Brolton Group Pty Ltd v Hanson Construction Materials Pty Ltd

Court of Appeal (NSW)|2020-03-20|Before: Meagher JA, Gleeson JA, Payne JA, Ball J

Background

There is no dispute as to the material facts. Brolton is the contractor under a construction contract with the first respondent, Hanson Construction Materials Pty Ltd (Hanson), dated 13 September 2017. The contract related to the construction of a quarry processing plant at Bass Point, near Shellharbour. Among other matters, the contract provided for (a) a Guaranteed Maximum Price of $85 million (excluding GST), as adjusted by additions or deletions made pursuant to the contract; (b) monthly progress payments, with a reference date of the last Tuesday of each month: cl 11.4; and (c) the Contractor's entitlement to simple interest at a rate of 5 per cent per annum for any delayed payment.
Clause 12 dealt with termination. It provided for termination for default by the Contractor (cl 12.1.1), for default by the Principal (cl 12.1.2) and for insolvency (cl 12.1.3). Clause 12.2 also provided for termination by the Principal for convenience.

Relevant legislative provisions

The relevant provisions of the Act, at the time of the contract in this case, are in the following terms. These provisions, specifically ss 8 and 13, were subsequently amended with effect from 21 October 2019 (Building and Construction Industry Security of Payments Amendment Act 2018 (NSW), Sch 1 [4], [9]-[15]).
Sections 8, 9 and 10 are contained in Pt 2 of the Act.
Section 8 creates an entitlement to a progress payment by reference to a specified date under a construction contract as follows: 8 Rights to progress payments (1) On and from each reference date under a construction contract, a person: (a) who has undertaken to carry out construction work under the contract, or (b) who has undertaken to supply related goods and services under the contract, is entitled to a progress payment. (2) In this section, reference date, in relation to a construction contract, means: (a) a date determined by or in accordance with the terms of the contract as the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the contract, or (b) if the contract makes no express provision with respect to the matter - the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and the last day of each subsequent named month.
The quantification of the amount of the progress payment is to be ascertained in accordance with s 9, which provides: 9 Amount of progress payment The amount of a progress payment to which a person is entitled in respect of a construction contract is to be - (a) the amount calculated in accordance with the terms of the contract, or (b) if the contract makes no express provision with respect to the matter, the amount calculated on the basis of the value of construction work carried out or undertaken to be carried out by the person (or of related goods and services supplied or undertaken to be supplied by the person) under the contract.
Where s 9(b) applies, s 10(1) is also relevant for the valuation of construction work and related goods and services.
Sections 13, 14, 17, 20 and 22 are contained in Pt 3 of the Act.
Sections 13 and 14 provide for the making of a payment claim and a response by way of a payment schedule, relevantly as follows: 13 Payment claims (1) A person referred to in section 8(1) who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment. (2) A payment claim: (a) must identify the construction work (or related goods and services) to which the progress payment relates, and (b) must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount), and (c) if the construction contract is connected with an exempt residential construction contract, must state that it is made under this Act. (3) The claimed amount may include any amount: (a) that the respondent is liable to pay the claimant under section 27 (2A), or (b) that is held under the construction contract by the respondent and that the claimant claims is due for release. (4) A payment claim may be served only within: (a) the period determined by or in accordance with the terms of the construction contract, or (b) the period of 12 months after the construction work to which the claim relates was last carried out (or the related goods and services to which the claim relates were last supplied), whichever is the later. (5) A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract. … 14 Payment schedules (1) A person on whom a payment claim is served (the respondent) may reply to the claim by providing a payment schedule to the claimant. (2) A payment schedule - (a) must identify the payment claim to which it relates, and (b) must indicate the amount of the payment (if any) that the respondent proposes to make (the scheduled amount). (3) If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent's reasons for withholding payment. …
Where a payment schedule has been served indicating an amount less than the claimed amount in the payment claim, s 17 provides for adjudication of the amount of the progress payment, relevantly as follows: 17 Adjudication applications (1) A claimant may apply for adjudication of a payment claim (an adjudication application) if - (a) the respondent provides a payment schedule under Division 1 but - (i) the scheduled amount indicated in the payment schedule is less than the claimed amount indicated in the payment claim, or … (3) An adjudication application - (a) must be in writing, and (b) must be made to an authorised nominating authority chosen by the claimant, and (c) in the case of an application under subsection (1)(a)(i) - must be made within 10 business days after the claimant receives the payment schedule, and … (f) must identify the payment claim and the payment schedule (if any) to which it relates, and … (h) may contain such submissions relevant to the application as the claimant chooses to include. … (5) A copy of an adjudication application must be served on the respondent concerned. (6) It is the duty of the authorised nominating authority to which an adjudication application is made to refer the application to an adjudicator (being a person who is eligible to be an adjudicator as referred to in section 18) as soon as practicable.
Section 20 deals with the prescribed time for and content of an adjudication response by a respondent to a claim, which is only permitted where a payment schedule has been provided: s 20(2A). In addition, the adjudication response cannot include reasons for withholding payment unless those reasons were included the payment schedule: s 20(2B).
The jurisdiction of an adjudicator is set out in s 22, which provides in part: 22 Adjudicator's determination (1) An adjudicator is to determine - (a) the amount of the progress payment (if any) to be paid by the respondent to the claimant (the adjudicated amount), and (b) the date on which any such amount became or becomes payable, and (c) the rate of interest payable on any such amount. (2) In determining an adjudication application, the adjudicator is to consider the following matters only - (a) the provisions of this Act, (b) the provisions of the construction contract from which the application arose, (c) 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, (d) the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule, (e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates. (3) The adjudicator's determination must - (a) be in writing, and (b) include the reasons for the determination (unless the claimant and the respondent have both requested the adjudicator not to include those reasons in the determination), and (c) be served by the adjudicator on the claimant and the respondent. …

