HEADNOTE
[This headnote is not to be read as part of the judgment]
The appellant/cross-respondent, Ceerose Pty Ltd, is a building contractor undertaking two developments, one at York Street, Sydney and another in Elizabeth Bay. The respondent/cross-appellant, A-Civil Aust Pty Ltd (A-Civil), was Ceerose's subcontractor for both those developments.
In May 2022, A-Civil served Ceerose with payment claims under the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act") in relation to each development. Ceerose disputed some of the claims and set out its reasons for that dispute in a payment schedule. A-Civil applied for adjudication under the Act in each case and Ceerose filed an adjudication response. The second respondent, Mr Tuhtan, was appointed adjudicator in each case. For the York Street dispute, Mr Tuhtan determined that Ceerose was obliged to pay A-Civil $2,045,453.97, and for the Elizabeth Bay dispute, $349,324.36.
Ceerose brought proceedings in the Supreme Court, seeking to set aside both determinations for jurisdictional error. The primary judge held that both determinations were affected by jurisdictional error but, applying s 32A of the Act, set aside only those parts of the determinations said to be affected by jurisdictional error. The primary judge also set aside the adjudicator's apportionment of costs of the adjudications. Ceerose appealed, arguing further aspects of the determinations should have been set aside. A-Civil brought a cross-appeal against one finding of jurisdictional error in relation to the York St development and challenged the setting aside of the adjudicator's order apportioning costs of the adjudication.
The issues before the Court were:
(i) What is the scope of an adjudicator's "duty to consider" under the Act?
(ii) Under the Act, does an adjudicator fall into jurisdictional error if he or she fails to investigate the "true merits" of each sum claimed or the "true construction" of the contract?
(iii) Where the adjudicator's award of a particular sum was affected by error, did the primary judge err in using the power in s 32A(2) of the Act to sever and set aside only the portion of that sum reflecting the dispute between the parties, rather than setting aside the affected sum in full, including what both parties agreed was payable?
(iv) Did the primary judge err in finding that the power in s 32A(1) or (2) of the Act is to set aside the decision of the adjudicator, and not the reasons for that decision?
(v) Did the primary judge err in failing to find jurisdictional error in the adjudicator's determination that no liquidated damages were payable for either the York St or Elizabeth Bay development?
(vi) Did the primary judge err in failing to find that no fees are payable to an adjudicator whose determination is affected by jurisdictional error?
(vii) On the cross-appeal, did the primary judge err in finding jurisdictional error in the adjudicator's determination that A-Civil was not time-barred from part of its claim by cl 36.6 of the York St contract?
(viii) On the cross-appeal, did the primary judge err in failing to find that an adjudicator's decision on apportioning costs cannot be affected by error and is therefore beyond review?
The Court (Payne JA, Ward ACJ and Basten AJA agreeing) held, dismissing the appeal and allowing the cross-appeal:
On issue (i)
(1) Section 22(2) of the Act lists the "only" matters the adjudicator is "to consider". Consideration is a private mental process. Some of that process may be revealed in the adjudicator's written decision, but failure to refer to a matter does not necessarily show the adjudicator failed to consider it: [51], [62]-[68].
(2) It is an impermissible gloss on the language of the Act for a party challenging a determination to assert the mental process undertaken by the adjudicator was not "active", "intellectual" or "genuine". What is required is identification of a basis to conclude that consideration did not occur: [54]-[62], [175].
Plaintiff M1/2021 v Minister for Home Affairs (2022) 96 ALJR 497; [2022] HCA 17 applied; Carrascalao v Minister for Immigration and Border Protection (2017) 252 FCR 352; [2017] FCAFC 107 referred to
(3) Under s 22(2), the adjudicator must "consider" only those submissions that are "duly made", not submissions improperly made, or submissions that are irrelevant: [52]-[53].
(4) Only in a rare case will it be possible to infer that an adjudicator has failed to consider a matter within s 22(2). For example, failure to refer to a submission on a centrally important matter, clearly articulated and based on uncontested facts, may demonstrate a failure to consider that matter: [69], [81]-[82].
Goodwin Street Developments Pty Ltd v DSD Builders Pty Ltd (2018) 98 NSWLR 712; [2018] NSWCA 276 cited
On issue (ii)
(5) An adjudicator is under no obligation to investigate the "true merits" of the payment claim advanced by a party. The adjudicator's task is to decide the dispute between the parties, on the limited matters the Act requires the adjudicator to consider and the limited material the Act allows the parties to submit for determination: [76]-[77], [79].
Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWCA 211 at [12] applied
(6) In particular, s 20(2B) limits the respondent in an adjudication to resisting payment only on those grounds already included in their payment schedule: [76]-[77]. If a respondent gives no reason for resisting payment, it is not an error to award the payment claimed without further investigation as there is no relevant dispute for the adjudicator to consider: [82]. The same applies if the adjudicator rejects a respondent's reasons for resisting payment: [75]. Dicta of Hodgson JA in this Court and first instance cases that suggest or hold otherwise are, to that extent, incorrect and should no longer be followed: [73]-[75], [83]-[86].
Coordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd (2005) 63 NSWLR 385; [2005] NSWCA 228 at [50]-[53] considered; Pacific General Securities Ltd v Soliman & Sons (2006) 196 FLR 388; [2006] NSWSC 13; Acciona Infrastructure Australia Pty Ltd v Chess Engineering Pty Ltd [2020] NSWSC 1423; Laing O'Rourke Australia Construction Pty Ltd v Monford Group Pty Ltd [2018] NSWSC 491 overruled
On issue (iii)
(7) It is implicit that a judge exercising the power in s 32A(2) must identify which parts of an adjudicator's determination are to be confirmed, just as the parts to be severed and set aside as affected by jurisdictional error must be identified: [94].
(8) The adjudicator's task is to decide the parties' dispute, not investigate the "true merits" of the claim: [101]-[102]. If the parties' dispute concerned only part of a claimed payment and if the respondent did not deny that the rest of that payment was due, then any jurisdictional error by the adjudicator affected only the disputed component of the payment: [101]-[102].
(9) Therefore, when applying s 32A(2) to a decision affected by jurisdictional error, the correct approach is to sever and set aside those parts of the decision concerning whatever component of payment was in dispute. The decision should be confirmed insofar as it also awarded components of payment that the respondent agreed or did not dispute were payable: [96]-[98], [104].
On issue (iv)
(10) The "decision" referred to be set aside or confirmed under s 32A(1) or (2) is the adjudicator's decision about the amount of the progress payment to be paid, the date upon which it becomes due and payable, and the rate of interest. Section 32A does not require that the adjudicator's reasons be set aside: [111]-[112].
Acciona Agua Australia Pty Ltd v Monadelphous Engineering Pty Ltd (2020) 4 QR 410; [2020] QSC 133 cited
(11) If an adjudication determination is set aside under s 32A, the reasons for the decision will be those of the Court read, to the extent necessary, with the adjudicator's reasons: [112].
On issue (v)
(12) On the York Street liquidated damages claim, the adjudicator was under no obligation to consider reasons Ceerose gave for resisting payment where those reasons were not in its payment schedule: [150]. The adjudicator was correct in reaching the conclusions he did: [150]-[153].
(13) On the Elizabeth Bay liquidated damages claim, the primary judge was correct that the adjudicator's reasons showed he considered Ceerose's submission about the effect of a contractual marking: [163].
On issue (vi)
(14) An adjudication determination affected by legal error is not necessarily void for all purposes. The fact that the adjudication decision was made, even if invalidly, remains a fact, which can create legal consequences: [129]-[133].
Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liq) (2019) 99 NSWLR 317; [2019] NSWCA 11 applied; New South Wales v Kable (2013) 252 CLR 118; [2013] HCA 26 cited
(15) One of the consequences of performing an adjudication is the obligation to pay costs of the adjudication imposed by s 29(1)-(3) of the Act. The adjudicator's right to be paid is based on a fact. The adjudicator is entitled to be paid for adjudicating an adjudication application whether or not the adjudication was invalid: [132], [134]-[139].
Cardinal Project Services Pty Ltd v Hanave Pty Ltd (2011) 81 NSWLR 716; [2011] NSWCA 399 distinguished
On issue (vii)
(16) The primary judge erred in finding that the adjudicator did not consider Ceerose's submission about the purported "time bar" in cl 36.6: [175]-[179]. The adjudicator was not required to wade through the voluminous material presented to him by Ceerose to try and find a basis for Ceerose's contention which was not a substantial, clearly articulated argument relying upon established facts presented by Ceerose in its payment schedule: [179]-[180].
On issue (viii)
(17) The primary judge was correct to find that an adjudicator's decision on apportioning costs, including his fees and expenses, could in principle be affected by jurisdictional error: [187].
(18) However, on York St, following A-Civil's success on its cross-appeal, the remaining jurisdictional errors produced a 5-6% reduction in A-Civil's monetary success. It could not be inferred from that variation of success that the adjudicator, acting reasonably, would have altered the apportionment of costs: [188].
(19) On Elizabeth St, the only jurisdictional error produced a 1% reduction in A-Civil's monetary success. It could not be inferred from that variation of success that the adjudicator, acting reasonably, would have altered the apportionment of costs: [190].