Ceerose Pty Ltd v A-Civil Aust Pty Ltd

Supreme Court of NSW|2022-12-02|Before: Richmond J

1; [2018] HCA 4 Quickway Constructions Pty Ltd v Hick [2017] NSWSC 830 Rhomberg Rail Australia Pty Ltd v Concrete Evidence Pty Ltd [2019] NSWSC 755 Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (2019) 99 NSWLR 317; [2019] NSWCA 11 Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2008] NSWSC 399 Watpac Constructions (NSW) Pty Ltd v Austin Corp Pty Ltd [2010] NSWSC 168 Category: Principal judgment Parties: Ceerose Pty Ltd (Plaintiff) A-Civil Aust Pty Ltd (First Defendant) Paul Roberts (Second Defendant) ABC Dispute Resolution Service (Third Defendant) Representation: Counsel: S Robertson SC with D Hume (Plaintiff) L Gor (Defendant)

Solicitors: Salim Rutherford Lawyers (Plaintiff) M&A Lawyers (First Defendant) File Number(s): 2022/307139

JUDGMENT

In these proceedings the plaintiff (Ceerose) challenges the validity of an adjudication determination made by the second defendant (Adjudicator) under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) on 27 September 2022 (the Determination) on the basis that the Adjudicator denied Ceerose procedural fairness in respect of his conclusion that Ceerose was obliged to pay the first defendant (A-Civil) an amount of $115,577.79 in respect of retention monies.
The issues in the proceedings are first, whether there was a denial of procedural fairness by reason of the Adjudicator reaching that conclusion on a basis not advanced by either party; second, whether any such denial of procedural fairness was "material" in the relevant sense; and third, if both of those questions are answered in the affirmative, whether Ceerose is liable to contribute to the payment of 50% of the Adjudicator's fees and expenses. It is not in dispute that if the first and second questions are answered in the affirmative, an order should be made under s 32A of the Act in respect of the Determination relating to the claim for the retention of monies.

The Contract

Ceerose and A-Civil entered into a subcontract for certain works at 163 - 173 McEvoy Street, Alexandria on 2 March 2022 (the Contract). Ceerose is the main contractor and A-Civil is the subcontractor. A-Civil had entered into a head contract with the principal, Alexa Development Pty Ltd. The Contract required A-Civil to perform excavation work for a subcontract sum of $2,840,210. It incorporated the General Conditions contained in the "Subcontract conditions for design and construct" (AS4903-2000). Relevant clauses in the General Conditions are set out below.
Clause 5 provides: 5. Security 5.1 Provision Security shall be provided in accordance with Item 19 or 20. All delivered security, other than cash or retention monies, shall be transferred in escrow. Except for any security provided in respect of unfixed plant or material, the total value of all security held by the Main Contractor shall not exceed: (a) Prior to practical completion of the head contract - 5% of the subcontract sum; and (b) After practical completion of the head contract - 2.5% of the subcontract sum. 5.2 Recourse A party may have recourse to security: (a) Where the amount due to that party under the Subcontract or otherwise remains unpaid after the time for payment; and (b) In respect of any Claim to payment (liquidated or otherwise) that party may have against the other under the Subcontract or otherwise, On the giving of written notice to the other party. 5.3 Change of security At any time, a party providing retention monies or cash security may substitute, with the written consent of the other in its absolute discretion, form of security. To the extent that another form of security is provided, the other party shall not deduct, and shall promptly release and return, retention moneys and cash security. 5.4 Reduction and release Upon the issue of the certificate of practical completion under the head contract, a party's entitlement to security (other than in Item 19(e)) shall be reduced by the percentage or amount in Item 19(f) or 20(d) as applicable, and the reduction shall be released and returned within 28 days to the other party. A party's entitlement otherwise to security shall cease 28 days after final certificate is issued under the head contract. Upon a party's entitlement to security ceasing, that party shall release and return forthwith the security to the other party. 5.5 Trusts and interest Except where held by a government department or agency or a municipal, public or statutory authority, any portion of security which is cash or retention monies, shall be held in trust for the parties in accordance with the terms of this agreement.
Clause 1 defines "security" to include cash or retention monies and "claim" to mean "any Claim, action, demand or damages … including but not limited to at law, in tort (including negligence), under statute, in equity including quantum merit [sic] or restitution based on unjust enrichment, for rectification, frustration or for any other legal or equitable remedy".
In relation to cl 5.1, Item 19 is the relevant provision which provides that the security will take the form of retention monies in the amount of 10% reducing to a limit of 5% of the adjusted subcontract sum prior to practical completion of the head contract.
The retention monies are amounts payable to A-Civil for construction work but are held back by Ceerose as security until the certificate of practical completion under the head contract occurs when 50% of the retention sum is required to be returned to A-Civil within 28 days and the balance is returnable to A-Civil 28 days after the final certificate is issued under the head contract.
Clause 39 deals with the consequences of default, and provides relevantly: 39.1 Preservation of other rights If a party breaches (including repudiates) the Subcontract, nothing in this clause shall prejudice the right of the other party to recover damages or exercise any other right or remedy. 39.2 Subcontractor's default If the Subcontractor commits a substantial breach of the Subcontract, the Main Contractor may give the Subcontractor a written notice to show cause. Substantial breaches include, but are not limited to: (a) Failing to: i. Perform properly the Subcontractor's design obligations; ii. Provide security; iii. Provide evidence of insurance; iv. Comply with clause 34.1 or 31; v. Comply with clause 29.3; vi. Comply with a direction of the Subcontract Superintendent; or vii. Use the materials or standards of work required by the Subcontract; viii. Comply with any clause of this contract. (b) Wrongful suspension of work; (c) Substantial departure from a construction program without reasonable cause; (d) Failing to proceed with due expedition and without delay; and (e) In respect of clause 38, knowingly providing documentary evidence containing an untrue statement. 39.3 Main Contractor's notice to show cause A notice under subclause 39.12 shall state: (a) That it is a notice under clause 39 of these Subcontract Conditions; (b) The alleged substantial breach; (c) That the Subcontractor is required to show cause in writing why the Main Contractor should not exercise a right referred to in subclause 39.4; (d) The date and time by which the Subcontractor must show cause (which shall not be less than 5 business days after the notice is received by the Subcontractor); and (e) The place at which cause must be shown. 39.4 Main Contractor's rights If the Subcontractor fails to show reasonable cause by the stated date and time, the Main Contractor may by written notice to the Subcontractor: (a) Take out of the Subcontractor's hands the whole or part of the work remaining to be completed and suspend payment until it becomes due and payable pursuant to clause 39.6; or (b) Terminate the Subcontract. … 39.10 Termination If the Subcontract is terminated pursuant to subclause 39.4(b) … the parties' remedies, rights and liabilities shall be the same as they would have been under the law governing the Subcontract had the defaulting party repudiated the Subcontract and the other party elected to treat the Subcontract as at an end and recover damages. …