The requirement of jurisdictional error

It is now well established that judicial review of an adjudicator's determination is available, but only for jurisdictional error on the part of the adjudicator: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4 at [52], affirming Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421; [2004] NSWCA 394.
The concept of "jurisdictional error" was explained in the joint reasons of Kiefel CJ, Gageler and Keane JJ in Hossain v Minister for Immigration and Border Protection (2018) 264 CLR 123; [2018] HCA 34 (Hossain) at [23]-[24]: [23] Jurisdiction, in the most generic sense in which it has come to be used in this field of discourse, refers to the scope of the authority that is conferred on a repository. In its application to judicial review of administrative action the taking of which is authorised by statute, it refers to the scope of the authority which a statute confers on a decision-maker to make a decision of a kind to which the statute then attaches legal consequences. It encompasses in that application all of the preconditions which the statute requires to exist in order for the decision-maker to embark on the decision-making process. It also encompasses all of the conditions which the statute expressly or impliedly requires to be observed in or in relation to the decision-making process in order for the decision-maker to make a decision of that kind. A decision made within jurisdiction is a decision which sufficiently complies with those statutory preconditions and conditions to have 'such force and effect as is given to it by the law pursuant to which it was made'. [24] Jurisdictional error, in the most generic sense in which it has come to be used to describe an error in a statutory decision-making process, correspondingly refers to a failure to comply with one or more statutory preconditions or conditions to an extent which results in a decision which has been made in fact lacking characteristics necessary for it to be given force and effect by the statute pursuant to which the decision-maker purported to make it. To describe a decision as 'involving jurisdictional error' is to describe that decision as having been made outside jurisdiction. A decision made outside jurisdiction is not necessarily to be regarded as a 'nullity', in that it remains a decision in fact which may yet have some status in law. But a decision made outside jurisdiction is a decision in fact which is properly to be regarded for the purposes of the law pursuant to which it was purported to be made as 'no decision at all'. To that extent, in traditional parlance, the decision is 'invalid' or 'void'. [Citations omitted.]
Any precondition which a statute requires to exist in order for the decision-maker to embark on the decision-making process is often described as a "jurisdictional fact". In Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2018] NSWCA 339, Basten JA (Meagher and Leeming JJA agreeing) identified two uses of the expression "jurisdictional fact" at [13]: It is a fundamental principle that the engagement of a statutory power may depend either upon the existence of an identified state of affairs, or a state of satisfaction of the decision-maker as to an identified state of affairs. In the first category, the actual state of affairs, being the criterion of engagement of the power, is described as a "jurisdictional fact", meaning that the lawful exercise of the power may ultimately depend upon a finding of a court exercising judicial review as to whether or not the required state of affairs existed. The second category is sometimes also said to involve a jurisdictional fact, but only in the sense that the relevant fact is an opinion formed by the decision-maker; in that case a reviewing court can only be concerned with the existence and lawful formation of the opinion [citations omitted]. before observing at [14], that there are aspects of the Act which fall into each category.
In the present case, service by the claimant of a payment claim which answers the description in s 13(1) of the Act falls into the first category of jurisdictional fact. That follows from the High Court's remarks in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Constructions Pty Ltd (2016) 260 CLR 340; [2016] HCA 52 (Southern Han) at [44] and [47]: [44] There is no dispute between the parties that service of a payment claim under s 13(1) of the Act is an essential precondition to taking subsequent steps in the procedure set out in Pt 3 of the Act. There is accordingly no dispute that, unless a payment claim answering that description is served, there can be no adjudication application and hence no adjudication within the jurisdiction conferred by s 22 of the Act. That shared understanding of the relationship between s 13(1) and s 22 is undoubtedly correct. … [47] Stressing that the entitlement to a progress payment conferred by s 8(1) arises "[o]n and from each reference date under a construction contract", Southern Han couches its argument in terms that the existence of a reference date to support a payment claim is a "jurisdictional fact". Treating "jurisdictional fact" as a label for a "criterion, satisfaction of which enlivens the power of [a] decision-maker", Southern Han's invocation of that terminology, in the context of a challenge to the validity of a purported determination by an adjudicator of a purported adjudication application based on a purported payment claim, is not inappropriate. The terminology serves to emphasise that, if Southern Han's construction of s 13(1) is correct, the existence or non-existence of a reference date is not within the jurisdiction of the adjudicator to determine under s 22 of the Act. But that is the limit of its utility. Southern Han recognises that the terminology of "jurisdictional fact" is no more than a label for the conclusion for which it contends and that appending that label to the conclusion adds nothing to the requisite antecedent statutory analysis. [Citations omitted; emphasis added.]
In Southern Han the High Court held that the existence of a reference date under a construction contract is a precondition to the making of a valid payment claim under s 13(1) and that service of a valid payment claim is an essential precondition to taking subsequent steps in the adjudication procedure set in Pt 3 of the Act. The court explained at [61]-[62]: [61] … The description in s 13(1) of a person referred to in s 8(1) is of a person whom s 8(1) makes entitled to a progress payment. Section 8(1) makes a person who has undertaken to carry out construction work or supply related goods and services under a construction contract entitled to a progress payment only on and from each reference date under the construction contract. In that way, the existence of a reference date under a construction contract within the meaning of s 8(1) is a precondition to the making of a valid payment claim under s 13(1). [62] That construction of s 13(1) affords to s 13(1) an operation that is harmonious with s 13(5). Section 13(1) operates to require that each payment claim be supported by a reference date and s 13(5) operates to require that each reference date support no more than one payment claim. Section 13(5) has been held to produce the result that "a document purporting to be a payment claim that is in respect of the same reference date as a previous claim is not a payment claim under the [Act]". Section 13(1) correspondingly produces the result that a document purporting to be a payment claim that is not in respect of a reference date is not a payment claim under the Act. The document is ineffective in either case to trigger the procedure established by Pt 3.
Thus, the precondition which enlivens the exercise of the adjudicator's statutory power under s 22 is the existence and service of a "valid" payment claim - namely one made by a person entitled under s 8 of the Act to a progress payment "on and from" the reference date in respect of which the payment claim is made.

