Clyde Bergemann v Varley Power

Supreme Court of NSW|2011-09-09|Before: McDougall J

Judgment 1When the Building and Construction Industry Security of Payment Bill was reintroduced into Parliament on 8 September 1999, the Minister made it clear that the underlying intention was to assist "small subcontractors, such as bricklayers, carpenters, electricians and plumbers" to get paid for their work. The Minister pointed out (Hansard, Legislative Assembly, 8 September 1999, at 103) that many of those small subcontractors "cannot survive financially" without prompt payment, and that this had "severe consequences to themselves and their families". Against that background, it may be doubted whether the legislature contemplated, when it enacted what is now the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act), that its benefits would extend to payment claims of about $3.955 million, relating to major infrastructure projects, as is the case in these proceedings. 2The plaintiff (Bergemann) contracted to design, build, operate and maintain a fly ash collection and disposal plant at Eraring Power Station. Bergemann subcontracted part of the works to the first defendant (Varley), by written agreement (the subcontract), made on about 8 July 2008, when Bergemann sent its purchase order for the subcontract works to Varley. 3On 6 April 2011, following completion of works under the subcontract (but, at least according to the adjudicator to whom I shall refer in a moment, within 12 months of completion of those works), Varley served the payment claim that is the subject of these proceedings. As I have said, it claimed an amount of about $3.955 million. On 20 April 2011, Bergemann provided a payment schedule which specified ("without prejudice") a scheduled amount of $300,000.00. 4The dispute thereby constituted was referred to adjudication, by adjudication application dated 9 May 2011. The second defendant (the adjudicator) was nominated as adjudicator, and accepted that nomination. Bergemann served an adjudication response on 18 May 2011. The adjudicator, who had been given an extension of time to produce his determination, gave a determination dated 7 June 2011. He determined, among other things, that Varley was entitled to a progress payment of (in round figures) $2.5 million.

The issues 5Bergemann submitted that the adjudicator fell into jurisdictional error, because (to adapt the language of s 9(a) of the Act) he did not determine the amount of the progress payment to which Varley was entitled in accordance with the terms of the subcontract. This happened, Bergemann submitted, because the adjudicator misconstrued cls 41.1A and 41.2A of the subcontract, and failed to conclude (as, it submits, he should have done) that the latter clause operated to bar Varley's claim absolutely. In those circumstances, Bergemann submitted, the adjudicator had no jurisdiction to award Varley an amount that exceeded its contractual entitlement. 6Thus, the first issue for decision is whether an adjudicator acts in excess of jurisdiction by determining that an applicant is entitled to a progress payment that exceeds the amount calculated in accordance with the terms of the contract. 7Alternatively, Bergemann submitted that the adjudicator denied it natural justice, or failed to exercise his statutory powers in good faith, in the way that he dealt with a number of claims for variations. Since there were many different variations referred to, and the reasons why the adjudicator's treatment of them was said to involve the consequences to which I have referred varied, it is not profitable to go into further detail.