The dispute

On 1 July 2022, Ceerose terminated the Contract and A-Civil left the site.
On 29 July 2022, A-Civil issued its 8th and final payment claim which sought $790,947.74 (excluding GST) which included a claim for the release of the retention monies of $115,577.79 (excluding GST).
On 12 August 2022, Ceerose provided a payment schedule to A-Civil which claimed that the amount owing under the payment claim by Ceerose was nil. In relation to the retention monies, the payment schedule put two alternative (and independent) grounds for why the retention money was not payable to A‑Civil. The first was that A-Civil had not satisfied the preconditions to making a claim for the retention monies set out in cl 5.4. After setting out cl 5.4 of the contract, the payment schedule states: 17. A Civil has not complied with its obligations under the Subcontract including without limitation: (a) A Civil has not complied with directions made by Ceerose in accordance with the Subcontract. (b) A Civil has abandoned the works and refused to complete the works despite repeated requests by Ceerose. (c) A Civil has not completed the works as required by the Subcontract. (d) A Civil has not satisfied the definition of 'Practical Completion' under the Subcontract and frankly could not do so as it was terminated due to its repudiation of the Subcontract. (e) As a result of A Civil's refusal to perform works, Ceerose has had to engage others to perform the works required to be performed by A Civil under the Subcontract. 18. Amongst other non-compliances, at the time that A Civil abandoned the site, the works were not complete. Ceerose has incurred costs, expenses and loss and damage significantly in excess of the retention sum including in engaging others to complete its works under the Subcontract. 19. In these circumstances, where A Civil have not complied with all of its obligations under the Subcontract and has not satisfied the contractual requirement for release of retention which include, but are not limited, to matters set out above, A Civil has no entitlement to make a claim for retention.
The second, and independent basis, was that Ceerose had exercised its right under cl 5.2 to have recourse to the retention monies to satisfy, in part, its claim for amounts owing by A-Civil for breach. In relation to this argument, the payment schedule, after setting out cl 5.2, states: 23. Ceerose is entitled to an amount in excess of $3,221,374.40 from A Civil resulting from deductions and loss and damage suffered by Ceerose due to A Civil's acts, default and omissions. 24. Ceerose applies the monies held on retention against the amount of $3,221.374.40 owed by A Civil to Ceerose. On this basis, Ceerose assesses the Purported Payment Claim as $NIL. Notwithstanding the recourse to retention monies, monies remain owed by A Civil to Ceerose.
On 26 August 2022, A-Civil made an application for adjudication of its payment claim under s 17 of the Act. In the adjudication application A-Civil responded to Ceerose's contention that the precondition to the entitlement to claim the retention money under cl 5.4 was not satisfied as follows: B. PRECONDITION TO ENTITLEMENT TO CLAIM RETENTION (54) In response to paragraph 17 of the PS, A-Civil submits as follows: (a) A-Civil has complied with the directions and instructions made by Ceerose in accordance with the Subcontract dated 2 March 2022, with respect to the excavation services undertaken on site. (b) Further, A-Civil has replied to Ceerose's Show Cause Notice issued on 7 June 2022 [TAB D1, pp. 734 to 738] (Refer: TAB - A-Civil Reply on GCOR-435). A-Civil's response outlined that the cause of the delays were a result of Ceerose's poor management of the site, which hindered the commencement of A-Civil's bulk excavation works. (55) In response to paragraph 18 of the PS, A-Civil submits as follows: (a) On 9 June 2022, A-Civil had a meeting with Ceerose's Construction Manager, Roy Massoud, whereby it was discussed and made clear that A-Civil would acquire full control of the works, as outlined in the executed subcontract. (b) On 10 June 2022, the Construction Manager Roy Massoud and Project Manager Jonathan Bayeh of Ceerose, had a meeting at A-Civil's office. As an outcome of the meeting, A-Civil and Ceerose entered into a Commercial Agreement which was emailed by Roy Massoud to A-Civil representatives on 11 June 2022. This agreement between Ceerose and A-Civil provided that A-Civil will have, full control of the site and are to ensure that progress onsite is accelerated [TAB D2, pp. 739 to 741] (Refer: Email ALX2 - A-Civil & Ceerose Commercial Agreement). (c) As a result of the site meeting, A-Civil organized an additional 6 excavator floats to the site on 14 June 2022 and 15 June 2022 [TAB D3, pp. 742 to 747] (Refer: Email - RE ALX2 - Float Approval - Tue 14 06 22). (56) In response to paragraph 19 of the PS, A-Civil submits as follows: (a) A-Civil did not abandon the site and complied with it's obligations under the Subcontract, as indicated in the progressive site photos of June 2022 [TAB D4, pp.748 to 771] (Refer: TAB- Site Photos June'22). (b) A Notice of Delay was submitted by A-Civil on 1 July 2022, requesting an Extension Of Time ("EOT") for the delay caused by inclement weather in reaching practical completion. [TAB D5, pp.772 to 778] (Refer: Rain Delay 22 - Alexandria). (c) The photograph located in paragraph 41 of the PS indicates that A-Civil had five excavator's and a screener working on the site on 29 June 2022 [TAB D6, pp.779 to 780) (Refer: TAB - CEEROSE Item 41 Photo). (d) The Project Manager of Ceerose sent Mr Nasser Matta of A-Civil an email on 1 July 2020 [TAB D7, pp. 781 to 788] (Refer: TAB - ALX2 - A-Civil - Termination Letter) attaching the contract termination letter, without providing any reasons as to why the project was terminated. (57) Ceerose deprived A-Civil of the opportunity to carry out its obligations under the Contract by wrongfully terminating the Contract. A-Civil request the Adjudicator to determine that A-Civil is entitled to payment of retention moneys.
In relation to Ceerose's contention that it had exercised its right to have recourse to the retention monies under cl 5.2, A-Civil responded in the adjudication application as follows: C. RECOURSE TO RETENTION (58) In response to paragraph 23 of the PS, A-Civil submits that the termination of the Contract by Ceerose was intentional and wrong for the reasons set out in these submissions.
On 6 September 2022, Ceerose provided its adjudication response to the Adjudicator under s 20 of the Act. In the adjudication response at [19], Ceerose summarised the issues in dispute as follows: 19. The issues in dispute are summarised as follows: (a) Contract works - the Claimant purports to maintain 7 items of contract works which are in the aggregate of $565,522.95 (plus GST). (b) Variations - the Claimant maintains 2 purported variations which are in the aggregate of $28,840 (plus GST). Without limitation to all of the reasons for withholding payment, the 2 purported variations may be summarised as items which fall squarely within the Claimant's scope of works under the Subcontract and/or are a claim for damages and not matters that can be determined under the Act. (c) Retention - the Claimant claims its retention in the sum of $115,577.79. The Claimant has no entitlement to claim its retention under the Subcontract. If the Subcontract was terminated unlawfully (which is denied) as asserted by the Claimant, the claim for retention is a claim for damages and a claim that cannot be made under the Act. There is no mechanism under the Subcontract which permits the release of retention for purported unlawful termination. (d) Deductions - the Respondent applies deductions in the amount of $2,990,656.90 (excl GST).
In relation to the retention issue, Ceerose's adjudication response included the following: Retention 160. The Claimant purports to be entitled to retention money notwithstanding no entitlement under the Subcontract. 161. The Claimant is not owed any amount by the Respondent and in fact the Claimant is indebted to the Respondent. There is no basis to claim retention monies under the contract or under the Act. 162. Further, as the Respondent is entitled under the Subcontract, the Respondent has already had recourse to the retention money and further and alternatively any claim for retention moneys is a claim for damages and cannot be made under the Act. 163. The Respondent repeats and relies on paragraphs 14 to 24, and 121 to 125 of its Payment Schedule. 164. On any reasonable assessment of the value of works carried out to the date the Subcontract was terminated, the Claimant has been significantly overpaid and has no entitlement to any retention money. 165. As stated in the Payment Schedule, the Claimant has clearly decided to 'roll the dice' and see if it can get back its retention money, in circumstances where it has no entitlement. The Adjudicator should not be encouraging this behaviour. 166. At paragraphs [54] and [58] of the Claimant's Adjudication Application, the Claimant asserts that the Respondent wrongfully terminated the Subcontract and therefore depriving the Claimant to carry out its obligations under the Subcontract. If the Subcontract was wrongfully terminated (which is denied), that is a claim for damages and not a claim that can be brought under the Act. It is well settled that a claim for general damages for breach of contract is impermissible under the Act. … 175. There is no right or entitlement under the Subcontract for the Claimant to claim its retention. In accordance with section 10 of the Act, the Adjudicator must have regard to the terms of the Subcontract and the terms of the Subcontract do not give rise to an entitlement for the Claimant to make this claim.
Ceerose's adjudication response at [161] reiterates that A-Civil has no right to release of the retention monies under cl 5.4 and at [162] reiterates that Ceerose's right to have recourse to the retention monies under cl 5.2 has been exercised.
On 27 September 2022, the Adjudicator made a determination that the adjudicated amount was $167,970.87, that the date on which the amount became payable was 16 August 2022 and that the Adjudicator's fees were to be apportioned between the parties equally. The adjudicated amount included the claim for retention of $115,577.79. It is necessary to set out in a little detail the reasoning process of the Adjudicator.
Under the heading "Background and Preliminary issues" the Adjudicator set out some background regarding the termination of the Contract, the respective positions of the parties and (at [9] to [10]) his views as to the rights of the parties under the Contract and the Act: 1. This application arises from payment claim number 8 for $780,934.81 (including GST) served by the Claimant on the Respondent on 29 July 2022 and payment schedule number 8 for -$3,543,511.84 (including GST) dated 12 August 2022. 2. In summary, the parties' respective positions are: a. According to the Claimant, the Respondent wrongfully terminated the Contract and that the Claimant's rights to progress payment is not affected by termination [Adjudication Application, [48] and [49]]. b. The Claimant also contends that the Respondent is not entitled to set off any of its claimed amounts because the amounts are unliquidated and not an amount due but amounts claimed to be due and that in the alternative, the respondent's set offs are damages and are not able to be considered as part of my adjudication decision [Adjudication Application, [51] - [53]]. c. According to the Respondent, the Claimant has not established an entitlement to the amounts claimed for variations because, amongst other things, the claims do not describe the work, the works are outside the Claimant's Subcontract scope, the Subcontract terms have not been complied with and a breakdown of the costs or reasonableness of costs has not been provided [Adjudication Response, [8]]. 3. The details of the parties respective positions are set out below. 4. The Respondent issued an undated show cause notice by email on 27 May 2022 under Clause 39 - Default or insolvency of the Subcontract stating that the Respondent was in substantial breach of the following Clauses: a. Clause 31 - failure to have adequate resources on site and to comply with a Superintendent direction in respect to adequacy of resources; b. Clause 32 - departure from the construction programme durations without reasonable cause; and c. Clause 34.1 - failure to comply with a Superintendent direction in respect to a delay to the Works under Subcontract (WUS). 5. The show cause notice required the Claimant to respond by 5pm on 7 June 2022. 6. The Claimant responded to the show cause notice on 7 June 2022 stating: a. It always provided the required resources; b. Despite its recommendations it was "pushed" by the Respondent to remove wet materials from site which resulted in returned loads; c. It had already notified the Respondent that its CSM wall contractor had cross-contaminated the dam materials; d. Following an instruction from the environmental consultant, EI Australia, not to remove stockpile materials off site until it received a classification report, it is still awaiting a report. e. Various works could not be completed due to the Respondent's subcontractors; f. It intends to back charge the Respondent for the major delay in the shoring works which hindered commencement, at full capacity, of the bulk excavation works; and g. The Respondent caused it significant cost and delays and it formally rejects the claims in the show cause letter. 7. The Respondent terminated the Subcontract on 1 July 2022 on the alternate bases below: a. Firstly, the claimant's conduct is repudiatory and despite repeated warnings evinced a clear intention to no longer be bound by the terms of the Subcontract; b. Secondly, if it is found that the above bases are invalid the Claimant has substantially breached the terms of the Subcontract; c. Thirdly, if it is found that the above bases are invalid the Claimant has failed to show reasonable cause why it should not exercise a right under Clause 39.4 - Main Contractor's rights; and d. Fourthly, if it is found that the above bases are invalid it terminates under Clause 40B - Termination for Convenience. 8. The Respondent also stated: a. In accordance with terms of the Subcontract, it is entitled to set off and/or deduct amounts otherwise payable to the Claimant; and b. The Claimant should remove all plant, equipment and materials immediately, but not later than 12pm on 4 July 2022. 9. Based on the above, I consider that the parties respective rights regarding the payment claim under the Subcontract and the Act are: a. Under section 13(1C) of the Act, the Claimant is entitled to serve a payment claim on and from the date of termination; b. Under Clause 39.4 - Main Contractor's rights: if the Subcontractor fails to show reasonable cause, the Main Contractor may by written notice: 39.4(a) - Take out of the Subcontractor's hands the whole or part of the work remaining to be completed and suspend payment until it becomes due and payable pursuant to clause 39.6; or 39.4(b) - Terminate the Subcontract. c. Under Clause 39.5 - Take out: the Main Contractor shall complete the works using materials, equipment and other things intended for WUS but it does not appear that the Respondent has taken possession of such. The Clause also requires the Subcontract Superintendent to keep records of the cost of completing the works taken out. d. Clause 39.6 - Adjustment of completion of work taken out: requires that when work taken out of the Subcontractor's hands has been completed, the Subcontract Superintendent shall assess the cost incurred and certify the difference between the cost and the amount that would otherwise have been paid to the Subcontractor had it completed the works. e. Under Clause 39.10 - Termination, if the Subcontract is terminated pursuant to subclause 39.4(b), the parties' remedies, rights and liabilities shall be the same as they would have been under the law governing the Subcontract had the defaulting party repudiated the Subcontract and the other party elected to treat the Subcontract as at an end and recover damages. f. Clause 40B - Termination for Convenience of the Main Contractor, if the Mian (sic) Contractor terminates the Subcontract pursuant to this Clause, the Subcontractor is entitled to be paid: 40B(a)(i) the value of work properly performed and executed prior to the date of termination; and 40B(a)(ii) the cost of materials reasonably ordered for the work. 10. Accordingly, if the Subcontract is terminated, pursuant to subclause 39.4(b), payment shall be per the Subcontract.
Later at [44] the Adjudicator set out the four disputed amounts which he summarised in the following table: Item Claimed Amount Scheduled Amount Difference Contract Works $565,522.95 -$230,728.50 -$796,251.45 Variations $28,840.00 $0.00 -$28,840.00 Claim for retention $115,577.79 $0.00 -$115,577.79 Deductions $0.00 -$2,990,645.90 -$2,990,645.90 Total (GST exclusive) $709,940.74 -$3,221,374.40 -$3,931,315.14 GST $70,994.07 -$322,137.44 -$393,131.51 Total (GST inclusive) $780,934.81 -$3,543,511.84 -$4,324,446.65

