YTO Construction Pty Ltd v Innovative Civil Pty Ltd

MACFARLAN JA: I agree with White JA and with the additional observations of Emmett AJA.

WHITE JA: This is an appeal from orders made in the Equity Division on 16 August 2018 (YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2018] NSWSC 1354). The appellant, YTO Construction Pty Ltd (“YTO”), was the plaintiff in the court below. The primary judge recorded that YTO was the principal contractor for a commercial/residential development in Ashfield and entered into a subcontract for civil works with the respondent, Innovative Civil Pty Ltd (“Innovative”), the defendant in the court below. Part of the work Innovative contracted to perform was the removal of soil and waste from the site. Following a dispute between YTO and Innovative, Innovative made a payment claim on YTO within the meaning of the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Security of Payment Act”). In its payment claim, Innovative claimed an amount of $1,649,832.51 including GST. By its payment schedule YTO denied that it was liable to pay any amount. On 7 February 2018, Innovative served an adjudication application with supporting annexures. Amongst other things, it claimed $462,000 plus GST in respect of work that it contended was a variation of the construction contract, being the removal of materials it described as “GSW Material”. In its adjudication application it claimed that there were 66 loads of GSW Material and claimed the sum of $462,000 at the rate of $7,000 per load.

GSW is shorthand for General Solid Waste. It is to be distinguished from “VENM” (Virgin Excavated Natural Material). Innovative contended that the parties did not anticipate the existence of non-VENM GSW at the Ashfield site by the time it would be required to haul away VENM. It was common ground that the haulage and disposal of non-VENM GSW commands a higher charge than the haulage and disposal of VENM. Innovative claimed it quoted and agreed to rates on the basis that the material to be removed was VENM and not GSW. That claim was accepted by the adjudicator who allowed the variation in the amount claimed.

Before the primary judge, YTO claimed that Innovative’s representation that it removed 66 loads of GSW was false to its knowledge. It also claimed that Innovative represented that the cost to it of removing GSW was $7,000 per load and that this too was false.

On 22 February 2018, the adjudicator determined that YTO should make a progress payment to Innovative of $1,535,377.51 including GST. The adjudicator determined that the date upon which that amount became payable was 31 January 2018. She fixed the rate of interest to be payable on that amount and found that YTO should pay all of the adjudicator’s fees.

On 6 March 2018, judgment was entered on the adjudication certificate in the Supreme Court in the amount of $1,564,384.22, being the adjudicated amount of $1,535,377.51 plus adjudication fees and interest. On 18 March 2018, YTO filed a summons seeking, amongst other relief, an order that Innovative be restrained from enforcing the judgment. YTO paid the amount of the judgment into court. By its Summons and Technology and Construction List Statement it also sought a determination of the contractual rights of the parties.

By its Further Amended Summons YTO sought a declaration that the adjudication determination was void or, alternatively, an order in the nature of certiorari quashing the determination. It sought an order that the judgment arising from the adjudication certificate be set aside. The ground on which it sought that relief was that the adjudication determination had been procured by fraud (Second Further Amended Technology and Construction List Statement, paras 21 and 23).

The primary judge did not determine the parties’ contractual rights. His Honour determined YTO’s claim that the adjudication determination was void or should be quashed because it was procured by fraud. His Honour rejected that claim and ordered that the moneys paid into court by YTO be paid out to Innovative.

The primary judge found that the claim ultimately propounded by YTO departed from the claim articulated in its Further Amended Technology and Construction List Statement. His Honour held that the claim as pleaded had not been established (Judgment [21]-[23], [26]-[33]).

YTO claims that it entered into a subcontract with Innovative with a commencement date of 18 July 2017 for various classes of works comprised of piling, anchoring, shotcreting, “capping beam” and detailed excavation. The contract price was $1,281,000. The total price (inclusive of GST) was provided for separately in respect of each class of works. The price for “Bulk and Detailed Excavation” was $790,000. The contract provided that “no variation applies” in respect of each class of work. A description of the work included:

On 11 January 2018, Innovative served on YTO a payment claim to which was attached a schedule for work completed up to 25 December 2017. There was no dispute that the payment claim was served pursuant to s 13 of the Security of Payment Act. It claimed an amount of $1,649,832.51 inclusive of GST. It included variation claims. Variation 5 related to excavation work. The claimed amount was in part comprised of a claim in respect of “GSW Material load, cart, tip fees”. The payment claim identified that it was based upon 70 loads carted away from the Ashfield site, and claimed a rate of $7,000 per load, totalling an amount of $490,000. It included the following description:

A Mr Hemangbhai Patel made an affidavit dated 23 April 2018 that was read by Innovative. He was the Estimating Manager of Innovative. He deposed that in support of the payment claim for the disposal of 70 truckloads of GSW, he included eight photographs, but not other documentation he had on hand which would support a claim for removal of GSW, because he was under the apprehension that YTO had all the other necessary documents available to it.

