Arconic Australia Rolled Products Pty Limited v McMahon Services Australia Pty Ltd

Supreme Court of NSW|2017-08-17|Before: McDougall J

Solicitors: Ashurst Australia (Plaintiff) Cosoff Cudmore Knox (First Defendant) File Number(s): 2017/241136

Judgment (ex tempore - revised 17 august 2017)

HIS HONOUR: The facts of this case demonstrate yet again how the operation of legislation intended to improve the lot of people who undertake construction work or provide related goods and services has become enmeshed in technicalities that have been erected over the simple processes established by the legislation.
The short facts are that the plaintiff (Arconic) engaged the first defendant (McMahon) to decommission an aluminium plant. There is no doubt that the contract was a construction contract for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act). In the usual way, McMahon made regular payment claims for the purposes of the Security of Payment Act, which no doubt were also progress claims for the purposes of the contract.
In this case, three payment claims, numbers 13, 14 and 15, have given rise to no less than four adjudication applications. The contentious element of each payment claim has been a claim, described in various ways, for delay costs or variations relating to undocumented hazardous material discovery.

The payment claims and adjudication applications

Payment claim 13 was served on 4 May 2017. The first adjudication application was made on 29 May 2017. For reasons known only to McMahon, the submissions or other materials provided in support of its adjudication application included a "without prejudice" report that it had commissioned, in an attempt to resolve its differences with Arconic. Arconic objected to that material's being before the adjudicator Mr O'Sullivan, on the ground that it was subject to joint "without prejudice" privilege [1] . Mr O'Sullivan agreed that the report should not have been given to him, said that he could not put it out of his mind, and very properly recused himself. Accordingly, McMahon withdrew the first adjudication application.
On 22 June 2017, McMahon made the second adjudication application. It too was based on payment claim 13. The application went to another adjudicator, Mr Sundercombe. One of the points taken by Arconic in its adjudication response was that the claim formulated in the submissions that McMahon used to support the adjudication application was different to the claim that had been put in payment claim 13. In the event, Mr Sundercombe agreed with that submission.
While all this was happening, McMahon served payment claim 14, on 2 June 2017. It then made the third adjudication application, referable to payment claim 14, on 28 June 2017. Since both the second and the third adjudication applications were made to the same authorised nominating authority, that authority nominated Mr Sundercombe to deal with the third adjudication application as well as the second.
Mr Sundercombe published his determinations on those adjudication applications on 25 July 2017. As to the second application, he dealt with the proposition that McMahon's submissions in support of the application were not duly made, and concluded that the position to that effect put by Arconic was correct. He referred to what I had said in Leighton v Arogen [2] . Having done that, he said at paras 21 and 23 of his reasons: [21] Under the Act a claimant cannot advance one basis of entitlement and then change to another and supplement the payment claim with information prepared nominally six (6) weeks after the payment claim was served and claim that the submission is 'duly made'. … [23] Therefore, with regard to all of the foregoing the adjudicated amount is the scheduled amount that the respondent has agreed to pay of $773,157.43 (inc GST).
As to the third adjudication application, Arconic had taken the point that it, or rather the payment claim 14 on which it was based, was premature because no relevant reference date had arisen. Mr Sundercombe agreed with that proposition. He said at para 23 of his decision: [23] Therefore, the payment claim served on 2 June 2017 was premature in that it was served prior to the reference date and as such the claimant was not a person who was entitled to a payment claim pursuant to s 8 of the Act.
On 4 July 2007, while all this was happening, McMahon served payment claim 15. That led to the fourth adjudication application, which was made on 1 August 2017. That application was made to a different nominating authority, the second defendant in this case. The second defendant nominated the third defendant, Mr Pettersson, as the adjudicator. The parties have agreed that nothing should happen in relation to the fourth adjudication application until the determination of these proceedings, and that if it is to proceed, Mr Pettersson should be given an extension of time to complete his task.