The Determination then deals with each of the four items successively. It is necessary to refer only to what was said about the last two items, being the claim for retention and deductions.
The reasons for allowing the claim for the retention monies in full are as follows: Claim for Retention Release 107. In the payment claim, the Claimant claims $115,577.79 for release of its retention. 108. In the payment schedule, the Respondent assesses this item as $0.00 for the following reasons: a. There is no right or entitlement under the Subcontract; b. The Claimant has not satisfied the Subcontract pre-conditions to an entitlement to claim retention money; c. It has an express right under the Subcontract to have recourse to retention money; d. The Claimant is indebted to the Respondent "for an amount enormously in excess of the retention money"; and e. When the Subcontract was terminated, the Claimant did not accrue any right to retention money and cannot satisfy the contractual rights to claim its retention. 109. In the adjudication application, the Claimant states: a. It did not abandon the site and complied with its obligations under the Subcontract; b. A Notice of Delay was submitted by A-Civil on 1 July 2022, requesting an Extension of Time for the delay caused by inclement weather in reaching practical completion; c. The Respondent sent it the termination letter on 1 July 2022 without providing any reasons as to why the project was terminated; and d. The Respondent deprived it of the opportunity to carry out its obligations under the Contract by wrongfully terminating the Contract which was intentional. 110. In the adjudication response, the Respondent states: a. There is no basis to claim retention monies under the contract or under the Act; b. The Respondent is entitled under the Subcontract to have recourse to the retention money and alternatively, any claim for retention monies is a claim for damages and cannot be made under the Act; c. It repeats and relies on the reasons in its Payment Schedule; d. The payment claim is not a claim for construction work or related goods or services and is therefore not a payment claim for the purposes of the Act; and e. There is no right or entitlement under the Subcontract for the Claimant to claim its retention. In accordance with section 10 of the Act, the Adjudicator must have regard to the terms of the Subcontract and the terms of the Subcontract do not give rise to an entitlement for the Claimant to make this claim. 111. Pursuant to Clause 5.4, the Subcontractor's entitlement to security is: a. reduced by 50% upon practical completion of the head contract with the reduction released within 28 days; and b. the balance released 28 days after the final certificate is issued under the head contract. 112. Clause 5.4 of the Subcontract links the Subcontractor's entitlement to security to practical completion and issue of the final certificate under the head contract which I find is void for contracting out of the Act. Notwithstanding, the Subcontract has been terminated and, therefore, the Claimant is entitled to the release of its security. 113. Therefore, I value the claim for retention at $115,577.79.
I note that no reference is made in this reasoning (or elsewhere in the Determination) to the fact that Ceerose had purported to exercise its right under cl 5.2 to have recourse to the retention monies.
Starting at [114], the Determination then deals with the deductions claimed by Ceerose in the payment schedule and concludes that only one item was made out, being a deduction of $6,000 in respect of a fine received from the Council in respect of failure to maintain adequate environmental controls.
In relation to the deductions claimed by Ceerose, the largest item is $2,694,506 for the cost to complete the works under the Contract. The Adjudicator concluded that A-Civil could not be "back charged" for the cost to complete because Ceerose had not deducted the value of subcontract works remaining to calculate the "extra over cost of completing the works" and "had not incurred the cost to complete which is based on a quotation and estimates". There is no link expressed between this conclusion and the conclusion regarding the claim for the retention monies. In particular, the Adjudicator does not say that the reason for disallowing the claim for the retention monies is that Ceerose has not made out its claim for the cost to complete the works under the Contract.
At [154] of the Determination, the Adjudicator set out a summary of his determination of the adjudicated amount which was as follows: Adjudicated Amount Contract works $38,288 Variations $4,835.00 Retention $115,577.79 Deductions -$6,000.00 $152,700.79 GST $15,270.08 Total Amount $167,970.87