In its payment schedule, YTO assessed the whole of Innovative’s claim at nil. In relation to all of the variations it contended that it was not liable for the variations because the subcontract specifically excluded variations. It did not engage with the details of the claim.

Section 20(2B) of the Security of Payment Act provides that a respondent cannot include in its adjudication response any reasons for withholding payment, unless those reasons have already been included in the payment schedule provided to the claimant.

Innovative made its adjudication application on 7 February 2018.

In its adjudication application Innovative made the following submission in relation to Variation 5 that was part of the spreadsheet forming its payment claim. It said:

Contrary to the statement at footnote 9 and paragraph 239, the supporting documents that allegedly included the dockets from Elkordi for 66 loads were not provided to YTO along with the Progress Claim No. 5.

Accompanying the adjudication application were 11 dockets from Elkordi Earthworx Pty Ltd (“Elkordi”) (Innovative’s haulage contractor) said to show the delivery of 38 loads of materials between 28 August 2017 and 12 September 2017. The dockets did not include a description of the materials carried, that is, whether they were VENM or GSW.

Innovative also provided a schedule, apparently prepared by it, headed “GSW Material” in which it listed the number of loads of GSW material by date and truck and trailer registration numbers. It purportedly identified 38 such loads between 28 August 2017 and 12 September 2017, and a further four loads on 28 September 2017.

Innovative’s schedule also included items of delivery on 4 and 7 October 2017 totalling 28 loads. In support of that claim Innovative included in its adjudication application a redacted tax invoice (No. 0243) from Elkordi that, as redacted, purportedly recorded delivery of seven loads by each of two trucks and trailers on 4 October 2017 and seven loads by two trucks and trailers on 7 October 2017. The invoice was redacted to remove the unit price and total amounts charged by Elkordi for this haulage. The invoice did not identify the nature of the material transported.

Thus, Innovative’s schedule referred to 70 loads of GSW material but it stated in its adjudication application that only 66 loads were carted out. Elkordi’s invoices referred to below made no reference to four loads on 28 September 2017.

Mr Patel deposed that in the adjudication application, he had made a claim for the disposal of 66 truckloads of GSW. He deposed:

In her determination the adjudicator accepted the claim in Variation 5 in relation to excavation work. The adjudicator stated:

YTO commenced proceedings on 28 March 2018. In an affidavit made on that day a Mr Jian Guo Yuan deposed that he had from time to time requested that Mr Bhatt (a director of Innovative) provide him with documents in support of the GSW claim which demonstrated that the material was in fact GSW. He deposed that no such information or documentation had been provided.

YTO also read an affidavit of Mr Ahmad El Kordi, the sole director of Elkordi. Mr El Kordi annexed to his affidavit copies of invoices numbers 0242 and 0243 given to Innovative. Invoice 0243 was the unredacted invoice, the redacted copy of which was attached to the adjudication application. Critically, the unredacted invoice showed that under each “unit price” there was the figure of $145.

Invoice 0242 (dated 15 September 2015) covered deliveries from 28 August 2017 to 12 September 2017. This included deliveries which were the subject of Innovative’s adjudication application. It covered each of the 11 delivery dockets provided to the adjudicator in partial support of the claim in the adjudication application that there had been a total of 66 loads of GSW removed from the site.

Invoice 0242 stated that four deliveries on 28 August 2017 by a vehicle bearing registration number CK9 1JV had been charged to Innovative at a unit price of $500. The amount charged was $2,000, being $500 per load. The entry on this line of Invoice 0242 correlates to the first of the 11 delivery dockets, numbered 9570, provided to the adjudicator in support of the claim in the adjudication application that there had been 66 loads of GSW removed from the site.

The second such docket was dated 30 August 2017 and numbered 9571. It related to the same registered truck and trailer, and correlates to an entry on Invoice 0242 in respect of a claim for five “units” at a unit price of $145 per hour.

The third docket provided to the adjudicator (numbered 9577) for the same truck and trailer showed a delivery of three loads on 7 September 2017. The charge for these loads, according to Invoice 0242, was $3,750, being $1,250 per load. Other loads were shown on the invoice also priced at $1,250 per load.

The eleven dockets were said by Mr Patel to evidence a total of 38 of the 66 claimed “loads”. The remaining 28 were said to be evidenced by Invoice 0243. When cross-referenced to Invoice 0242, and assuming that each docket refers to loads of material carted away, it appears that only 35 rather than 38 “loads” are supported by accompanying dockets.

It also appears from Invoice 0242 that of these 35 loads, four were charged to Innovative at a unit price of $500 per load, suggesting that they were VENM and not GSW (para [27] above). A further five “loads” were charged at a unit price of $145, suggesting that they were not loads at all but were actually hours referable to a standard callout charge. The remaining 26 loads that were the subject of the dockets provided to the adjudicator were charged to Innovative at a unit price of $1,250 per load, suggesting that they were billed to Innovative by Elkordi on the basis that these 26 loads were GSW.