Primary judge's reasons

The primary judge noted that the facts in Allway were similar to the present case. Allway involved a payment claim dated 8 December 2017 which did not nominate a reference date for the claim; the respondent served a payment schedule asserting that the payment claim was invalid because there was no valid reference date supporting the claim; in its adjudication application, the claimant nominated a reference date of 23 December 2017; and the adjudicator accepted that as the relevant reference date and dealt with the claim on that basis, despite the fact that it occurred after service of the payment claim. In proceedings challenging the adjudicator's determination, the claimant submitted that even if 23 December 2017 was not an available reference date, the payment claim could still be supported by the reference date that arose on 23 October 2017.
Given Brolton's challenge to the decision in Allway, it is necessary to refer to the reasons given by Doyle J for rejecting the claimant's submission.
First, after observing that the 'failure' to identify any particular reference date in the payment claim did not invalidate that payment claim, referring to Southern Han at [27], Doyle J observed at [121]: However, it does not follow from this that the ability to later identify some available reference date will always be sufficient to sustain the validity of the payment claim, or an adjudicator's determination in respect of that payment claim. To so hold would, in my view, be to ignore the significance of the reference date under the SOP Act, including its relationship with the right to make a progress claim that underpins both the reference date and the entitlement under the SOP Act to serve a payment claim.
Second, at [122]-[126], Doyle J explained that under the South Australian equivalent of the Act, the reference date is not merely a temporal precondition to the entitlement to serve a payment claim and gave a number of reasons why the identification of the reference date is also critical other aspects of the legislative scheme. Doyle J continued at [127]: In short, the reference date is determined by reference to the right to make a progress claim that underpins it; and having been determined in this way, the reference date is not then set free from the right that underpins it. To the contrary, the underlying right to make a progress claim continues to inform the operation of the statutory regime for the making, and enforcement (including through the adjudication process), of a payment claim in respect of a particular reference date.
Third, after referring to the facts, Doyle J found that the adjudicator fell into jurisdictional error, giving the following reasons at [129]-[131]: [129] In my view, by upholding the validity of the payment claim on the basis it was in respect of a 23 December 2017 reference date, in circumstances where a 23 October 2017 reference date was available but a 23 December 2017 reference date was not, the Adjudicator fell into jurisdictional error. The reason for this is that I consider that the validity of a payment claim, and consequential adjudicator's determination, must be considered in respect of a particular reference date, and the particular right to make a progress claim that underpins it. The particular date need not be identified or nominated in the payment claim (although for obvious reasons this will be preferable), but it must be ascertained at some point in the process. [130] By way of explanation, I consider that not only must a payment claim under the SOP Act be supported by an available reference date, but also any adjudicator's determination in respect of that payment claim must be in respect of the same reference date. In other words, while the existence of a payment claim in respect of an available reference date is sufficient to trigger the adjudicator's statutory authority or jurisdiction to adjudicate and determine a payment claim under the SOP Act, it is not an authority or jurisdiction at large. It is confined to an authority or jurisdiction in respect of that reference date (and the right to make a progress claim that underpins it). A payment claim in respect of a particular reference date only provides authority or jurisdiction for an adjudicator's determination in respect of a payment claim with that reference date. Conversely, and relevantly here, an adjudicator's determination in respect of a payment claim with a particular reference date can only be sustained by a payment claim with that reference date; it cannot be sustained by reference to a payment claim with a different reference date. [131] In my view, regardless of whether one describes the error as an error by the Adjudicator in treating the payment claim as a valid payment claim in respect of the reference date of 23 December 2017, or an error in making a determination by reference to an unavailable reference date of 23 December 2017, the error is a jurisdictional one.
The primary judge agreed with that conclusion of Doyle J at [130] in Allway, giving the following reasons at Judgment [39]-[40]: [39] In my opinion, the conclusion of Doyle J was correct. As the High Court pointed out in Southern Han, a valid payment claim can only be made in respect of a reference date and only one payment claim can be made in respect of each reference date. Consequently, the reference date in respect of which a valid payment claim is made is an essential feature of the payment claim and is part of the characteristics of the payment claim that is subject to adjudication in accordance with the SOP Act. That is so whether the payment claim identifies the relevant reference date or not. If the payment claim does not itself identify the relevant reference date, it will be necessary for that to be determined objectively. That objective determination will depend on a number of factors, including when the reference dates arise under the contract, when the claim is made and the work included in the claim. [40] In the present case, as the case was ultimately put, the parties agreed that the relevant reference date in the case of the payment claim in question was 25 September 2018. On that basis, what the Adjudicator was asked to adjudicate was a payment claim in respect of that reference date. It was not, therefore open to the Adjudicator to determine the claim as if it were a payment claim by reference to some other date. Conversely, if the parties had left it to the Adjudicator to determine the relevant reference date, it would not have been open to them to justify the determination on the basis that it was a determination of a payment claim by reference to some other reference date.