At [163] of the Determination, the Adjudicator dealt with fees and expenses, stating: 163. Pursuant to section 29(3) of the Act, I determine that the parties shall be liable to contribute to the Adjudicator's and AMA's fees and expenses in the following proportions: Claimant: 50% Respondent: 50%
On 28 September 2022, the Adjudicator issued an invoice for his fees and expenses which was for the amount of $37,582.45 (incl GST). A-Civil subsequently paid the full amount of the invoice and claimed from Ceerose its proportion of $18,791.22, which it has not paid.
On 11 October 2022, an adjudication certificate was issued in the amount of $189,095.53. Judgment was entered in the District Court in the sum of $189,297.53. On 12 October 2022, a garnishee order was made in the District Court.
On 14 October 2022, Ceerose commenced these proceedings before the Duty Judge. Upon Ceerose giving the usual undertaking as to damages and an undertaking to the Court to pay the judgment sum into Court, Stevenson J made orders restraining the bank from acting on the garnishee order and restraining A-Civil from enforcing the judgment, such restraints to expire at 5:00pm on 21 October 2022.
On 17 October 2022, Ceerose paid the amount of judgment sum into Court (which included the amount of $18,791.22 in respect of Ceerose's share of the Adjudicator's fees and expenses).
On 2 November 2022, Rees J made an order that the amount paid into Court was to be paid out to A-Civil: see Ceerose Pty Ltd v A-Civil Aust Pty Ltd [2022] NSWSC 1487 (Ceerose (No 1)).

What did the Adjudicator decide on the retention monies claim?

Central to this dispute is the identification of the basis for the Adjudicator's decision that A-Civil was entitled to the return of the retention monies. The relevant part of the Determination is [112] set out at [22] above which must be read having regard to the Adjudicator's reasons as a whole and not "minutely and finely with an eye keenly attuned for the perception of error": Futurepower Developments Pty Ltd v TJ & RF Fordham Pty Ltd [2017] NSWSC 232 at [11]‑[12]. In my view it is clear that the first sentence of [112] of the Determination is not the basis of the decision regarding the retention monies claim. This follows from the word "notwithstanding" at the beginning of the second sentence. Rather, the Adjudicator decided that A-Civil was entitled to the retention monies because the Contract had been terminated. This follows from the word "therefore" in the second sentence read in light of what the Adjudicator had said earlier at [10] that "if the Subcontract is terminated, pursuant to sub-clause 39.4(b), payment shall be per the Subcontract".

The alleged denial of procedural fairness

When Ceerose commenced these proceedings, it alleged that the denial of procedural fairness comprised the Adjudicator's conclusion in [112] that cl 5.4 of the Contract was an invalid "pay when paid" provision, as that was not a conclusion sought by either party in the adjudication and the Adjudicator gave no advance notice that he was considering reaching that conclusion. At the commencement of the hearing I gave leave to Ceerose to file an Amended Technology and Construction List Statement in which it now contends that: 18. The basis of the Adjudicator's decision in respect of A-Civil's claim for retention was: (a) The Adjudicator's conclusion that cl 5.4 of the contract was void (Determination at [112]); (b) Alternatively, the Adjudicator's further conclusion that there was a right to release of the retention upon the termination of the contract (Determination at [112]); 19. In respect of the conclusions described in par 18 above: (a) Neither was a conclusion sought by either party in the adjudication; (b) The Adjudicator gave no advance notice that he was considering reaching that conclusion. (c) Each conclusion was reached in denial of procedural fairness.
As noted in Ceerose No. 1 at [22], at the time Rees J considered the matter, Ceerose's allegation was that the Adjudicator failed to afford it procedural fairness in respect of his conclusion that cl 5.4 of the Contract was an invalid "pay when paid" provision. For the reasons her Honour explained in the judgment at [36]-[41], the focus of Ceerose's procedural fairness attack was on the first sentence of [112] of the Determination and her Honour considered that Ceerose's prospects of success on that contention were "modest". No doubt recognising the strength of her Honour's preliminary view, Ceerose focused in the final hearing before me on the second sentence of [112]. I note that this is quite different from the approach taken by Ceerose when the matter was before Rees J on an interlocutory basis in Ceerose (No 1), and her Honour did not address the question whether there had been a denial of procedural fairness if [112] of the Determination is approached in the manner referred to at [33] above.