In cross-examination, Mr Patel admitted that he knew that a commercial rate for removing VENM was around $500 a load.

Mr Bhatt deposed that Innovative’s agreed rate for VENM was $500.

Mr El Kordi gave no evidence in his affidavit as to whether he personally inspected the loads removed from the site. He gave brief oral evidence. He was asked in what circumstances the company charged an hourly rate rather than a load rate. The question was objected to, but allowed. Mr El Kordi said that an hourly rate was charged where trucks turned up to the site, but there was not enough material for the trucks that had been requested and in those circumstances there was a charge for a minimum of four hours plus one hour of travel, which was called a “standard callout” being a minimum charge. He was not cross-examined.

Mr El Kordi was not asked about the characteristics of the waste which Elkordi carried for Innovative. There was no evidence as to whether Mr El Kordi was on site and could have given evidence as to the nature of the waste carried.

An accountant employed by Innovative, Ms De Guzman, reviewed Elkordi’s invoices, including Invoices 0242 and 0243. The total amount of Invoice 0242 was $92,295.50. The total amount of Invoice 0243 was $5,666. On 16 January 2018, that is, about three weeks before the adjudication application was made, Ms De Guzman sent an email to Mr El Kordi that was copied to Mr Bhatt and to Mr Patel, amongst others, to which she attached all the relevant invoices. She stated that in respect of Invoice 0242 an amount of $36,217.50 was “Rejected/Not Approved”. In respect of Invoice 0243 she said that an amount of $3,811.50 was “Rejected/Not Approved”. She told Mr El Kordi that:

Ms De Guzman also attached a spreadsheet for Invoice 0242.

The spreadsheet prepared by Ms Guzman recorded that according to her, of the loads referable to the 11 dockets, only nine loads (being those referable to dockets numbered 10310 (6/9/17), 09576 (6/9/17) and 9580 (12/9/17) were for the removal of GSW. The loads the subject of the other dockets were described by her as VENM. She wrote “Docket Stating VENM materials”, although the dockets reproduced in the Appeal Book provide no specification as to whether the materials carted were VENM or GSW.

Invoice 0242 also identified 29 loads that were not the subject of the dockets provided to the adjudicator and were not referred to on Innovative’s accompanying schedule. They were charged by Elkordi as non-VENM material at $1,250 per load. In her spreadsheet Ms De Guzman accepted that 20 such loads were non-VENM material for which she allowed a charge of $1,200 per load. In total she accepted that 29 loads claimed by Elkordi to have been GSW material were GSW material. These were allowed at a rate of $1,200 per load.

In summary, of the loads that were the subject of dockets provided to the adjudicator and referred to in Innovative’s accompanying schedule, Elkordi claimed that 26 were GSW. Of these Ms De Guzman allowed nine. Of the total number of loads the subject of Invoice 0242 (including the above), Elkordi claimed it removed 55 loads of GSW. Ms De Guzman allowed 29.

In its submissions before the primary judge YTO placed significant emphasis on Ms De Guzman’s spreadsheet because it was prepared before the lodgment of Innovative’s adjudication application. Mr Bhatt deposed that he assisted Ms De Guzman with the preparation of the spreadsheet. He deposed that he intended the spreadsheet to constitute a payment schedule for the purposes of the Security of Payment Act in response to a summary sheet that had been provided by Mr El Kordi which he believed to be a payment claim under the Act. He intended to put Elkordi to proof of its claims, except where the amount was very small and it was easier to pay it out rather than to have a dispute with Elkordi. He deposed that where Ms De Guzman had stated in the spreadsheet that the material carried was “VENM” the spreadsheet was not recording a conclusion that he had reached that Elkordi had hauled the VENM that day.

It was common ground that Invoice 0243 contained charges by Elkordi of seven hours’ waiting time for two trucks with trailers on two days. Elkordi charged $145 per hour. The primary judge did not say whether he accepted or rejected Mr Patel’s evidence that when preparing the adjudication application he misread the invoice and read it as referring to truckloads (presumably of GSW).

In the Technology and Construction List statement filed in support of the summons on 28 March 2018, YTO did not plead fraud. It pleaded that although the adjudicator had allowed Innovative $490,000 [1] (excluding GST) of its claim for the cost of removing alleged GSW, the material removed was not GSW, but was VENM. In an Amended Technology and Construction List Statement filed on 16 April 2018, YTO alleged that the adjudicator’s determination had been obtained by fraud. The pleading of fraud was amended in a Further Amended Technology and Construction List Statement filed on 22 May 2018 that was the subject of extensive argument before Ball J on 4 June 2018. The result was that a Second Further Amended Technology and Construction List Statement was filed on 8 June 2018. The allegation of fraud was pleaded as follows:

Paragraph 21(a) referred to 66 loads of excavated waste material “as identified by the first defendant at page 294 of Court Book”. The page referred to was the schedule headed “GSW material” referred to at [19] and [20] above.