Submissions

Brolton submitted that the primary judge erred in finding that the adjudicator's determination involved jurisdictional error essentially for three reasons: 1. the primary judge erred because the payment claim served by Brolton was a valid payment claim which enlivened the adjudicator's statutory power to embark on the task he was required by s 22(1) of the Act to undertake; 2. the primary judge erred because he failed to identify any express or implicit limitation in the Act, which denies the adjudicator jurisdiction if the adjudicator determines the application with respect to a reference date which does not exist or is not available. Reference was made to Hossain. 3. the primary judge erred in following the ratio in Allway, which is wrong because Allway imposed an unjustified limitation on the adjudicator's jurisdiction which was inconsistent with Southern Han.
Hanson sought to uphold the reasoning of the primary judge. In addition, Hanson submitted by way of notice of contention that Brolton's purported payment claim was not a valid claim for a progress payment on or from a reference date of 25 September 2018, because it included amounts not referable to any entitlement to a progress payment that Brolton had (or purported to have) on that date. This was a reference to subcontractors' invoices for work performed in the period 25 September 2018 to 10 October 2018, and the claim for interest to August 2019.
Brolton submitted in reply that the finding of the primary judge (at Judgment [28]) that the inclusion of work performed after the reference date does not invalidate the payment claim, was correct and supported by the analogous decision of Bergin J (as her Honour then was) in Paynter Dixon Constructions Pty Ltd v JF & CG Tilston Pty Ltd [2003] NSWSC 869 at [39] where her Honour found that a payment claim that included non-construction work was not rendered invalid. Reference was also made to Walter Construction Group Pty Ltd v CPL (Surry Hills) Pty Ltd [2003] NSWSC 266 at [67]-[68]; Leighton Contractors Pty Ltd v Campbelltown Catholic Club Ltd [2003] NSWSC 1103; and Barclay Mowlem Construction Ltd v Estate Property Holdings Pty Ltd [2004] NSWSC 649 at [16].

Decision

It is convenient first to address Brolton's submissions on the assumption most favourable to it, that contrary to ground 1 of the notice of contention, the inclusion of work performed after the available reference date of 25 September 2018 and interest up to August 2019 did not invalidate the payment claim in the present case.
On this assumption, the argument advanced by Brolton involved three related propositions:

Proposition 1: the existence of an available reference date is an objective fact to be found by a court where necessary, rather than an opinion or finding that can be made erroneously by the adjudicator.
Proposition 2: so long as there is an available reference date (and irrespective of whether the payment claim is made or treated as made in respect of that reference date), the payment claim is valid and that informs the adjudication process as being a valid process itself.
Proposition 3: the incorrect conclusion of the adjudicator in relation to the reference date does not render the determination outside jurisdiction; rather such error was made within jurisdiction and therefore does not affect the validity of the determination.

The first part of proposition 1 can be accepted; the existence of a valid reference date is an objective fact to be found by the Court where necessary: Southern Han at [44]. The balance of the propositions should be rejected. The difficulty with these propositions is that they ignore the difference between the task the adjudicator was authorised and required by s 22(1) to undertake, and the task which the adjudicator in fact undertook and performed in this case.
The task the adjudicator was authorised and required by s 22(1) to undertake was to determine the amount of the progress payment (if any) to which Brolton was entitled pursuant to its payment claim under s 13(1), that entitlement arising on and from the available reference date in respect of which the payment claim was made. As was observed by the Court in Southern Han at [62], s 13(1) operates "to require that each payment claim be supported by a reference date" and produces the result that "a document purporting to be a payment claim that is not in respect of a reference date is not a payment claim under the Act".