Statutory scheme

In order to deal with the issues which arise, it is necessary to set out briefly the scheme of the Act. Sections 8 and 9 confer a statutory entitlement to progress payments on a person who under a construction contract has undertaken to carry out construction work or to supply related goods and services, in the following terms: 8 Right to progress payments A person who, under a construction contract, has undertaken to carry out construction work or to supply related goods and services is entitled to receive a progress payment. 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.
While s 9(a) states that the amount of the progress payment is to be calculated in accordance with the terms of the contract, this is subject to s 12 which makes a "pay when paid" provision ineffective. Section 12 provides: 12 Effect of "pay when paid" provisions (1) A pay when paid provision of a construction contract has no effect in relation to any payment for construction work carried out or undertaken to be carried out (or for related goods and services supplied or undertaken to be supplied) under the contract. (2) In this section - money owing, in relation to a construction contract, means money owing for construction work carried out or undertaken to be carried out (or for related goods and services supplied or undertaken to be supplied) under the contract. pay when paid provision of a construction contract means a provision of the contract - (a) that makes the liability of one party (the first party) to pay money owing to another party (the second party) contingent on payment to the first party by a further party (the third party) of the whole or any part of that money, or (b) that makes the due date for payment of money owing by the first party to the second party dependent on the date on which payment of the whole or any part of that money is made to the first party by the third party, or (c) that otherwise makes the liability to pay money owing, or the due date for payment of money owing, contingent or dependent on the operation of another contract.
Section 13 authorises a person who is or claims to be entitled to a progress payment (referred to as the "claimant") to serve a payment claim on the person who, under the construction contract, is or may be liable to make the payment. The expression "payment claim" is defined to mean a claim referred to in s 13. Sections 13(2) and (3) deal with what a payment claim must contain, in the following terms: (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) must state that it is made under this Act. (3) The claimed amount may include any amount - … (b) that is held under the construction contract by the respondent and that the claimant claims is due for release.
Section 13(3)(b) is directed to retention monies which the claimant asserts are due for release. It may be noted that the Act contemplates in s 12A that construction contracts often contain provisions for the head contractor to retain money out of money payable to a subcontractor as security for the performance of the obligations of the subcontractor under the contract: s 12A(5). (There is a regime established in Division 2 of the Building and Construction Industry Security Payment Regulation 2020 (NSW) to regulate such arrangements, but it was not in dispute that it has no application to the Contract.)
Section 13(4) provides that a payment claim may be served only within the period determined by or in accordance with the terms of the construction contract, or 12 months after the construction work to which the claim was last carried out (or the related goods and services to which the claim relates were last supplied), whichever is the later.
Under s 13(5) and (6) a claimant may only serve one payment claim in any given month, but this does not prevent a claimant from including in a payment claim an amount that is the subject of a previous payment claim.
Under s 14, a person on whom a payment claim is served (referred to as the "respondent") may reply to the claim by providing a payment schedule to the claimant. The expression "payment schedule" is defined to mean a schedule referred to in s 14. The requirements for a payment schedule are set out in s 14(2) and (3) which provide: (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.
If a claimant serves a payment claim on the respondent, but the respondent does not provide a payment schedule to the claimant within the time period specified in s 14(4)(b), the respondent becomes liable to pay the claimant the claimed amount on the due date for the progress payment to which the payment claim relates: s 14(4).
If the respondent provides a payment schedule disputing the payment claim or, alternatively, fails to provide a payment schedule and fails to pay the amount due in respect of the payment claim under s 14(4), the claimant may apply for adjudication of the claim under s 17. This involves making a written adjudication application in accordance with s 17(2) and s 17(3).
Sections 19, 20 and 21 deal with the appointment of an adjudicator, the provision by the respondent of an adjudication response and the procedure for determination of the adjudication application. While the adjudicator is required to determine the adjudication application within the tight time limits stated in s 21(3), s 21(4) confers a discretion on the adjudicator to, among other things, request further submissions from the parties and can obtain an extension of the time limit for determination of the adjudication application under s 21(3) if both parties agree. The discretion under s 21(4) to call for further submissions serves the purpose of requiring an adjudicator minded to make a determination on a ground for which neither party has contended to give the parties notice of that intention so that they may put submissions on it: Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82; [2017] NSWCA 151 at [108] (DDI).
Under s 22(1), the adjudicator is required to determine the amount of the progress payment to be paid by the respondent to the claimant (referred to as the "adjudicated amount"), the date on which such amount became or becomes payable and the rate of interest payable on that amount. The mandatory considerations which the adjudicator is required to take into account are set out in s 22(2) which provides: (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.
The adjudicator's determination must be in writing, include the reasons for the determination (unless the parties do not require reasons) and be served by the adjudicator on the claimant and the respondent: s 22(3).
By virtue of s 23, the adjudicated amount is payable on the relevant date referred to in s 23(1). If the respondent fails to pay the whole or any part of the adjudicated amount in accordance with s 23, the claimant may request the authorised nominating authority to whom the adjudication application was made (here the third defendant) to provide an adjudication certificate under s 24, which it may then file in a court of competent jurisdiction giving rise to a judgment debt under s 25.
Section 29, which deals with the payment of the adjudicator's fees and expenses, provides relevantly: 29 Adjudicator's fees (1) An adjudicator is entitled to be paid for adjudicating an adjudication application - (a) such amount, by way of fees and expenses, as is agreed between the adjudicator and the parties to the adjudication, or (b) if no such amount is agreed, such amount, by way of fees and expenses, as is reasonable having regard to the work done and expenses incurred by the adjudicator. (2) The claimant and respondent are jointly and severally liable to pay the adjudicator's fees and expenses. (3) The claimant and respondent are each liable to contribute to the payment of the adjudicator's fees and expenses in equal proportions or in such proportions as the adjudicator may determine. (4) An adjudicator is not entitled to be paid any fees or expenses in connection with the adjudication of an adjudication application if he or she fails to make a decision on the application (otherwise than because the application is withdrawn or the dispute between the claimant and respondent is resolved) within the time allowed by section 21(3).
Where part of the adjudicator's determination is affected by jurisdictional error, s 32A gives the court power to sever the affected part, in the following terms: 32A Finding of jurisdictional error in adjudicator's determination (1) If, in any proceedings before the Supreme Court relating to any matter arising under a construction contract, the Court makes a finding that a jurisdictional error has occurred in relation to an adjudicator's determination under this Part, the Court may make an order setting aside the whole or any part of the determination. (2) Without limiting subsection (1), the Supreme Court may identify the part of the adjudicator's determination affected by jurisdictional error and set aside that part only, while confirming the part of the determination that is not affected by jurisdictional error.
Section 34 prevents the parties to a construction contract from contracting out of the scheme in the Act. It provides: 34 No contracting out (1) The provisions of this Act have effect despite any provision to the contrary in any contract. (2) A provision of any agreement (whether in writing or not) - (a) under which the operation of this Act is, or is purported to be, excluded, modified or restricted (or that has the effect of excluding, modifying or restricting the operation of this Act), or (b) that may reasonably be construed as an attempt to deter a person from taking action under this Act, is void.
The rights, duties and remedies arising under a construction contract are preserved by s 32 (and, in particular, in proceedings in a court or tribunal relating to a matter arising under the construction contract, allowance is to be given in any award for an amount paid under the Act). Hence it can be said that the Act provides a statutory entitlement for interim payments with the final determination of the party's entitlements being determined by proceedings brought in a court or tribunal to enforce the contract: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4 at [38]-[39] (Probuild).