The hearing proceeded before the primary judge over three days in July 2018. The primary judge gave judgment on 10 August 2018 (YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2018] NSWSC 1354).

There was no dispute before the primary judge, nor on appeal, that an adjudication determination procured by fraud would be liable to be quashed for jurisdictional error (Craig v State of South Australia (1995) 184 CLR 163 at 175-176; [1995] HCA 58; SZFDE v Minister for Immigration and Citizenship (2007) 232 CLR 189 at 197; [2007] HCA 35; Sugar Australia Pty Ltd v Southern Ocean Pty Ltd [2013] VSC 535 at [116]).

The dispositive reasoning of the primary judge in relation to the claim of fraud pleaded in paragraph 21(a) of the Second Further Amended Technology and Construction List Statement was as follows:

It must be implied in relation to his Honour’s conclusion at Judgment [22] that the primary judge considered that either YTO had not established that the representation was false, or that in its closing submissions it had not sought to establish that the representation was false, or both.

These reasons are the subject of the first ground of appeal. YTO contends:

It is not disputed that although the Technology and Construction List Statement is not strictly a pleading, it was nonetheless incumbent on YTO to articulate precisely the fraud alleged and to prove strictly the fraud alleged (Quarter Enterprises Pty Ltd v Allardyce Lumber Company Ltd (2014) 85 NSWLR 404; [2014] NSWCA 3 at [124]-[125]).

YTO pleaded that Innovative “falsely represented ... that each of the 66 loads of the excavated waste removed from the site ... was GSW material”.

There was no issue that the representation was made. The first matter that YTO had to establish was that the representation was false. The second was that YTO knew it was false. To establish that the representation was false, YTO did not need to establish that none of the 66 loads of excavated waste removed from the site was GSW material. To establish the falsity of the representation it would be sufficient for it to establish that one or more of the 66 loads was not GSW material.

That was not the position taken by Innovative in its Technology and Construction List Response. Innovative pleaded that the excavated material removed from site included GSW material and was not just VENM. It is not clear whether the primary judge adopted the same position as Innovative. But I infer that that is how the primary judge approached the question. His Honour concluded that YTO had not proved “that Innovative’s representation that each of the 66 loads claimed to have been removed by Innovative was false” without addressing the evidence upon which YTO relied to prove the falsity of that representation. YTO’s evidence did not establish that none of the 66 loads contained GSW material. If the primary judge thought it was incumbent on YTO to establish that none of the loads was GSW Material, it is understandable that his Honour dismissed YTO’s claim peremptorily as he did at [21] (“not only has it not done so”) without addressing the evidence adduced by YTO that many of the claimed loads were not of GSW material. But the representation made by Innovative to the adjudicator was that each of the 66 loads (that is, all of the 66 loads) contained GSW material and that representation would be falsified (in the sense of being shown not to be true) if it were established that one or more of those loads did not contain GSW material. I infer that the reason the primary judge did not address the evidence on this issue was because he misapprehended what would be required to falsify the representation.

I also infer from paragraph [20], the first sentence of paragraph [21], and paragraph [22] of the primary judge’s reasons that his Honour considered that in its closing submissions YTO abandoned its claim that Innovative had falsely represented that each of the 66 loads of excavated waste removed was GSW. His Honour expressly said so at judgment [21] (the allegation of “falsely representing” was airbrushed out of YTO’s case) and concluded (at Judgment [22]) that the allegation in paragraph 21(a) of the List Statement could not be established unless YTO first established that the representation was false.

In its closing submissions before the primary judge Innovative appeared to accept that the documents from which it prepared its claim that 66 loads of GSW material had been removed did not support that contention. Nonetheless, it contended that more than 66 loads of GSW were carted out. It did not do so on the basis of the documents submitted to the adjudicator. The primary judge did not attempt to resolve this issue. Rather, his Honour took the view that:

In coming to this conclusion the primary judge referred to paragraph 36 of YTO’s written closing submissions and accepted the submission of counsel for Innovative that because the plaintiff’s closing submissions asserted that it was not necessary to conduct an assessment of the physical qualities of the material to determine whether the representation was false, that highlighted that the case YTO was advancing in its closing submissions was not the case articulated, but a different one (Judgment [21]).