It is common ground that the purported reference date of 23 October 2018 addressed by the adjudicator was not an available reference date under the contract. The contract had been terminated by Hanson on 3 October 2018 and the entitlement to progress payments under cl 11.4 did not survive termination of the contract. It should also be observed that the last Tuesday in October 2018 was 30 October, not 23 October 2018.
Contrary to Brolton's submissions, it is not to the point that there was an available reference date of 25 September 2018 under the contract. The adjudicator did not embark upon the determination of the amount of the progress payment (if any) to be paid by Hanson to Brolton on the basis that the payment claim was supported by a reference date of 25 September 2018. Instead, he determined the progress payment to which Brolton was purportedly entitled on the basis that the payment claim was made in respect of a reference date of 23 October 2018. As that was not an available reference date the payment claim supported on that basis was not a payment claim under the Act and ineffective to trigger the procedure established by Pt 3 (see Southern Han at [62]). It follows that the adjudicator had no authority or jurisdiction to make any determination with respect to Brolton's payment claim supported and understood in that way. Accordingly, jurisdictional error of the kind grounding relief in the nature of certiorari was established: Quasar Constructions NSW Pty Ltd v Demtech Pty Ltd [2004] NSWSC 116; (2004) 20 BCL 276 at [35] (Barrett J).
Given that the adjudicator's determination involved jurisdictional error, the challenge by Brolton to the primary judge's acceptance of the decision in Allway must fail. In Allway, Doyle J rejected the claimant's attempt to characterise the adjudicator's error as to the reference date as being an error within jurisdiction by pointing to an available reference date under the contract which was not the reference date addressed by the adjudicator. The difficulty with the claimant's submission in Allway, like Brolton's submission in the present case, is that in each case the adjudicator's error in making a determination by reference to an unavailable reference date, was not the task the adjudicator was required by s 22(1) to undertake. Accordingly, the determination involved jurisdictional error.
In summary, Southern Han establishes that a payment claim with an available reference date answering the description in s 13(1) of the Act is a precondition which enlivens the exercise of the adjudicator's statutory power to embark upon the adjudication. The available reference date under the construction contract serves to define the payment claim which is the subject of the adjudication application referred. If the adjudicator addresses a differently defined or described payment claim, the adjudicator is not exercising the jurisdiction in s 22(1) to determine the payment claim in respect of which the statutory power of adjudication is conferred on the adjudicator. That is what occurred in the present case. Hence, there was no error by the primary judge in finding that the determination is void on the ground of jurisdictional error.
Grounds 1 and 2 should be rejected.
In view of the above conclusion, it is not necessary to address the issues raised by Hanson's notice of contention. However, one further matter should be mentioned for completeness.
In writing, Brolton submitted that the primary judge should not have exercised the discretion to set aside the determination. The submission was not pressed in oral argument and should be treated as having been abandoned. First, there is no ground of appeal challenging the primary judge's exercise of discretion.
Second, Hanson objected to Brolton raising this submission as a new point on appeal. That objection was well made. The argument sought to be raised differs from the contention advanced by Brolton at trial, that the primary judge should only grant conditional relief, the condition contended for by Brolton being that Hanson pay Brolton what was said to be the unaffected component of the adjudicated amount relating to work after 25 September 2018 and interest up to August 2019. The primary judge rejected that contention and there is no appeal from that part of the decision. Brolton did not point to any exceptional circumstances why the new point should be permitted on appeal: Metwally v University of Wollongong (1985) 59 ALJR 481 at 483.