The issues for decision

The amount of the claim in each of the payment claims and adjudication applications includes an amount, in round figures and exclusive of GST, of $2,344,000 for indirect costs. That is the amount that has always been contentious. In the present proceedings, Arconic contends that it is not open to McMahon to re-agitate (as it puts it) that claim in the fourth adjudication application. Arconic says either that there has been a determination on the claim (by Mr Sundercombe, in his decision on the second adjudication application) so as to call up the principles of issue estoppel, or that in effect it is being vexed by repetitious re-agitation of the claim, so as to call up the principles of abuse of process.
McMahon submits that the precise issue has never been determined, and thus that the principle of issue estoppel has no relevance. Further, it submits, since there has never been a decision on the merits of its claim to be paid the indirect costs in question, there can be no question of abuse of process.

The authorities

In the course of submissions, the parties took me to a number of authorities on the point. It is not necessary to refer to most of them.
The decision of the Court of Appeal in Dualcorp Pty Ltd v Remo Constructions Pty Ltd [3] establishes that the determinations of adjudicators may attract the principle of issue estoppel, and that repetitious re-agitation of claims may attract the principle of abuse of process. Those principles have been considered and applied in a number of first instance decisions. For present purposes, bearing in mind the submissions that were put, it is not necessary to refer to all of them.
As to issue estoppel, Macfarlan JA (with whom Handley AJA agreed) pointed out in Dualcorp at [69] that "for the principle of issue estoppel to apply, the same issue must have been earlier determined as is later sought to be re-agitated". His Honour then gave, as an example of a situation where the principle would not apply, a case where "a progress claim [was] rejected by an adjudicator because it was premature by reason of the date stipulated for payment by the contract" [4] .
Stevenson J referred to the decision in Dualcorp in Ku-Ring-Gai Council v Ichor Constructions Pty Ltd [5] . His Honour said at [32] that "an issue estoppel can only arise where an issue has already been decided". His Honour continued, at [33], by pointing out whether an adjudicator has decided an issue "must be assessed as a matter of substance, and not of form". Stevenson J referred to the decision of Applegarth J in AE & E Australia Pty Ltd v Stowe Australia Pty Ltd [6] , in support of the proposition that the question was one of substance and not of form.
Stevenson J concluded that on the facts proved before him, the doctrine of issue estoppel did not apply. However, his Honour said at [53], the doctrine of abuse of process did. It will be necessary to return to what his Honour said.
In AE & E Australia, Applegarth J was faced with facts that at first blush appear to be not dissimilar to those with which I am concerned. In that case, the adjudicator, in considering various claims for payment for variations, had said words to the effect that the claimant had not put on any or sufficient information to support its entitlement, and thus that he would not value the claim. That point appears clearly from the reasons given by Applegarth J at [37], [38] and [40].
In those circumstances, Applegarth J said that as a matter of substance, the adjudicator did determine the question of entitlement, and did so by deciding that there was no entitlement. That aspect of his Honour's reasoning appears at [45], [46]: [45] As to each of the re-agitated claims, Stowe's position is that the adjudicator "did not determine that Stowe had no entitlement to the items and did not value the items". It may be correct that the adjudicator did not determine that Stowe had "no entitlement", as he might have if he had concluded that there was no legal basis for the claim. However, the adjudicator did determine the claimed entitlement. He determined that Stowe had not proven its entitlement. The various claims failed for want of proof. [46] Having tried and failed to establish before the adjudicator an entitlement to the amount claimed, Stowe should not be permitted to resubmit the same claim. The fact that the adjudicator routinely concluded each determination with the words "I will not value this claim" or "I will not value this item" is beside the point. These words appeared because the adjudicator reached the determination that Stowe had not demonstrated an entitlement to the amount claimed, either because it had not demonstrated an entitlement or because there was insufficient supporting documentation to enable the adjudicator to value the claimed entitlement.
As his Honour said at [46], the doctrine of issue estoppel applied because, as a matter of substance, the adjudicator had decided that the claimant was not entitled to the amounts in question.