That characterisation of YTO’s closing submissions cannot be sustained. Paragraph 36(a) of those closing submissions quoted by the primary judge at Judgment [18] commences with the words “Innovative [misled] the adjudicator in three respects: ...”. The paragraph addresses the evidence of knowledge of falsity of the representation that 66 loads of GSW had been removed. Other paragraphs of the submissions showed that YTO not only alleged that Innovative knew that the representation that 66 loads of GSW had been removed was false; but that the representation was, in fact, false. Thus paragraph 37 asserted that the GSW spreadsheet (being the spreadsheet prepared by Ms De Guzman and approved by Mr Bhatt) “makes it clear that there was never any basis for the 66 or 70 loads of GSW.” YTO’s written submissions included the following:

Those submissions expressly assert that Innovative had no basis for contending “... that the material was beyond scope”, that is, that the material was GSW.

Innovative seized upon paragraph 52 of YTO’s written submissions before the primary judge. YTO had submitted:

As noted above, at paragraph [21] of his Honour’s reasons the primary judge accepted Innovative’s submission that because YTO asserted 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, this highlighted that YTO was advancing in its final submissions a case that had not been articulated in its pleading.

That is not so. What YTO there submitted was that it was not necessary to assess the physical qualities of the 66 loads in order to determine whether they were all for the removal of GSW. YTO’s case was that that could be established from the documents and did not require evidence of a physical assessment of the materials removed. No such assessment would be possible unless it were conducted at the time the materials were removed, or it was possible later to identify what material at the tip had been deposited by Elkordi from the Ashfield site. This submission was not a departure from its pleading.

On appeal, Innovative also relied on oral submissions made by senior counsel for YTO below, where in response to a question from the primary judge, counsel did propound an answer that was outside the case pleaded. The exchange between counsel for YTO and the primary judge was as follows:

This argument was outside the scope of the pleaded case. For it to have been maintainable YTO would need to have pleaded that Innovative represented in its payment claim and adjudication application that it incurred additional costs in respect of all of the 66 loads for which the variation claim was made and that representation was false to its knowledge.

That may well have been a claim available to YTO but it was not what was pleaded. That does not mean that YTO abandoned its pleaded case. The additional argument was raised on the assumption that it was possible that all loads were GSW material. There was no concession that the contrary had not been proved. Neither the primary judge, nor Innovative on appeal, identified any point at which the pleaded case was abandoned.

The primary judge (Judgment [21]) referred to the fact that Mr El Kordi who gave evidence in YTO’s case, gave no evidence that the waste that Elkordi carried and for which he claimed from Innovative as GSW was not GSW.

It might be a reasonable inference that the waste carried by Elkordi for which it claimed remuneration as GSW was GSW, even though that claim was disputed by Innovative. That is a matter on which a finding of fact would have to be made. But Elkordi did not claim that it carried 66 loads of waste that were GSW. In its Invoice 0242 it claimed that it carried a total of 55 loads of GSW material and of these loads only 26 were the subject of the dockets and accompanying schedule provided to the adjudicator. Otherwise, by Invoices 0242 and 0243 it claimed either for removal of waste consistently with the waste being VENM or it claimed waiting time.

Nor was there any evidence that Mr El Kordi attended at the site and was in a position to observe the nature of the waste that was carted.

For these reasons I conclude that the primary judge erred in not addressing the claim as pleaded by YTO in para 21(a) of the List Statement and the evidence adduced by both parties in relation to that claim. I would uphold the first ground of appeal.

The primary judge dealt with the claim in paragraph 21(b) of the List Statement as follows:

With respect to the primary judge, it is not correct to say that in its written submissions YTO departed from its pleading at para 21(b). It is true that in paragraph 36(c) of its written submission it omitted the word “falsely”. But it is clear from the balance of its submissions that it did allege that the representation it pleaded was false. In paragraph 42 of its closing written submissions YTO said:

The primary judge noted the submission of Mr Christie SC who appeared for Innovative that not all of the necessary elements of a claim in fraud had been pleaded (Judgment [25]). That submission was correct. Even though YTO had not departed from its pleaded case, YTO’s case in paragraph 21(b) was inadequately pleaded. YTO did not plead that Innovative knew that the representation pleaded in paragraph 21(b) was false or was reckless as to its truth or falsity (Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486; [2012] HCA 39 at [26]).

Whilst the primary judge considered that it was strongly arguable that the payment claim (quoted at [11] above) standing alone conveyed the impression that Innovative was asserting that its claim was based upon what it had spent or would have to spend to remove GSW, his Honour ultimately was not persuaded that that was the sense in which the claim was understood by the adjudicator, nor the sense in which Innovative intended the representation to be understood (at Judgment [27]). That finding was well open to his Honour. The payment claim and adjudication application claimed a rate of $7,000 per load as a cost sought to be charged to YTO. It was accepted that it was industry practice for a subcontractor to add a reasonable profit margin in claiming as variations the cost of additional work. Hence, it was an unlikely construction of Innovative’s payment claim and adjudication application that it had incurred a cost of $7,000 per load for the removal of GSW Material. Nor does it appear from the adjudicator’s determination that that is how she understood Innovative’s claim.

