Cardinal Project Services v Hanave

Supreme Court of NSW|2010-11-22|Before: McDougall J, Dougall J

CITATION : Cardinal Project Services v Hanave [2010] NSWSC 1367

HEARING DATE(S) : 22 November 2010 and 23 November 2010 JURISDICTION : Equity Division

DECISION : Determination declared void and quashed. Summons otherwise dismissed with costs.

LEGISLATION CITED : Building and Construction Industry Security of Payment Act 1999 (NSW) Supreme Court Act 1970 (NSW)

Brodyn Pty Limited v Davenport (2004) 61 NSWLR 421 Chase Oyster Bar v Hamo Industries [2010] NSWCA 190 CASES CITED : Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69 Multiplex Constructions Pty Limited v Luikens [2003] NSWSC 1140 Watpac Constructions v Austin Corp [2010] NSWSC 168

Cardinal Project Services Pty Ltd (Plaintiff) PARTIES : Hanave Pty Limited (First Defendant) David Campbell-Williams (Second Defendant)

COUNSEL : HJA Neal (Plaintiff) G J McVay (First Defendant)

SOLICITORS : Baron + Associates (Plaintiff) Gilbert Mane Solicitors (First Defendant)

17 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST

23 November 2010 (ex tempore - revised 24 November 2010)

2010/304657 CARDINAL PROJECT SERVICES PTY LIMITED v HANAVE PTY LIMITED JUDGMENT

1 HIS HONOUR: On 21 April 2008, the first defendant (Hanave) and the plaintiff (Cardinal) made a "minor works contract" under which Cardinal undertook to perform excavation and shoring works for Hanave at a site in Surry Hills. There is no doubt that the work to be performed by Cardinal was, or included, construction work for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) and, hence, that the contract was a construction contract. 2 The ultimate question for decision is the validity of a determination made by the second defendant (the second adjudicator) on 3 September 2010, which was corrected under s 22(5) of the Act on 8 September 2010 (the second determination). That was the second determination (or purported determination) on the same payment claim. The issues 3 The real issues in dispute appear to be the following:

(1) in circumstances where there had been a prior adjudication on the same payment claim, and where the resulting determination (the first determination) had been declared to be void, was it open to Cardinal to make the adjudication application (the second application) that was the subject of the second determination?

(2) Is the second determination void, because the second adjudicator failed to exercise his statutory powers for the purpose for which they are given, and denied Cardinal natural justice, in the way he dealt with Cardinal's case in relation to liquidated damages and two specified variations?

(3) Is Cardinal estopped from asserting the invalidity of, or has it elected to affirm, the second determination, because it asked the second adjudicator to correct the second determination under s 22(5) of the Act and he did so?

(4) What, if any, relief should be granted? Factual background 4 As I have said, the contract was made on about 21 April 2008. Cardinal undertook work pursuant to it. On 30 November 2009, it served a document which Cardinal asserted was a payment claim for the purposes of the Act. The amount claimed by that payment claim was $611,545.89. Hanave provided a payment schedule on 3 December 2009, stating a scheduled amount of nil. 5 On 17 December 2009, Cardinal made an adjudication application (the first application). Mr Phillip Davenport (the first adjudicator) was nominated, and accepted nomination. He made the first determination on 8 January 2010. 6 Hanave commenced proceedings in this Court, seeking among other relief a declaration that the first determination was void. On 6 August 2010, the Court by consent declared that the first determination was void and of no effect. 7 On 9 August 2010, Cardinal withdrew the first application, and on 12 August 2010 it lodged the second application. The second adjudicator was nominated, and accepted nomination. Hanave lodged an adjudication response on 24 August 2010. 8 On 3 September 2010, the second adjudicator published his determination, finding an adjudicated amount of nil. On 7 September 2010, Cardinal's solicitors wrote to the second adjudicator pointing out an arithmetic error in his calculations and asking him to correct that pursuant to s 22(5) of the Act. On 8 September 2010, the second adjudicator issued a corrected determination in which he found an adjudicated amount of $31,021.10. First issue - jurisdiction Section 26 9 The first issue turns on the construction of s 26 of the Act, and its application in the events that have happened. I set out s 26: 26 Claimant may make new application in certain circumstances

(1) This section applies if: (a) a claimant fails to receive an adjudicator's notice of acceptance of an adjudication application within 4 business days after the application is made, or (b) an adjudicator who accepts an adjudication application fails to determine the application within the time allowed by section 21 (3).

(2) In either of those circumstances, the claimant: (a) may withdraw the application, by notice in writing served on the adjudicator or authorised nominating authority to whom the application was made, and (b) may make a new adjudication application under section 17.