Relevant principles

It is not in dispute that the adjudication determination will only be subject to judicial review if it is affected by jurisdictional error: Probuild at [2], [29].
It is well-established that an adjudicator is obliged to afford procedural fairness, and a denial of procedural fairness which is material will give rise to jurisdictional error: see e.g. DDI at [99]; Pinnacle Construction Group Pty Ltd v Dimension Joinery & Interiors Pty Ltd [2018] NSWSC 894 at [40]-[41]; Quickway Constructions Pty Ltd v Hick [2017] NSWSC 830 at [29]-[32].
It is also well established that there is a denial of procedural fairness if an adjudicator decides the case on a basis different from that advocated by the parties, without notifying them of his or her intention to do so and permitting them to be heard: e.g. Acciona Infrastructure Australia Pty Ltd v Holcim (Australia) Pty Ltd [2020] NSWSC 1330 at [53] and cases there cited; Equa Building Services Pty Ltd v A&H Floors 2 Doors Australia Pty Ltd [2022] NSWSC 152 at [49]-[55]; Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129; (2006) 22 BCL 285 at [135].
The content of the requirement of procedural fairness is determined by reference to the scheme to the Act, including that (a) the time frames imposed on the parties and the adjudicator are designed to create a "pay now, argue later" system, and (b) the Act allows for the speedy but interim resolution of disputes concerning progress payments to preserve cash flow of subcontractors without prejudice to the common law rights of the parties which can be determined in the normal manner: DDI at [102]-[103].
While the payment claim, payment schedule, adjudication application and adjudication response are not pleadings, they do serve to define the scope of the issues in dispute which the adjudicator is to determine: Brolton Group Pty Ltd v Hanson Construction Materials Pty Ltd [2020] NSWCA 63 at [55]; DDI at [110].
In light of the matters referred to in [56] above, there will not be a denial of procedural fairness of the type referred to at [55] above where the parties could reasonably have anticipated that the adjudicator would rely upon the issue or principle concerned in the course of making his or her decision: JKC Australia LNG Pty Ltd v Inpex Operations Australia Pty Ltd (2018) 41 NTLR 149; [2018] NTCA 6 at [39]-[41]; Rhomberg Rail Australia Pty Ltd v Concrete Evidence Pty Ltd [2019] NSWSC 755 at [17]. Put another way, there will be no denial of procedural fairness of this kind if the relevant issue was "on the table": DDI at [131], [144].
Consistently with general principle, a denial of procedural fairness by an adjudicator gives rise to jurisdictional error only if it is "material": McNab Building Services Pty Ltd v Demex Pty Ltd (No 2) [2022] NSWSC 1496 at [7]; Acciona Infrastructure Australia Pty Ltd v Chess Engineering Pty Ltd [2020] NSWSC 1423 at [41]. "Materiality" in this context refers to a realistic possibility, as distinct from a probability, that the decision could have been different as a matter of reasonable conjecture but for the denial of procedural fairness: see Nathanson v Minister for Home Affairs [2022] HCA 26; 96 ALJR 737 at [1]; MZAPC v Minister for Immigration and Border Protection [2021] HCA 17; 95 ALJR 441 at [31]-[41], [50]-[53], [60]; Minister for Immigration and Border Protection v SZMTA (2019) 264 CLR 421; [2019] HCA 3 at [45]-[50], [68]-[69].
In Nathanson, Kiefel CJ, Keane and Gleeson JJ said (footnotes omitted): [32] As explained in MZAPC, the materiality of a breach requires consideration of "the basal factual question of how the decision that was in fact made was in fact made". This question is determined by proof of historical facts on the balance of probabilities. Then, it is necessary to consider whether the decision that was in fact made could have been different had the relevant condition been complied with "as a matter of reasonable conjecture within the parameters set by the historical facts that have been determined". The burden falls on the plaintiff to prove "on the balance of probabilities the historical facts necessary to enable the court to be satisfied of the realistic possibility that a different decision could have been made had there been compliance with that condition". [33] There will generally be a realistic possibility that a decision-making process could have resulted in a different outcome if a party was denied an opportunity to present evidence or make submissions on an issue that required consideration. The standard of "reasonable conjecture" is undemanding. It recognises that a fundamental purpose of affording procedural fairness is to afford an opportunity to raise relevant matters which are not already obvious, or not liable to be advanced by the apparently persuasive "story" of the opposing party. Where a Tribunal errs by denying a party a reasonable opportunity to present their case, "reasonable conjecture" does not require demonstration of how that party might have taken advantage of that lost opportunity. Nothing said in MZAPC denies this. To the contrary, the standard of "reasonable conjecture", correctly applied, proceeds on assumptions that are derived from the rationale for procedural fairness, namely that, if given a fair opportunity to present their case, a party will take advantage of that opportunity and that, by doing so, the party could achieve a favourable outcome.
The concept of materiality reflects the fact that the concern of the law in the context of procedural fairness is to avoid practical injustice, and hence the focus is on whether there were submissions that could properly have been put that, as a matter of reality and not mere speculation, might have affected the determination: Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2008] NSWSC 399 at [52]; Brolton at [66]-[67].

Submissions of the parties

Ceerose submitted that each sentence of [112] of the Determination, either separately or in combination, involved a denial of procedural fairness. In relation to the first sentence, neither party had contended that cl 5.4 of the Contract was void for contracting out of the Act, or on any other basis and the Adjudicator gave no notice to the parties that he might find that cl 5.4 was void.
As to the second sentence of [112], Ceerose submitted that neither party contended that there was an entitlement to release of retention monies on termination of the contract. In particular, A-Civil contended that it was entitled to return of the retention monies because Ceerose had wrongfully terminated the contract.
As to whether the denial of procedural fairness was material, Ceerose submitted that had it been notified of the potential for a finding in terms of the first sentence of [112], it could have contended and the Adjudicator might realistically have accepted, that cl 5.4 was not void under s 34 of the Act or an ineffective pay when paid provision within the meaning of s 12 of the Act; there was a plausible contention that the last sentence of cl 5.4 was severable even if the first two paragraphs of cl 5.4 were otherwise void or ineffective under s 12; even if cl 5.4 was (in whole or in part) void, it did not affect the validity of the operation of the balance of cl 5 which remained a scheme governing the rights in relation to the provision and recourse to security; there was no occasion to discern some implied duty to release retention upon termination given the terms of cl 5 read as a whole.
Ceerose submitted as to the second sentence of [112] that had Ceerose been notified of the basis for release was a per se entitlement to release upon termination Ceerose could have contended and the Adjudicator might realistically have accepted that there was no occasion to discern an implied duty to release upon termination in the face of the provision made in cl 5; in particular, there was no duty to release upon termination in the event that Ceerose had a pre-existing bona fide claim to recourse and had in fact exercised it.
A-Civil submitted that there was no lack of procedural fairness. First, the first sentence of [112] was a clear reference to s 34 of the Act given the reference to "void for contracting out of the Act". In contrast, s 12 merely makes a provision ineffective where it satisfies the requirements of that section. Second, the Adjudicator did not decide that A-Civil was entitled to the retention monies on the basis that cl 5.4 was void under s 34. This was apparent from the word "notwithstanding" at the beginning of the second sentence which indicated that the conclusion regarding cl 5.4 in the first sentence was merely "an aside". Third, on a fair reading of the Determination read as a whole, the Adjudicator concluded that because he had rejected Ceerose's claim that it was entitled to deductions in excess of the retention sum, he had determined that Ceerose had no entitlement to retain the retention sum. Fourth, Ceerose should have reasonably anticipated that the Adjudicator would take into account s 34 in considering Ceerose's claim that cl 5.4 applied. Paragraph 57 of the adjudication application puts squarely "on the table" that Ceerose claimed to be entitled to the retention monies in the context of a termination. Fifth, any denial of natural justice was immaterial because had the Adjudicator called for submissions, there was a simple and conclusive response which was that the provisions of cl 5 were ineffective due to either or both of s 12 and s 34 of the Act.