The primary judge evidently accepted Mr Bhatt’s evidence that he understood $7,000 per load to be the commercial rate for removal of GSW, and his Honour observed that this evidence was not challenged. Where fraud is in issue the question is whether the representor honestly believed the representation to be true in the sense in which the representor understood it, or in the sense in which the representor knew the representee might understand it. The question is not whether the representor honestly believed the representation to be true in a sense that a court, considering the matter objectively, would assign to it (John McGrath Motors (Canberra) Pty Ltd v Applebee (1964) 110 CLR 656 at 659-660; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 576-577).

Paragraph 21(b) of the List Statement pleaded that Innovative’s representation was that $7,000 per load was the additional costs Innovative had incurred for the removal of the GSW material. The primary judge did not err in concluding that that was not the representation conveyed and, in any event, was not the representation that Innovative intended to convey.

YTO did not plead that the effect of the statements made by Innovative in its payment claim and adjudication application, in the context of industry practice and the parties’ dealings, was that the rate of $7,000 per load that Innovative sought to charge YTO, bore a reasonable relationship to the additional cost Innovative incurred in removing GSW Material. Nor did it plead that Innovative knew that the representation it did plead was false, or was recklessly indifferent to its truth.

For these reasons YTO’s challenge to the primary judge’s rejection of its pleaded claim in paragraph 21(b) of the List Statement has not been made good.

YTO’s notice of appeal also challenged the primary judge’s rejection of the claim of fraud pleaded in paragraph 21(c) of the List Statement. The primary judge rejected that claim because YTO pleaded that Innovative redacted the invoice with the intention of concealing the fact that the rate per load charged by Elkordi was $145, whereas the unredacted invoice did not charge a rate per load, but a callout fee when no fill was loaded onto a truck (Judgment [31]). The ground of appeal challenging that finding was not pressed.

The result is that there should be a rehearing, further hearing or re-determination of YTO’s claim pleaded in paragraph 21(a) of its List Statement. Whether the proceeding is referred for a rehearing before a different judge, further hearing before the primary judge, or merely redetermination without further hearing before the primary judge, will depend first on whether the primary judge is available for further hearing or re-determination and, secondly, if so, whether the Chief Judge of the Equity Division considers that having regard to the listing demands of the Division that the proceeding should be referred to the primary judge.

If the primary judge is available, there is no reason that the proceeding should not be referred back to his Honour. If it is, it will be a matter for the primary judge to decide whether to entertain any application for further hearing (including any application to amend pleadings or particulars) or whether to redetermine YTO’s claim pleaded in paragraph 21(a) of its List Statement in accordance with these reasons, that is, that the claim should not be dismissed merely because YTO did not prove or seek to prove that none of the 66 loads in question was GSW material, nor on the ground that YTO abandoned its claim that Innovative’s representation that each of the 66 loads was GSW material was false.

YTO submitted that if its claim were remitted for rehearing, further hearing or redetermination, Innovative should be ordered to repay all of the adjudicated amount that it had been paid into Court and which had been released to Innovative following the primary judge’s decision, viz. $1,557,809.08, YTO submitted that if, on rehearing or further hearing or redetermination, it established that the adjudicator’s determination had been procured by fraud, albeit only in respect of one part of Innovative’s claim, the whole determination should be set aside. It submitted that “fraud unravels all”.

That well-known aphorism should not be stretched beyond its intended scope. It is not the case that if A sues B on two causes of action and B successfully defends the first cause of action on the ground of A’s fraudulent representation, that A cannot succeed on a second distinct cause of action.

If YTO establishes that the adjudicator’s determination in respect of its claim for Variation 5 was procured fraudulently, that would only affect that part of the determination that was fraudulently procured.

YTO’s allegation of fraud affects only the $462,000 paid to Innovative in respect of the 66 loads said to be carted away. Of these 66 loads, YTO identified, in paragraph 21(a) of its List Statement, 22 loads that it said were fraudulently represented to be loads of GSW material (see [43] above).

In its submissions before the primary judge YTO also submitted that what had been claimed as an additional 28 loads of GSW Material, which was admittedly wrongly so described, had been also fraudulently misrepresented by reason of the redaction of Invoice 0243. It will be a matter for either the primary judge or any other judge to whom the proceeding is allocated to decide whether YTO should be able to maintain these wider particulars of the pleading in paragraph 21(a).

Although the particulars to paragraph 21(a) of the List Statement identify only 22 “loads” said to have been falsely represented as loads of GSW material, it was common ground at trial that what had been claimed as a further 28 loads of GSW material could not be supported as such on the basis of the documentation provided to the adjudicator. As noted above, of the 38 loads referred to in Innovative’s schedule provided to the adjudicator which were said to have been of GSW material and were removed between 28 August and 12 September 2017, and the further 28 “loads” on 4 and 7 October 2017, Ms De Guzman accepted that only nine loads were GSW material. If YTO obtains leave to amend its particulars there is a triable cause of action that up to 57 of the represented 66 “loads” identified in Innovative’s schedule provided to the adjudicator were not loads of GSW material.