(3) Despite section 17 (3) (c), (d) and (e), a new adjudication application may be made at any time within 5 business days after the claimant becomes entitled to withdraw the previous adjudication application under subsection (2).

(4) This Division applies to a new application referred to in this section in the same way as it applies to an application under section 17. The parties' submissions 10 Mr Neal of counsel, for Cardinal, relied on the decision of Palmer J in Multiplex Constructions Pty Limited v Luikens [2003] NSWSC 1140 at [99] to [103]. In those paragraphs, Palmer J dealt with the consequences of quashing a determination (his Honour's decision was given before the basis on which determinations of adjudicators were reviewed was considered by the Court of Appeal in Brodyn Pty Limited v Davenport (2004) 61 NSWLR 421). In essence, Palmer J held that where a determination was quashed, s 26(1)(b) of the Act was engaged and the claimant would have five business days, from the date when the quashing order was made, to make a fresh application as authorised by s 26(2)(b). 11 Mr Neal submitted that his Honour's reasoning was correct, and that it applied to the present situation, where the first determination had been declared to be void. He pointed to the fact that what Palmer J said had been considered and applied in a number of cases:

(1) by Barrett J in Quasar Constructions v Demtech Pty Ltd [2004] NSWSC 116 at [38]; (2) by Bergin J in Emergency Services Superannuation Board v Sundercombe [2004] NSWSC 405 at [20] to [24]; and (3) by Nicholas J in John Holland Pty Ltd v Made Contracting Pty Limited [2008] NSWSC 374 at [32] and [44]. 12 Mr Neal submitted that, although the decisions in question were obiter, to the extent that they dealt with s 26, nonetheless they constituted reasoned consideration of the matter by Judges of this Court on at least four occasions, and that, being applicable, they should be followed. 13 On that basis, Mr Neal submitted, it was open to Cardinal to do as it had done: withdraw the first application once the first determination had been declared to be void and, within five business days thereafter, lodge a new adjudication application. 14 Mr McVay of counsel, who appeared for Hanave, submitted that the reasoning of Palmer J in Multiplex v Luikens and the cases that followed it, was incorrect, and should not be followed. Mr McVay submitted that s 26 applied, according to its terms, only in one or other of the circumstances spelt out in subs (1). Unless one of those circumstances arose as a matter of fact, Mr McVay submitted, then the section was not engaged. He submitted that Palmer J had, in effect, added a third paragraph to s 26(1): to the effect that "a determination is quashed by an order of a court of competent jurisdiction". 15 Mr McVay pointed to what he said were inconvenient consequences of the construction for which Cardinal contended. First, he submitted, the logical sequence of events that the Act proposed would be interrupted. He submitted, correctly, that at a level of some generality the Act contemplated that payment claims might be made from month to month, and that amounts overpaid in one month might be recovered, by a process of set-off, in a later month. In cases such as the present, he submitted, the opportunity to a respondent to recover an overpayment made in one month by reducing the amount payable in a following month would be lost. 16 More generally, Mr McVay submitted, the construction for which Cardinal contended would mean that a respondent in Hanave's position was restricted to relying, by way of "defence" of the payment claim, on matters that had been known to it when it served, and included in, its payment schedule. That introduced an air of artificiality, he submitted, because subsequent events that might have a very real impact on the quantification of the amount due in respect of the payment claim could not be taken into account. 17 In this case, Mr Neal acknowledged frankly that his client wanted to have a determination on the particular payment claim and payment schedule because of what it perceived to be limits on the ability of Hanave to raise fresh issues in any further adjudication, having regard to the content of its payment schedule and s 20(2B) of the Act. In substance, Mr Neal submitted, what his client was entitled to receive was a decision according to law on the issues raised by the particular payment claim and particular payment schedule. 18 I should note that Mr McVay did not submit that the decisions of Palmer J in Multiplex v Luikens, and in the cases that followed it, should not be followed simply because that case (and all the others, apart from John Holland) were concerned with the quashing of determinations, as opposed to declarations that determinations were void. He did, however, submit that the fact that the declaration had been made by consent (of Cardinal and Hanave, not involving the first adjudicator or the authorised nominating authority by whom he was nominated) was relevant, because the parties should be taken to have known the position declared before the declaration was made. Decision 19 The issue focuses attention on the words "fails to determine the application within the time allowed by section 21(3)" in s 26(1)(b). The words "determine the application" hark back to the task of the adjudicator stated in s 22(1), which is "to determine" the three matters specified in paragraphs (a) to (c) of that subsection. That is what the adjudicator is to do, and it is the adjudicator's decision on those three matters that constitutes his or her determination under the Act. See Chase Oyster Bar v Hamo Industries [2010] NSWCA 190 at [87] (Basten JA) and [192] (in my own judgment); noting too the reasons of Spigelman CJ at [36]. 20 The declaration made on 6 August 2010 established conclusively as between the parties to the action in which it was made (including the first adjudicator) that the first determination was void. The significance of such a declaration appears from what Hodgson JA said in Brodyn at several points:

(1) At [41], in discussing the consequences on a judgment obtained pursuant to s 25 of the Act of an order quashing the determination or declaring it to be void, his Honour pointed out that: If the determination was quashed or declared void, reliance on there being no determination to support the judgment would not be to challenge the adjudicator's adjudication within s 25(4); this wording assumes that there is a determination which is challenged. His Honour there suggests that where a determination is quashed or declared to be void, it has no existence. (2) At [52], his Honour pointed out that if a determination did not satisfy the basic and essential requirements for validity, "it will be void and not merely voidable".

(3) At [57] to [60], his Honour pointed out that failure to afford the requisite measure of natural justice made a determination void, and not merely voidable. By contrast, his Honour said at [60], a determination induced by fraud of the claimant in which the adjudicator was not involved would probably be voidable rather than void, and hence "liable to be set aside by proceedings of the kind appropriate to judgments obtained by fraud". 21 I do not think that this aspect of his Honour's analysis is in any way controverted by the later decision of the Court of Appeal in Chase. Of course, the decision in Chase establishes (contrary to what had been thought to have been established by Brodyn) that review of determinations is available under s 69 of the Supreme Court Act 1970 (NSW). It does not suggest that the grounds of review established by the decision in Brodyn are no longer applicable. On the contrary, it confirms that those grounds go to jurisdiction, and hence are relevant to the question of review under s 69. Further, there is nothing in the decision in Chase to suggest that the consequences of want of jurisdiction or denial of natural justice are other than as described by Hodgson JA in Brodyn. 22 In my view, it follows from his Honour's analysis that a void determination is no determination at all. It is in law a nullity. Further, because the purported determination is void, it is not the making of the declaration that avoids it. The declaration does no more than state, conclusively as between the parties to the suit, the legal status of the purported determination. The determination, being void, is of no effect and the declaration does no more than establish, as between the parties, that existing state of affairs. One may contrast the case where the determination is voidable. In that case, as Hodgson JA point out in Brodyn at [60], something more needs to be done so as to avoid it and thus deprive it of legal effect. 23 The distinction between a void determination and one that is merely voidable is that, in the former case, the determination has no legal existence and no legal effect, whereas in the latter case it has existence and effect until it is set aside. 24 Thus, where a determination is declared to be void, the legal consequence, which the parties bound by the declaration cannot controvert, is that there is and was no determination. In my view, it follows in those circumstances that the adjudicator did not "determine the application" for the purposes of s 26(1)(b) of the Act. I agree with the view of Nicholas J in John Holland at [32] that the expression "fails to determine" in s 26(1)(b) means, in effect, "does not determine." In circumstances where a declaration is declared to be void, there is thus no determination of the matters set out in s 22(1) of the Act. 25 I acknowledge the force of Mr McVay's submissions as to the inconvenient consequences that may follow. However, there are at least two points to be made. The first is the consideration that a claimant is entitled to have its payment claim dealt with according to law. By hypothesis, if there has been a binding judicial decision that the purported determination is void, that has not happened. The second matter is that what I have said fits comfortably within the words of s 26(1)(b). Contrary to one of Mr McVay's submissions, it does not involve, in effect, adding a new sub-paragraph to s 26(1). 26 I add that I am concerned only with the consequences of a declaration that a determination is void. Whether or not the same consequences would follow if a determination were quashed by an order under s 69 of the Supreme Court Act is a matter to be decided if and when it arises. That is the situation with which Palmer J, Barrett J and Bergin J dealt in the cases to which I have referred. 27 Thus, I think, the effect of the declaration made by consent in the earlier proceedings was that Cardinal became entitled to withdraw its application (s 26(2)(a)). But there is one more question to be considered under this heading. Could Cardinal, as well, make a new application (s 26(2)(b))? That raises the effect of the time limit set out in s 26(3). 28 On one view of things, time begins to run from the expiry of the period fixed by reference to s 21(3), because the purported determination produced within that period of time is, by hypothesis, no determination at all. But in many cases, that would mean that the right to make a fresh application would be lost before the claimant became aware that it possessed such a right. 29 Palmer J dealt with this in Multiplex v Luikens at [103]. His Honour concluded that the time for making a fresh application ran from the date when the quashing order was made, because that was when it was ascertained that s 26(1)(b) had been triggered. In effect, his Honour's view was that it was the quashing order that triggered the entitlement of which s 26(3) speaks. I set out [103]: (103) When an adjudication under the Act is quashed pursuant to judicial review, in my opinion the claimant becomes entitled to withdraw its adjudication application under s.26(2) upon and from the date upon which the quashing order is made because on that date it has been ascertained that the adjudicator did not determine the adjudication according to law within the time allowed by the Act, for the purposes of s.26(1)(b). The claimant may then, within five business days of the quashing order, make a new adjudication application under s.26(3). That subsection, in conjunction with s.17(3)(c), (d) and (e), makes it clear that the adjudication process does not start all over again from the beginning. Rather, there is an adjudication pursuant to a fresh adjudication application, of the dispute as defined by the original payment claim and the original payment schedule. The respondent may not, therefore, make any submissions to the new adjudicator in reliance upon reasons for withholding payment of the original payment claim which were not indicated in its original payment schedule, as provided in s.14(3) and s.20(2B). The new adjudicator appointed by the nominating authority under s.19 may, or may not, be the adjudicator who conducted the original adjudication, as considerations of convenience, saving of expense and perceptions of pre-judgment may require. In conducting the new adjudication, the adjudicator would, doubtless, have regard to the reasons of the Supreme Court for quashing the original determination. By this procedure, the saving in time and expense envisaged by the adjudication machinery of the Act may not be totally lost.

