the representation that each of the loads hauled was GSW was false.

In relation to the second claim in the List Statement (i.e. 21(b)), I think what is now advanced by YTO is also different to what is found in the List Statement because the words “falsely claimed $7,000 as the additional costs” have been deleted and “falsely” does not appear in the PCS, at paragraph 36(c). Once again, I do not think it is open to YTO to advance a different case to that articulated in the List Statement. The starting point of the claim which YTO must establish on the case contained in the List Statement is that Innovative falsely represented that the $7,000 claimed was the cost to it per truckload. I will set out the evidence to which YTO referred in the List Statement for its contention that Innovative was claiming that it had cost it $7,000 per truckload to remove GSW:

YTO’s case as articulated in the List Statement at paragraph 21(b) is that, by what I have set out in [23] above, Innovative represented that it had spent $7,000 per truckload in removing excavation from the site. I think that it is possible to read Innovative’s claim differently, namely, that:

Mr Christie raised a number of issues with this claim, including that not all of the elements of a claim in fraud relevant to this has been pleaded: see the DCS, paragraphs 63-64.

In the DCS, at paragraphs 67-68, Mr Christie sets out the reasons why he says the representation was not made:

Whilst I think it is strongly arguable that the words set out at [23(1)] above, standing alone, convey the impression that Innovative was asserting that its claim was based on what it had spent, or would have to spend, to remove GSW, I do not think it is clear that Innovative was claiming that the $7,000 was the cost to it of so doing. It is, at the very least, open to treat the words used, coupled with the reference to ‘rate’ in the context of a claim for variation as meaning that YTO was seeking the amount of $7,000 as the cost for the variation to YTO, not the cost to Innovative. Otherwise, as Mr Christie contends, Innovative would be claiming as a variation only the amount it had paid to its subcontractor which would be most unusual. Further, Innovative did not present invoices and receipts with amounts included to demonstrate that it had paid $7,000 per truckload. The Adjudicator awarded the $466,800 claimed for the GSW removal by Innovative as the “value”, not the “cost”: see Exhibit A, p 154. This is reinforced by Mr Bhatt’s evidence that he himself had said that $7,000 per truckload was the amount that he had decided Innovative should charge YTO, i.e. not the cost to Innovative: see Exhibit A, p 323, paragraph 73. He was not challenged on that evidence and it does not seem inherently implausible because, again, Innovative would not, on a variation, be likely to charge only the amount that it had paid to a subcontractor.

I am, therefore, not satisfied that YTO has established that the representation as asserted in the List Statement at paragraph 21(b) was made out.

In relation to the third claim as contained in the List Statement, at paragraph 21(c), this alleges that Innovative altered an invoice with the intention of concealing information from YTO and the Adjudicator, the information being that Innovative had in fact been charged $145 per load by its subcontractor which would have revealed that Innovative was seeking to recover $7,000 per load when it only cost it $145 per load. What is now being asserted in the PCS, at paragraph 36(b), is that Innovative redacted the information because it did not establish 28 loads were carried and “dishonestly claimed that its subcontractor had removed and disposed of 28 loads” (see paragraph 21 of the Plaintiff’s opening submissions). Mr Christie contended that redaction of documents very often does involve concealing something and that an intention to conceal is not of itself fraudulent. Mr Patel accepts that he did redact the document and did intend to conceal the details of the charges, although, as I have noted, his explanation is that the redacted material is commercially sensitive. Mr Christie points out that, to maintain the case that YTO now seeks to run, it would have been necessary for YTO to plead (and establish) that Mr Patel redacted the invoice with the intention of misleading or deceiving the Adjudicator, or having redacted it that he knew that it would mislead or deceive the Adjudicator (see DCS, paragraph 80). I would add that YTO would also need to include a precise iteration of what it was that the redacted document was intended to specifically convey. I think that paragraph 21(c) of the List Statement does specify what YTO says was being concealed by the redaction, i.e. that Innovative was being charged $145 per truckload for GSW, but that is not what is now asserted in the PCS. I accept Mr Christie’s submission that the allegedly fraudulent conduct now asserted by YTO has not been adequately pleaded.

I therefore hold that the claim articulated in paragraph 36(b) of the PCS is not within YTO’s List Statement and cannot be maintained.

The claim in paragraph 21(c) of the List Statement identifies that the specific information which was concealed was “the fact that the rate per load charged to [Innovative] was $145” and the particulars (i.e. paragraph 21(c)(iii) of the List Statement) refer to the fact that Innovative had in fact been charged “$7,000 per load in circumstances where the first defendant had in fact been charged $145 a load by its subcontractor”. The case articulated in the List Statement has not been made out because:

Because of the view which I have expressed concerning YTO’s claim and, in particular, the pleading issue, I do not think it is appropriate to venture upon a consideration of credibility of witnesses called by YTO and Innovative; nor is it necessary to deal with the other issues ventilated by Counsel in their submissions, including the question of what relief would be appropriate.

It follows that YTO has failed to establish, in accordance with the onus placed upon it, that the Determination was obtained by reason of fraud. It follows that the Plaintiff’s Summons should be dismissed and that the Plaintiff should pay the costs of the First Defendant, as agreed or assessed.

I will hear the parties on the appropriate form of orders in relation to the funds in Court.