Consideration

In determining what issues were "on the table" in the adjudication, it is necessary to have regard to the terms of the payment claim, payment schedule, the adjudication application and the adjudication response: Brolton at [57]. It is clear from the adjudication application that A-Civil claimed to be entitled to the retention monies because Ceerose had wrongfully terminated the Contract: see adjudication application at [57] and [58]. This statement of the basis for its claim needs to be read in the context of what A-Civil knew was Ceerose's position, which was stated clearly in the payment schedule as being that there was no right to the retention monies for two alternative and independent reasons: first, because cl 5.4 applied to restrict release of the retention monies until the certificates referred to in that clause had been issued, and second, that it had exercised its right to have recourse to the retention monies under cl 5.2. A-Civil did not respond to these contentions by a contention that neither cl 5.2 nor cl 5.4 applied because there had been a termination of the Contract. Rather, A-Civil responded by contending that these provisions did not apply because Ceerose's termination was wrongful (i.e. not permitted by the contract).
This was not the basis upon which the Adjudicator determined the claim in respect of the retention monies. As stated at [33] above, I accept A-Civil's submission that the reason for the Adjudicator's conclusion is to be found in the second sentence of [112]. The issue raised by this sentence is whether cl 5 ceases to apply following termination of the Contract for whatever reason, so that from that time there is nothing to prevent A-Civil from claiming the retention monies. In my view, it cannot be said that Ceerose should have reasonably anticipated that this issue was raised by the payment claim or the adjudication application. Ceerose was not given prior notice that this was an issue that it had to deal with, and it was entitled to be given such notice and an opportunity to make submissions on it.
In my view, the denial of that opportunity was material in the relevant sense. As submitted by Ceerose, it could have put to the Adjudicator that cl 5.2 was a complete answer to the issue raised by the second sentence of [112]. First, there was no express term in the Contract that the right to have recourse to the retention monies under cl 5.2 ceases on termination of the contract and there is no basis for an implication of a term to that effect. Consequently, cl 5.2 (and the remainder of cl 5) survived termination of the Contract: Perkins (WA) Pty Ltd v Weston (No 2) [2022] WASCA 111 at [34]; Galileo Miranda Nominees Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 1157 at [263]-[268]. Second, cl 5.2 permits Ceerose to have recourse to security "in respect of any Claim to payment (liquid or otherwise) that it may have against A-Civil under the subcontract or otherwise." The word "Claim" is defined broadly and does not require that the relevant amount claimed be due or deemed payable. Ceerose had exercised the right conferred by cl 5.2 in its payment schedule (of which it had given written notice as required by cl 5.2). Third, there is a respectable argument that s 34 does not apply to cl 5.2 on the basis that it does not, and does not purport to, exclude modify or restrict the operation of the Act because the determination of the amount due in respect of a payment claim under s 8 and s 9 of the Act would require consideration of the provisions of the contract which entitle Ceerose to make deductions and set offs against monies due to A-Civil for claims which Ceerose has against A-Civil, including cl 5.2: Watpac Constructions (NSW) Pty Ltd v Austin Corp Pty Ltd [2010] NSWSC 168 at [169]‑[173]. Fourth, the Adjudicator did not record in [1] to [10], or [108] and [110] of the Determination that Ceerose had exercised its right to have recourse to the retention monies under cl 5.2. In circumstances where Ceerose had exercised its right to have recourse to the retention monies, the submission now being contemplated is one which the Adjudicator had not previously addressed in the Determination and it cannot, therefore, be assumed that he would reject it.
For these reasons, in my opinion, there is a realistic possibility that the Adjudicator's decision on the retention monies claim could have been different but for the denial of procedural fairness.

Adjudicator's fees and expenses

The parties were in agreement that if the Court concluded that the Determination was affected by jurisdictional error in relation to the retention monies, an order should be made under s 32A to set aside only part of the Determination. The parties wish to be heard on the precise form of orders to achieve that result.
However, there is an issue as to whether Ceerose is liable for a proportion of the Adjudicator's fees and expenses where an order is made under s 32A to set aside part of the Determination which affects the overall amount payable by Ceerose to A-Civil.

Submissions of the parties

Ceerose submitted that under s 29(4) of the Act, the Adjudicator's entitlement to be paid his fees and expenses is excluded if he "fails to make a decision on the application … within the time allowed by s 21(3)". It submitted that if an order is made under s 32A to set part of the Determination aside by reason of jurisdictional error, s 29(4) will apply to preclude Ceerose from having any liability for the fees and expenses, because: 1. A material denial of procedural fairness in the making of a determination gives rise to jurisdictional error. 2. An adjudication determination affected by a jurisdictional error is void ab initio: New South Wales Netball Association Ltd v Probuild Construction (Aust) Pty Ltd [2015] NSWSC 1339 at [49]; Parrwood Pty Ltd v Trinity Constructions (Aust) Pty Ltd [2020] NSWCA 172 at [37]-[43]. That reflects the conventional administrative law position: e.g. Plaintiff S157/2002 v Commonwealth of Australia (2003) 211 CLR 476; [2003] HCA 2 at [76]. 3. Section 32A confers a discretionary power prospectively to confirm, and revivify, parts of an otherwise invalid determination. There is no "self-executing" severance. Rather, severance is conditional on the making of an order by the Court under s 32A, and any such order operates prospectively and therefore will not change the historical fact that there was no adjudication determination within the relevant time for the purposes of s 29(4) of the Act.
In addition, Ceerose submits that there should be no confirmation under s 32A(2) of the part of the Determination addressing the Adjudicator's fees. The Adjudicator decided that fees should be borne 50/50: see Determination [163]. If the claim for retention had been rejected, the amount payable to A-Civil would have been $40,835.30 out of a claimed amount of $780.934.81. That would have been close to total failure of the claim. There is a realistic possibility - and, in fact, a probability - that the Adjudicator would not have decided to split the fees 50/50 in the event that he had not reached the conclusion he did on retention. At the least, A-Civil has not established to the contrary. The Court can more confidently reach a conclusion in Ceerose's favour on this point in circumstances where the Adjudicator gave no reasons at all for the conclusion at [163].
A-Civil submits that if Ceerose succeeded in establish jurisdictional error as to the part of the Determination concerning the retention monies, Ceerose's attack on the Adjudicator's decision to apportion fees and expenses equally should be rejected for essentially three reasons. First, if successful, Ceerose's challenge is confined to the jurisdictional error of procedural fairness. There is nothing to suggest that the decision with respect to fees and expenses is infected with the same (or any) error. For this reason, the Court ought to set aside only so much of the determination as relates to the retention sum, leaving the fees and expenses part of the determination unaffected.
Second, the adjudicator is not required to give reasons for his decision under s 29(3) regarding liability for fees and expenses. If the Court forms the view that [163] of the Determination is part of the determination which should be set aside, this still leaves the statutory default position, under s 29(2) and s 29(3), of contribution by the parties in equal proportions. This is a statutory right. A-Civil seeks its statutory entitlement and asks for an order that Ceerose pay it $18,791.22, or to avoid circularity, to deduct this sum from the amount to be remitted.
Third, prerogative relief with respect to jurisdictional error is discretionary. The Court has the power to condition certiorari relief on Ceerose bearing half of the fees and expenses because the decision with respect to fees and expenses is unaffected by any jurisdictional error (Rhomberg at [25]; Acciona Infrastructure Australia Pty Ltd v Chess Engineering Pty Ltd [2020] NSWSC 1423 at [207]‑[219] per Henry J; Acciona Infrastructure Australia Pty Ltd v Chess Engineering Pty Ltd (No 2) [2020] NSWSC 1788 at [58]-[64] per Henry J). Section 32A is a remedial provision. It is does not seek to eradicate or limit the Court's discretion to condition the grant of certiorari relief.