Before the primary judge Innovative relied on evidence other than documents provided to the adjudicator to seek to prove that at least 66 loads of GSW material had been removed. That evidence has not been assessed. Nor has the primary judge addressed the evidence relied on by YTO to establish that the representation made in Innovative’s adjudication application as to the number of loads of GSW material removed was false, and, if it were, that Innovative knew that it was false. Reckless indifference was not pleaded.

Because it may be open to the primary judge, or any other judge to whom the proceeding may be referred, to permit YTO to amend its particulars as to the number of loads in respect of which the allegedly false representation pleaded in paragraph 21(a) of its List Statement was made, the parties should be put back into the position they were in before the primary judge’s orders of 16 August 2018 (that directed payment to Innovative of all the moneys paid into court by YTO), to the extent that YTO has demonstrated that it has an arguable claim that part of the adjudicator’s determination was procured by the fraud alleged in paragraph 21(a) of its List Statement.

YTO’s pleaded claim is that Innovative falsely represented that each of the 66 loads identified in Innovative’s schedule provided to the adjudicator was GSW material. Innovative does not now seek to support the accuracy of the schedule provided to the adjudicator, but says that it was nonetheless true that it carried at least 66 loads of GSW material. It seems to be common ground between Elkordi and Innovative that Elkordi removed at least 29 such loads.

But it is a triable issue, not resolved by the primary judge, as to whether Innovative’s claim, if made good, would be an answer to YTO’s pleaded claim based on the more particular representation of what were the 66 loads identified to the adjudicator as being GSW material. If Innovative had a claim in respect of other loads that it did not advance in its adjudication application, it is arguable that it could not maintain that claim as an answer to YTO’s claim to set aside that part of the adjudication determination that was based on the representation made in the adjudication application that YTO contends was fraudulent.

For these reasons, although it is common ground between Elkordi and Innovative that at least 29 loads of GSW material were removed, and although we were not referred by YTO to any evidence that would cast doubt on that fact, it is not appropriate to condition relief on the basis that Innovative would be entitled to retain at least $203,000 of the relevant part of the adjudicated amount of $462,000.

On the other hand, of the 66 alleged loads identified in Innovative’s schedule provided to the adjudicator, there is no evidence to which we were referred to rebut the inference to be drawn from Elkordi’s Invoice 0242 and Ms De Guzman’s spreadsheet that at least nine loads removed were GSW material. Prima facie, and without in any way seeking to bind the judge to whom the proceeding is to be referred, Innovative would be entitled to retain at least $63,000 (plus GST) if YTO’s claim pleaded in para 21(a) otherwise succeeds.

However, the parties should be restored to their position as it otherwise was before the primary judge’s decision and orders. Innovative must repay $399,000 plus GST to await the final determination of YTO’s claim, together with any interest on that amount that may have accrued and been paid to Innovative by YTO.

For these reasons I propose the following orders.

EMMETT AJA: The question in this appeal is whether a determination (the Determination) made by Ms Jennifer Wyatt (the Adjudicator) under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act) was obtained by fraud and should be set aside. The Determination was made by the Adjudicator on 22 February 2018 following an adjudication application (the Adjudication Application) lodged by the respondent, Innovative Civil Pty Ltd (Innovative), on 7 February 2018. The Adjudication Application was lodged following the service by the appellant, YTO Construction Pty Ltd (YTO), of a payment schedule on 23 January 2018 (the Payment Schedule) in response to Innovative’s payment claim of 25 December 2017, served on 11 January 2018 (the Payment Claim).

YTO was the principal contractor for building works at Ashfield, Sydney (the Site). On 7 July 2017, YTO and Innovative entered into a subcontract for civil works on the Site for a total contract sum of $1,280,000. Part of the work to be performed by Innovative was the removal of soil and waste from the Site. To that end, Innovative entered into subcontracts with several haulage contractors, one of whom was Elkordi Earthworx Pty Ltd (Elkordi). Elkordi carried out the removal of material from the Site and Innovative included in the Payment Claim amounts for that removal, which it asserted was for the removal of general solid waste (GSW). By the Determination, the Adjudicator allowed Innovative the sum of $466,800 in respect of its claim for the removal of GSW from the Site.

Following the Determination, YTO commenced proceedings in the Commercial List of the Equity Division in which it contended that the Determination was obtained by fraud and that the judgment entered in favour of Innovative against YTO pursuant to the Determination was also obtained by the fraudulent conduct of Innovative and should be set aside. On 10 August 2018, a judge of the Equity Division (the primary judge) published reasons for concluding that YTO had failed to establish that the Determination was obtained by fraud and that the Commercial List proceedings should be dismissed with costs. The primary judge made orders to that effect on 16 August 2018, when his Honour also ordered that an amount of $1,557,809.08 of the monies paid into Court by YTO be paid out to Innovative. By notice of appeal filed on 15 October 2018, YTO appeals from the orders made by his Honour.