30 There are some problems in that analysis. The principal problem flows from the language of the section. Section 26(3) starts the clock running "after the claimant becomes entitled to withdraw the previous adjudication application under subsection (2)". As the introductory words of s 26(2) state, the claimant becomes entitled to withdraw "[i]n either of [the] circumstances" set out in section 26(1). Those circumstances are, respectively, failure to receive notice of acceptance within four business days, and failure to determine within the time allowed by s 21(3). 31 Thus, the right to withdraw (and hence the right to make a fresh application) arises on expiry of the relevant time limit. It is the expiry of that time limit, coupled with the non-occurrence of the event to which that time limit relates, that gives rise to the entitlement to withdraw. It is the accrual of that entitlement to withdraw that starts time running for the purposes of s 26(3). 32 As I have said, a declaration that a determination is void does not avoid the determination. It declares a state of affairs which in law exist already. Thus, a declaration that a determination is void does not give rise to any entitlement under s 26(3). At most, the state of affairs declared to exist has, as one consequence, that the entitlement under s 26(3) arose at the relevant time. 33 It would be different if the determination were voidable. In those circumstances, it would not become void (in the sense of ineffective in law), so as to trigger the operation of s 26(1)(b), until the date of the conclusive determination setting it aside. (I should make it clear that I am assuming, but not intending to decide, whether the quashing or setting aside of a merely voidable determination, as contemplated by Hodgson JA in Brodyn at [60], would fall within s 26(1)(b).) 34 Thus, the language of s 26 is against the position for which Mr Neal contended. Does that provisional conclusion lead to inconvenient consequences which should be averted, if possible, by a less literal approach to the statutory language? 35 The principal inconvenience is pointed out straight away by subs (2) itself. The entitlement to withdraw an application is not one which may only be exercised within a limited period of time. However, there is not much point in withdrawing the application unless a fresh application can be made based on the payment claim. But the effect of subs (3) is that there is a limited period of time, for the making of a fresh application, which is not in any way dependent, as a matter of chronology, on the time when the prior application is withdrawn. 36 Thus, the principal inconvenience is that if s 26(3) is construed so as to mean that the clock starts to run at the expiry of the time fixed by s 21(3) for determination of the prior application, in many cases a claimant would lose the right to have his payment claim dealt with according to law. In those circumstances, the right is lost through supervening events which may (and usually will) involve no fault on the part of the claimant. 37 Of course, that does not mean that the claimant is entirely without remedy. Except where the outer time limit fixed by s 13(4)(b) of the Act has expired, the claimant retains the right to serve a fresh payment claim. That claim may include amounts that were the subject of previous claims (s 13(6)). In the circumstances under consideration, there could be no estoppel or abuse of process, on the principles discussed in cases such as Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69 and Watpac Constructions v Austin Corp [2010] NSWSC 168. 38 It is correct to say that, if a fresh payment claim were served, the respondent would have a fresh, and unqualified, opportunity to raise further "defences" in its payment schedule. That, no doubt, is an inconvenience from the claimant's perspective. But the Act's object, to secure cash flow, does not to my mind require that plain words should be given a strained construction so as to enable the claimant to retain some perceived tactical advantage. 39 Further, and as Mr McVay submitted, inconvenient consequences may follow if, in the circumstances under consideration, a fresh application could be lodged under s 26(2)(b). In many cases, a significant period of time - usually several months at least - would elapse before a determination is declared to be void. By then, the parties may well know more that is relevant to the assessment of the payment claim. For example (as Mr McVay submitted was so in this case), a respondent may have become aware in the intervening time of the extent of defects as at the date of the payment claim (or the relevant reference date) and of the cost of rectification. It would be artificial, and in a sense unjust, to preclude it from relying on those matters. But it follows from Mr Neal's preferred construction, bearing in mind s 20(2B) of the Act, that this would follow; that "known knowns" as at the later date must be put out of mind. That artificiality speaks against acceptance of Mr Neal's preferred construction. 