Decision: issue estoppel

In the present case, the question turns on the reasons given by Mr Sundercombe in his decision upon and determination of the second adjudication application. I have set out already the arguments that were put to him and the conclusion that he reached.
In my view, when one looks carefully and in context at what Mr Sundercombe said, it is quite clear that he was of the view that the claim, as it was framed in the adjudication application, was not one that he could consider, because it was materially different to the claim put in the underlying payment claim (no 13). That is the whole point of his reference to what I had said in Arogen, in particular at [85], [87]. To make that good, I set out all of the paragraphs, [83] to [88], to which Mr Sundercombe referred: [83] There is no doubt that, in general, the question of whether a submission has been "duly made" is one for the adjudicator to determine. See Giles JA in Downer Construction (Aust) Pty Ltd v Energy Australia (2007) 69 NSWLR 72 at [86] to [88]. (I note that Santow and Tobias JJA agreed with his Honour: and reference may be made as well to the cases cited by his Honour in the paragraphs in question.) [84] Accepting that this is so, nonetheless, the consequence of an invalid application of s 20(2B), with the effect (as here) that the respondent is prevented from advancing reasons because the payment claim that is advanced in the adjudication application is different to the one that was advanced in the payment claim and answered in the payment schedule, is to deny the respondent natural justice. [85] There is, in my view, another way of approaching the same question. Section 22 of the Act deals with the topic of the "adjudicator's determination". By subs (2), the adjudicator is commanded to "consider the following matters only": namely, the matters listed in paras (a) to (e). One of those matters (para (c)) is: ... the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim... [86] In this case, in my view, the submissions that were made by Arogen in the adjudication application, in support of the variations in question, could not be regarded as having been "duly made" in support of those aspects of its payment claim. That is because, on its fair and obvious reading, the payment claim referred to a basis of claim that was quite different to that advanced in the submissions. As I have said already, I have no doubt that the way in which this part of the adjudication application is framed reflects a clear appreciation by Arogen of the strength of Leighton's response to the claims, insofar as it relates to V03 from and after 10 February 2012, and V16, V19 and V21. [87] Thus, in my view, the adjudicator failed to comply, to the extent indicated, with the mandatory requirements of s 22(2)(c). He failed to comply because he considered submissions that should not be regarded as "duly made... in support of the claim". For that reason, he did not make his determination (in respect of the relevant variations) in accordance with a condition of, or within the limits of, the jurisdiction given by the Act. [88] Further, and in any event, by approaching the matter in this way, the adjudicator denied natural justice to Leighton, because he permitted Arogen to advance its claim in a way that Leighton was not able to answer (on the adjudicator's application of s 20(2B)).
On analysis, the facts of this case can be seen to be materially different to those considered by Applegarth J in AE & E Australia. In my view, Applegarth J concluded that despite the language employed by the adjudicator whose determination he was dealing with, that adjudicator had as a matter of substance considered the merits of the question of entitlement, and had come to the view that there was no entitlement. By contrast, in the second determination, Mr Sundercombe took the view that it was not open to him to consider the claim as it had been framed. It follows, in my view, that Mr Sundercombe did not decide the merits of the issue: namely, whether McMahon was entitled to be paid for the variation claim in question and, if it were, the amount to which it was entitled.
For those reasons, I think, the situation is more akin to that dealt with (on the question of issue estoppel) by Stevenson J in Ichor.
It follows that McMahon is not prevented, by application of the doctrine of issue estoppel, from agitating before Mr Pettersson in the fourth adjudication application the question of its entitlement to the variation costs in question.