Primary judge's reasons

It is not in dispute that primary judge correctly stated the relevant principles at Judgment [41]: … it is well accepted that a determination is void if "there is a substantial denial of the measure of natural justice that the Act requires to be given": see Watpac Constructions v Austin Corp [2010] NSWSC 168 at [141] per McDougall J, quoting Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421 at [55] per Hodgson JA. There will be a denial of natural justice where the adjudicator determines a dispute on a basis for which neither party has contended without giving the parties an opportunity to make submissions on the matter: Watpac at [143] quoting Musico v Davenport [2003] NSWSC 977 at [107].
His Honour found that Hanson had been denied natural justice, giving the following reasons at Judgment [42]-[43]: [42] In the present case, neither party contended for a reference date of 23 October 2018. It was Hanson's submission that the reference date was 25 September 2018 and could not be later because the contract had been terminated. In para [49] of its submissions in support of its adjudication application, Brolton must be understood as submitting that reference dates were available in August and September 2018 because the previous payment claims served in respect of those reference dates were not valid. It was not open in those circumstances for the Adjudicator to choose a reference date of 23 October 2018 without giving the parties an opportunity to make submissions on that choice. [43] The choice of reference dates had a substantial effect on the outcome of the determination. It provided an answer to Hanson's submissions that Brolton had made progress claims for work done after 25 September 2018, which were not permitted by the contract. It also provided an answer to Hanson's submission that any claim for extensions of time and delay costs were only submitted after the reference date (on 28 September 2018). It follows that there was a substantial denial of natural justice.

Submissions

Brolton submitted that the primary judge erred in finding that Hanson had been denied natural justice essentially for two reasons: 1. Hanson had the opportunity but failed to put submissions before the adjudicator when it could and should have, if it wished to rely upon a deduction from the amount due to Brolton under cl 12.3 of the contract, such as a claim of over $7.2 million relating to the costs to complete the works after 3 October 2018, as referred to in the Affidavit of Mr Sellers; 2. alternatively, even if there was a denial of natural justice, it was neither material nor substantial. Reference was made to the remarks of Gleeson CJ in Re Minister for Immigration and Multicultural Affairs; Ex parte Lam (2003) 214 CLR 1; [2003] HCA 6 (Lam) at [37].

Decision

The conclusion above in relation to the reference date is dispositive of the appeal. Nonetheless, I will briefly address Brolton's challenge to the primary judge's finding concerning denial of natural justice.