The primary judge’s reasons for dismissing YTO’s claims were based substantially on questions of pleading and the manner of conduct of the proceedings by YTO. It is therefore desirable to say something more about the claims made by YTO in its Second Further Amended Technology and Construction List Statement of 8 June 2018 (the List Statement).

The relevant parts of the List Statement may be restated as follows:

Before the primary judge, YTO accepted that it was required to particularise the alleged fraud and that it had the onus of establishing the fraud as particularised. The primary judge proceeded on the basis that YTO was required to articulate its case of fraud strictly and to stay within the confines of its articulated claims in the conduct of its case.

In paragraph 36 of its closing submissions, YTO identified three respects in which Innovative was alleged to have misled the Adjudicator as follows:

The primary judge considered that a comparison between those closing submissions and para 21(a) of the list statement revealed a shift from one assertion to another assertion. The first assertion was that Innovative falsely represented that each of the 66 loads was GSW when it had itself concluded that 21 loads were not GSW. The second assertion was that Innovative 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. His Honour considered that it was most significant that the assertion that Innovative falsely represented that each of the 66 loads of excavated waste removed was GSW had been excised and the word “knowledge” was removed by an amendment to para 21(c) of the list statement, but that that assertion had “crept back in”. His Honour expressed the view that an allegation of “falsely representing” could not “be airbrushed out of YTO’s case” and an allegation of knowledge, which had been deleted from the List Statement after due consideration, could not “be added back in”.

The primary judge attached particular significance to those circumstances because the principal of Elkordi was called as a witness in YTO’s case but gave no evidence that the material that he carried was not GSW. His Honour observed that the onus was on YTO to prove that Innovative’s representation, “that each of the 66 loads claimed to have been removed by Innovative”, was false. His Honour concluded that YTO had not done so. His Honour drew the inference that, by calling Elkordi’s principal and not adducing evidence from him on the topic, the principal’s evidence would not have assisted YTO’s case. [2] The primary judge expressed the view that it was not open to YTO to advance the case contained in para 36(a) of its closing submissions and that it could not establish the claim asserted in para 21(a) of the list statement if it had not first established that the representation “that each of the loads hauled was GSW” was false.

In relation to the claim made in para 21(b) of the List Statement, YTO relied upon a statement made by Innovative in the Payment Claim in the following terms (retaining grammatical errors):

The primary judge considered that it was strongly arguable that the words quoted above, standing alone, conveyed the impression that Innovative was asserting that its claim was based on what it had spent, or would have to spend, to remove GSW. Nevertheless, his Honour did not think that it was clear that Innovative was claiming that the $7,000 per load was the cost to it of so doing. His Honour considered that it was at least open to treat the words used, coupled with the reference to “rate”, in the context of a claim for a variation, as meaning that Innovative was seeking the amount of $7,000 as the cost to YTO for the variation and not asserting that that was the cost to Innovative. His Honour considered that, if Innovative were asserting that $7,000 was the cost to it, it would be claiming as a variation only the amount that it paid to its subcontractor, without any profit margin or mark-up, which his Honour considered would be most unusual. His Honour observed that the Adjudicator awarded $466,800 claimed by Innovative for the removal of GSW as the “value” and not the “cost” of the removal. His Honour considered that it was unlikely that Innovative would charge only the amount that it had paid to a subcontractor, without any margin or mark-up.

In its notice of appeal, YTO contended that the primary judge erred:

Innovative conceded that, while less than elegant, the elements necessary for an allegation of fraud were to be found in para 21(a) of the List Statement. That is to say, it was open to conclude that there was rolled up, in the allegation that Innovative had concluded that some of the 66 loads were not GSW, an assertion that the representation that all 66 loads consisted of GSW was false and that Innovative was aware that that representation was false. The contention advanced in its written submissions by YTO was not a departure from that allegation. The primary judge erred in concluding that it was. It was therefore necessary for his Honour to continue to make appropriate findings, which his Honour appears not to have done.

On the other hand, the allegation of fraud in para 21(b) is inadequate. Paragraph 21(b) simply asserts that Innovative made a false claim. There is no allegation of knowledge or awareness on the part of Innovative of the falsity of the claim. In any event, it is by no means clear that the Adjudicator was misled into allowing Innovative’s claim on the basis that the $7,000 figure represented the charge made to Innovative by Elkordi, rather than the charge being made by Innovative to YTO, irrespective of the actual cost to it. The primary judge did not err in rejecting the claim based on para 21(b).

I have had the advantage of reading in draft form the proposed reasons of White JA. I agree that the orders proposed by his Honour should be made for the reasons proposed.