Decision - abuse of process

I turn to the question of abuse of process. It cannot be said that McMahon has covered itself in glory in its attempts to get the issue before, and dealt with by, an adjudicator. Its first attempt to do so failed because, for reasons I have said I simply do not understand, it sought to rely on material that it was not entitled to deploy before the adjudicator. The second attempt failed because, as Mr Sundercombe concluded (and no one suggested that I should review this aspect of his reasons), the claim that was advanced in the adjudication application was not the same as the claim advanced in the payment claim. It failed a third time, in the third adjudication application, because there was no reference date to support the payment claim (the 14th) on which that adjudication application was based.
Now, having generated so much paper, so much work, and having undoubtedly put Arconic to substantial expense, McMahon seeks to have its claim determined as a matter of substance.
There can be little doubt that Arconic has been put to a lot of trouble and expense because of the inadequate attempts made by McMahon hitherto to get its claim decided by an adjudicator. But that does not really answer the question of whether abuse of process, in the sense that that expression is used in the authorities on this topic, is made out.
It is clear that there is nothing in the statute itself to prevent a claimant from claiming, in successive adjudication applications, amounts that have been the subject of previous payment claims. Section 13(6) of the Security of Payment Act expressly says so. Thus, to support a conclusion of abuse of process, there must be something more than simply resubmitting the same claim.
In my view, the authorities on this point demonstrate that what lies at the heart of abuse of process, in the context of adjudications under the Security of Payment Act, is the repetitious re-agitation of a claim that has already been decided on its merits, using different bases or pretexts to justify the reconsideration of the same claim. I think that is what Stevenson J said in his Honour's reasons in Ichor, where he dealt with the question of abuse of process at [37] and following. His Honour reviewed the authorities, and concluded that mere repetition of a claim earlier made did not necessarily indicate abuse of process. However, in his Honour's view, the facts before him showed a lot more than mere repetition of a claim earlier made. His Honour said at [53] that the claim was repeated in the second application because it had failed (on the merits) in the first application. It had failed in the first application because the first adjudicator concluded that Ichor's evidence was "inadequate to the task".
Stevenson J considered that it was not appropriate for Ichor to use the first adjudicator's reasons as an advice on evidence, and to supplement its proof so as to seek to achieve the result that it could and might have got first time around had its proof been sufficient. I set out [53]: [53] However, this case involves more than a mere repetition of a claim earlier made. The reason Ichor is repeating its claim before the Second Adjudicator is that it failed to establish the same claim before the First Adjudicator because it deployed evidence inadequate to the task. The Council resisted the First Adjudication Application on the basis of the material then deployed by Ichor in support of it. The First Adjudicator drew attention to the shortcomings in that evidence. Ichor is now making a second attempt to prove its case by supplementing that material with further evidence that, according to its description in the Second Adjudication Application, seeks to overcome the particular problems identified by the First Adjudicator. In effect, Ichor has used the First Adjudicator's observations as an advice on evidence and is now making a second attempt to prove the same case and requiring the Council, for the second time, to meet it. This is in my opinion an abuse of process. It is akin to a party, having read a judge's reasons for rejecting its claim for want of evidence, seeking to re-open to re-agitate the issue and to make good the identified shortcomings in the evidence.
If Mr Sundercombe had dealt with the claim on its merits, and concluded that it failed because the evidence was inadequate, then what Stevenson J said in Ichor would have direct application. However, for the reasons that I have sought to point out, Mr Sundercombe did not deal with the claim on its merits. He took the view in substance that the claim, as it was framed in the adjudication application, was not one that he could deal with.
On that basis, in my view, there can be no question of abuse of process. McMahon is not using Mr Sundercombe's decision to improve its position. It is, rather, trying to get an adjudicator - in this case, Mr Pettersson - to deal with its claim on the merits. So far, for the reasons I have tried to indicate, that has not happened.
It follows, in my view, that the claim for relief insofar as it is based on the doctrine of abuse of process has not been made good.

Orders

For those reasons I order that the summons filed in court on 8 August 2017 be dismissed. I will hear the parties on costs.

[Counsel addressed.]

I order the plaintiff to pay the first defendant's costs and otherwise make no order as to costs. The exhibits are to be handed out once the revised reasons have been prepared.

Endnotes

Evidence Act 1995 (NSW), s 131.
[2012] NSWSC 1323 at [83] to [87].
(2009) 74 NSWLR 190.
Ibid [69].
[2014] NSWSC 1534.
[2010] QSC 135. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 August 2017

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