Was there a denial of natural justice?

The scope of the controversy before the adjudicator was delineated by the terms of the payment claim, the adjudication application and the adjudication response. On a fair reading, each proceeded on the express basis that the payment claim was made under cl 11.4 of the contract. Neither party had notified the other nor contended that the payment claim was made under cl 12.3 of the contract, or that Brolton was entitled to make the payment claim with a reference date of 23 October 2018, being after the contract had been terminated.
In its adjudication application, under the heading "Reference dates under the subcontract", Brolton made express reference to cl 11.4 of the contract and extracted part of its terms (par 47), acknowledged that it had submitted payment claims in August and September 2018 that were invalid because they did not provide a supporting statement (par 48) and then stated (in par 49): As Brolton served payment claims in August and September 2018 which were under the Contract only (and not under the Act), this leaves the reference dates available for Brolton to use.
Although Brolton did not contend in the adjudication application for any particular reference date under the contract, two things can be said. First, when read in context, the words "the reference dates available for … use" in par 49 should be understood as a reference to the dates mentioned in par 48, that is, August 2018 and September 2018. Second, Brolton did not contend that there was an available reference date in October 2018.
The aspect of natural justice or procedural fairness in issue before the primary judge is the right of a party to be given an opportunity to be heard. That includes in the present context prior notice of the issues to be addressed, an opportunity to make submissions and the right to have those submissions considered by the adjudicator. That did not occur in the present case.
In oral argument, Brolton submitted that Hanson should have understood that the payment claim was a "wash-up" claim under cl 12.3 of the contract. The submission continued that Hanson had prior notice that the issues to be addressed included a reference date of 23 October 2018, and had availed itself of the opportunity to make submissions on that issue by submitting that 25 September 2018 was the "last" available reference date under the contract, given its termination on 3 October 2018. Hanson objected to Brolton raising a new point on appeal. Again, that objection is well made.
First, the new point is not within the grounds of appeal, in particular ground 3.
Second, the new point is inconsistent with Brolton's acceptance below and in this Court that the available reference date under the contract was 25 September 2018.
Third, the new point involves an argument neither pleaded nor run below, and Brolton has not established that it could not possibly have been met by evidence: Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; [1950] HCA 35. Further, as the High Court said in Metwally v University of Wollongong at 483: It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so. No exceptional circumstances have been demonstrated in the present case.
If it were necessary to address this new argument, a finding should be made that on an objective assessment of the terms of the Brolton's payment claim and the adjudication application, Hanson had no reason to believe that cl 12.3 was relied upon by Brolton or was in any way relevant to a reference date relied upon by Brolton to support the payment claim it had served.

Whether the denial of natural justice was material?

Brolton's second argument that any denial of natural justice was not material should be rejected. It is uncontroversial that in the context of procedural fairness or natural justice, the concept of fairness is not abstract but practical. As Gleeson CJ remarked in Lam, "the concern of the law is to avoid practical injustice".
Importantly when assessing materiality, McDougall J cautioned in Watpac Constructions v Austin Corp [2010] NSWSC 168 at [147] that: … The Court should not be too ready to find that a denial of natural justice was immaterial; that it had no real or practical effect; or that (in the present context) there was nothing that could have been put on the point in question. But it remains the case, I think, that the denial of natural justice must be material, and that submissions that could have been put might have had some prospect of changing the adjudicator's mind on the point.
The adjudicator's decision to proceed on the basis of a 23 October 2018 reference date was plainly material insofar as it substantially affected the quantum of the determination which the adjudicator purported to make. As the primary judge observed at [43], the choice of the later reference date provided an answer to Hanson's submissions that Brolton's payment claim included claims for work done after a 25 September 2018 reference date, as well as claims for delay costs due to extensions of time which had not been the subject of any variation application made before that earlier reference date.
Furthermore, addressing the later purported reference date, it is not in dispute that any payment to which Brolton was entitled under cl 12.3 upon termination of the contract is subject to a deduction in relation to the costs to complete the works after termination: cl 12.3(c). The evidence at trial was that Hanson's claim against Brolton for the costs to complete the works is for an amount in excess of $7.2 million. In these circumstances, there was no error by the primary judge in finding that the submissions that could have been put by Hanson to this effect in answer to a "wash-up" claim under cl 12.3 of the contract, might have had some prospect of changing the adjudicator's mind on this point: Watpac at [147]; Pinnacle Construction v Dimension Joinery [2018] NSWSC 894 at [40]-[41].
Ground 3 should be rejected.