Consideration

It is true, as Ceerose submitted, that a decision affected by jurisdictional error is treated for the purposes of the law pursuant to which it was made as "no decision at all" and therefore a nullity: e.g. Minister for Immigration & Multicultural Affairs v Bhardwaj (2002) 209 CLR 597; [2002] HCA 11 at [51]. However, it remains a decision in fact which may yet have some status in the law: see Hossain v Minister for Immigration and Border Protection (2018) 264 CLR 123; [2018] HCA 34 at [24]; Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (2019) 99 NSWLR 317; [2019] NSWCA 11 at [28]-[29], [175]-[176].
Further, it has also been recognised that a decision involving jurisdictional error will be "no decision at all" unless the statutory provisions under which it is made require a contrary conclusion. In Jadwan Pty Ltd v Secretary, Department of Health and Aged Care (2003) 145 FCR 1; [2003] FCAFC 288 at [42], Gray and Downes JJ said: In our view, Bhardwaj cannot be taken to be authority for a universal proposition that jurisdictional error on the part of a decision-maker will lead to the decision having no consequences whatsoever. All that it shows is that the legal and factual consequences of the decision, if any, will depend upon the particular statute. As McHugh, Gummow, Kirby and Hayne JJ said in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 388 - 389: 'An act done in breach of a condition regulating the exercise of a statutory power is not necessarily invalid and of no effect. Whether it is depends upon whether there can be discerned a legislative purpose to invalidate any act that fails to comply with the condition. The existence of the purpose is ascertained by reference to the language of the statute, its subject matter and objects, and the consequences for the parties of holding void every act done in breach of the condition' [42].
Hence, it is necessary to look at the scheme of the Act to see if the legislative intention can be discerned that an adjudication determination is to be treated as having any, and if so what, effect for the purposes of the Act even though it is affected by jurisdictional error: Jadwan at [43].
In my view, s 32A does indicate the extent to which a determination affected by jurisdictional error is to have legal effect for the purposes of the Act. Under s 32A(1), the Court may set aside the whole or any part of the determination. The inference from this is that the part of the determination which is not set aside is to be regarded as always having statutory force. To read s 32A(1) as giving to the part of the determination which survives statutory force only from the time of the order quashing the remainder would involve reading into s 32A(1) words which are not there.
Section 32A(2), which is expressed not to limit the operation of s 32A(1), goes on to give the Court power to identify the part of the determination affected by jurisdictional error and set aside that part only, while confirming the part not affected by jurisdictional error. The ordinary meaning of "confirm" is "to make certain or sure; corroborate; verify" (Macquarie Dictionary). To "confirm" something normally indicates that what is confirmed is already in existence: Abigroup Contractors Pty Ltd v ABB Service Pty Ltd [2004] NSWCA 181; (2005) 21 BCL 12 at [56]. That again suggests that the part which is confirmed is to be treated as legally effective from the time the determination was originally made.
This construction is consistent with the purpose of s 32A which is to allow the part of a determination which is not affected by jurisdictional error to be severed under s 32A, so that it is only the part which is affected by jurisdictional error which is set aside as invalid. This is confirmed by the Second Reading Speech on the introduction of the Building and Construction Industry Security of Payment Amendment Bill 2018 (NSW), in which the Minister said: New powers will enable the Supreme Court to sever part of an adjudicator's determination affected by jurisdictional error and confirm the balance to be enforceable. In Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSWSC 1140, the New South Wales Supreme Court held that jurisdictional error invalidates the whole of an adjudicator's determination. This is the case even where the error is confined to one part of the determination and does not affect the remaining part or parts. This outcome unfairly and unnecessarily deprives a party of an interim payment with adverse consequences for cash flow. It also serves to incentivise a party to challenge unfavourable determinations. The purpose of section 32A is to address this by making clear that decisions can be set aside in part and as such are theoretically severable where jurisdictional error has infected a part but not the whole of the decision.
I note also that the cases referred to at [77] above recognised that the Court could in its discretion when granting certiorari relief before the enactment of s 32A, sever the part of a determination affected by jurisdictional error and thereby overcome the problem identified in the Second Reading Speech. In light of this, it is not a surprising outcome that s 32A, properly construed, operates to merely sever the part of the determination affected by judicial error and leave the remainder which was not affected by jurisdictional error as legally effective from the time the determination was made. Any doubts expressed in those cases about the correctness of this approach have been overcome by s 32A.
Accordingly, in my opinion, the exercise of the power under s 32A to quash the part of the Determination that relates to the retention monies will not affect the obligation of the parties to pay the Adjudicator's fees and expenses as to 50% each. I do not consider that [163] of the Determination is affected by jurisdictional error but if I am wrong in that view, so that [163] of the Determination should be quashed, the position of the parties would be the same due to the obligation created by s 29(3) on the parties to pay the Adjudicator's fees and expenses equally. Importantly, the Court does not have power in judicial review proceedings to alter the parties' liability to contribute to payment of the Adjudicator's fees and expenses equally under s 29(3) in the absence of a different decision by the Adjudicator.

Conclusion

For the above reasons, in my opinion, the Determination was affected by jurisdictional error in relation to the treatment of the retention monies claim and should be set aside, in part, to that extent. I will not make an order setting aside [163] of the Determination.
I will hear the parties on the form of the order to be made under s 32A and on costs. I will stand the matter over for directions to set a timetable for the making of submissions on costs and to allow the parties to agree the form of the order under s 32A or, if agreement cannot be reached, short submissions as to the form of the order for which each contends.

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: 06 April 2023

Building and Construction Industry Security Payment Regulation 2020(NSW)

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