40 Of course, if the s 13(4)(b) time limit has expired, no further payment claim can be served. That means that the statutory right has in effect been lost, in circumstances where as I have pointed out there is usually no fault on the part of the claimant. That is a substantial inconvenience. But even then, the claimant is not without remedy. It may pursue its legal rights under the construction contract (s 32). 41 The reality, I think, is that the legislature did not contemplate that s 26 might be engaged because a purported determination was (and was declared to be) void, or a nullity. There is much to be said for the proposition that, in those circumstances, it is for the legislature to indicate its intention as to what should follow when the section is so engaged, not for the courts first to guess what the intention is (or might have been), and secondly to give effect to that presumed intention by a forced construction of the words actually used. 42 I acknowledge, as I have said, that there is an element of absurdity in giving the right to withdraw an application, but not giving a right that is, in all relevant respects, concomitant with the right to withdraw: to make a fresh application. But it seems to me that, where the right to make a fresh application has not been linked to the timing of the withdrawal of the previous application, and where the fresh application can only be made within a statutorily specified window which has got nothing to do with the withdrawal of the previous application, then the language of the statute compels no other conclusion. 43 For those reasons, I conclude that the second adjudication application was a nullity, because it was made outside the time permitted by s 26(3) of the Act. 44 I note that there was no submission to the effect that the time limit fixed by s 26(3) was in effect discretionary. In my view, the structure of the Act, and of s 26 in particular, suggests otherwise. The right to make a fresh application is, as I have said, one that exists only within a specified period of time. Once that period expires, the right expires with it. 45 It follows that the second adjudicator lacked jurisdiction to hear and determine the second adjudication application, and that his purported determination is a nullity. 46 I repeat that I am dealing with the consequences of a declaration that the first determination was void, not with the situation discussed by Palmer J in Multiplex v Luikens at [103]. Whether or not his Honour's reasoning, as to the accrual of the entitlement to make a fresh adjudication application, should be applied in a case where a determination has been quashed should await the event that requires it to be considered. 47 I should also note that, although Nicholas J referred to Multiplex v Luikens in John Holland at [32], his Honour was not concerned with a situation where there had been a prior determination that had been declared to be void. The question for Nicholas J was whether, in the absence of one or other of the events described in s 26(1) of the Act, a claimant could withdraw an adjudication application. Conclusions and orders 48 It followed that there should be a declaration as sought by prayer 1 of the amended summons, and an order as sought by prayer 4A, but that the remainder of the amended summons should be dismissed. The declaration and order are to be made because the second adjudicator had no jurisdiction to deal with the second adjudication application, not because his determination is void for the reasons for which Cardinal contended. 49 In those circumstances, I do not propose to deal with the remaining issues, which were posited on the proposition that Cardinal retained the right to press its payment claim in yet another adjudication application (assuming, of course, that the reasons why Cardinal submitted the second adjudication was void were upheld). 50 The effect of what I have said is that the first defendant has been successful and the usual costs consequences should follow. 51 I make the following orders:

(1) Declaration in accordance with prayer 1 of the amended summons. (2) Order in terms of prayer 4A of the amended summons. (3) Order that the amended summons otherwise be dismissed. (4) Order the plaintiff to pay the first defendant's costs; otherwise no order as to costs. (5) Order that the exhibits be retained for 28 days and dealt with thereafter in accordance with the rules. (Counsel addressed) 52 I reserve liberty to the plaintiff to move within 7 days after receipt of the revised version of my reasons for those reasons to be reconsidered, in the event that the plaintiff is advised that it has been denied the opportunity to put submissions on jurisdiction because of the way the matter was dealt with in the course of argument.

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