Conclusion and orders

The appeal has failed and there is no reason why costs should not follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.
Accordingly, I propose the following orders: 1. Appeal dismissed. 2. Appellant pay the respondents' costs of the appeal.
PAYNE JA: I agree with Gleeson JA.

Amendments 17 April 2020 - Coversheet / Decision and [72(2)] -

Appellant pay the respondents' costs of the appeal. 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: 17 April 2020

(Building and Construction Industry Security of Payments Amendment Act 2018(NSW)

Solicitors: HWL Ebsworth Lawyers (Appellant) King & Wood Mallesons (First respondent) Edward Smithies (Second respondent) File Number(s): 2019/396338 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2019] NSWSC 1641 Date of Decision: 26 November 2019 Before: Ball J File Number(s): 2019/347265

HEADNOTE [This headnote is not to be read as part of the Judgment] The appellant, Brolton Group Pty Ltd (Brolton) and the respondent, Hanson Construction Materials Pty Ltd (Hanson) were parties to a contract which related to the construction of a quarry processing plant at Bass Point near Shellharbour. The contract provided Brolton with an entitlement to claim monthly "progress payments" (cl 11.4) and upon termination an entitlement to payment for the value of completed work, subject to certain adjustments (cl 12.3). The contract was terminated by Hanson on 3 October 2018. Following service of a payment claim in August 2019, the parties referred their dispute for adjudication under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act). Under the Act, a payment claim must be supported by a specific "reference date" that is available under a construction contract. The subject of the parties' adjudication was a payment claim of Brolton's expressed as covering work "up to September 2018", but which included amounts referable to work completed after 25 September 2018 and also interest up to August 2019. The adjudicator addressed Brolton's payment claim adopting a reference date of 23 October 2018 and determined in favour of Brolton for an adjudicated amount of $2,877,052.75. Hanson commenced proceedings against Brolton in the Supreme Court seeking a declaration that the adjudication determination was void and ancillary relief. The primary judge (Ball J) found in favour of Hanson and made a declaration that the determination was void, giving two reasons. First, by addressing the payment claim on the basis of an unavailable reference date of 23 October 2018, the adjudicator did not embark on the task he was required to perform under s 22(1) of the Act. Second, the adjudicator's decision involved a denial of natural justice because the adjudicator determined the dispute on a basis for which neither party had contended without giving the parties an opportunity to make submissions on the matter. Brolton appealed against the whole judgment below. The principal issues before the Court were: (i) whether, in addressing the payment claim on the basis of an unavailable reference date, the adjudicator addressed the task he was authorised and required by s 22(1) of the Act to undertake; and (ii) whether the adjudication determination involved a denial of natural justice. Held, rejecting the appeal (per Gleeson JA; Meagher and Payne JJA agreeing): As to issue (i): (1) The adjudicator failed to address the task he was authorised and required by s 22(1) the Act to undertake. It was not to the point that there was an available reference date of 25 September 2018 under the contract. The adjudicator did not address the amount of the progress payment (if any) to be paid by Hanson to Brolton on a reference date of 25 September 2018. Instead, he calculated the payment Brolton was entitled to on a purported reference date of 23 October 2018. Accordingly, the adjudicator's determination involved jurisdictional error. Houssain v Minister for Immigration & Border Protection (2018) 264 CLR 123; [2018] HCA 34; Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2018] NSWCA 339; Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340; [2016] HCA 52; and Allway Unit Trust v R & D Airconditioning Pty Ltd [2018] SASC 46 considered. As to issue (ii): (1) The adjudication determination involved a denial of natural justice. The scope of the controversy before the adjudicator was delineated by the terms of the payment claim, the adjudication application and the adjudication response. Neither party had notified the other or contended that the payment claim was made under cl 12.3 of the contract or that Brolton was entitled to make the payment claim with a reference date of 23 October 2018. Accordingly, the adjudicator determined a dispute on a basis for which neither party had contended without giving the parties an opportunity to make submissions on the matter. Watpac Constructions v Austin Corp [2010] NSWSC 168; Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421; Musico v Davenport [2003] NSWSC 977; and Re Minister for Immigration and Multicultural Affairs; Ex parte Lam (2003) 214 CLR 1; [2003] HCA 6 considered.

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