The determination 8Before I turn to the first issue - jurisdictional error - I shall summarise the adjudicator's approach to his task, as it appears from his determination. Before doing so, and referring back to what I said at the beginning of these reasons, it is worth noting that the adjudicator was confronted with 20 lever arch folders of material, involving some thousands of pages in total, and was required to digest and analyse that material within the short space of time allowed by the Act, as supplemented by the parties' generous concession of an additional seven days to produce his determination. To the extent that the adjudicator's reasons are brief or sketchy, that is hardly surprising; what is surprising is that he managed to produce the comprehensive, structured and rational document that he did in the time available. 9The parties referred to the adjudicator's determination strictly so called and to his reasons for it as, together, the determination. The only matters that are to be "determined" by an adjudicator are the three set out in s 22(1) of the Act. However, by s 22(3), the determination must be in writing and must include the reasons for the determination. The parties' usage is both sanctioned by the Act and convenient, and I shall adopt it. 10The determination comprises some 96 pages and 611 paragraphs. The adjudicator's fee invoice shows that its preparation occupied him for 140 hours. At least on its face, the determination is logically structured. It sets out the general issues by reference to: (1) three issues, or groups of issues, identified by Bergemann, that were said to justify withholding payment of any amount in full; (2) some four further reasons, not expressly identified by the parties but identified by the adjudicator, which were also relied upon to justify withholding any payment whatsoever; and (3) some five further reasons which were generic although they did not affect all aspects of the payment claim. 11The adjudicator dealt with the reasons for non-payment in each category. He then turned his attention to a further category, of reasons for non-payment in the adjudication response that were not, in his view, included in the payment schedule. He dealt with those as follows: Reasons in the adjudication response submissions not included in the payment schedule 102. There are a number of instances where the respondent has included in submissions with respect to individual variations, new reasons that it did not include in the payment schedule. 103. In some case, but not all, I have identified the new reasons in this determination. 104. The general principle that I have applied is that s.20(2B) of the Act prohibits the respondent from including a reason in the adjudication response that is not first included in the payment schedule. Submissions based on such new reasons are not submissions that have been duly made for the purposes of s.22(2)(d) in my view, and I have not considered them. 12I turn aside from describing the adjudicator's reasons, to note that Mr Corsaro criticised this part of the determination on the basis that it did not tell Bergemann all the paragraphs had been rejected, and thus did not state adequately the adjudicator's reasons for his determination. 13I note also that, where the adjudicator did identify s 20(2B) as applying, Mr Corsaro asserted that he was wrong, and thus that Bergemann had been denied natural justice. That submission cannot be accepted. In John Holland Pty Ltd v Roads and Traffic Authority of New South Wales (2007) 23 BCL 205, the Court of Appeal said, although in obiter dicta, that a decision as to whether or not a submission was "duly made" (which is the inquiry that precedes the application of s 20(2B)) fell within the province of the adjudicator to decide: see Hodgson JA (with whom Beazley JA agreed) at [63], and Basten JA at [71]. In Broad Construction Services (NSW) Pty Ltd v Michael Vadasz (2007) 73 NSWLR 149, I held at [38] that I should follow that aspect of the Court of Appeal's reasoning in John Holland . I remain of that view. 14Mr Corsaro accepted that, at least to the extent that the adjudicator had identified the submissions that he rejected on the basis of s 20(2B), the decisions to which I have referred rendered the point (of denial of natural justice) unsustainable. 15I return to the determination. Having dealt with matters of generality, the adjudicator turned his attention to the 74 individual variation claims that were the subject of the payment claim and adjudication application. He dealt with them individually, and summarised his reasons in a table at [603] of the determination. At this stage, I note that the total amount claimed for the variations was $3,894,910.70. The amount conceded by Bergemann totalled $41,791.40. The adjudicator allowed amounts totalling $2,451,162.44. 16In many cases, the adjudicator allowed an individual variation claim in the amount of the claim. But in many cases, he did not. Having said that, I do note that, of the first ten variations listed at [603] (which were those exceeding $100,000.00 in value) the adjudicator allowed six in full; he disallowed three entirely; and he allowed one at about 28% of the claimed amount. The six that were allowed in full comprise about 75% by value of the total amount allowed by the adjudicator. 17In dealing with the variations, the referee identified, in broad terms, the subject matter of each; the submissions by Varley in support and by Bergemann in response (sometimes dealing separately with submissions directed to entitlement and submissions directed to quantum); and then gave reasons. When one reads the reasons, they appear to be logical and coherent, in the sense that the adjudicator appears to deal with the issues posed by the parties as he has stated them. 18It is a feature of the adjudicator's reasons that he devotes the most space to the most substantial (by value) of the variations. His treatment becomes more summary as the value decreases. Nonetheless, even in the latter case, it appears on the face of the determination that the adjudicator turned his mind to what he perceived to be the essential issue and dealt with it - although in few words. 19Having dealt with the variation claims, and having earlier dealt with other matters in dispute as to credits that Bergemann said should be offset against the amount of any entitlement, the adjudicator calculated the amount of the progress payment, and dealt with the other matters (due date, interest and costs). His treatment of those last three items has not attracted any criticism.

First issue: jurisdictional error 20It was common ground that, since the decision of the Court of Appeal in Chase Oyster Bar v Hamo Industries [2010] NSWCA 190, the determinations of adjudicators made under the Act are amenable to judicial review for jurisdictional error. Thereafter, the parties parted company, in particular as to what constitutes jurisdictional error, and whether the error of law alleged in this case was jurisdictional. 21In Kirk v Industrial Relations Commission of New South Wales (2010) 239 CLR 531, the majority of the High Court (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ) identified three categories of jurisdictional error at [72]. Their Honours did so by reference to the earlier decision of the High Court in Craig v South Australia (1995) 184 CLR 163 at 177 - 178. The three categories of error identified by the majority in Kirk were: (1) the mistaken denial or assertion of jurisdiction, or (in a case where jurisdiction does exist), misapprehension or disregard of the nature of or limits on functions and powers; (2) entertaining a matter or making a decision of a kind that lies, wholly or partly, outside the limits on functions and powers, as identified from the relevant statutory context; and (3) proceeding in the absence of a jurisdictional fact; disregarding something that the relevant statute requires to be considered as a condition of jurisdiction, or considering something required to be ignored; and misconstruction of the statute leading to misconception of functions. (As to this last example, the court had said in Craig at 178 that "the line between jurisdictional error and mere error in the exercise of jurisdiction may be particularly difficult to discern".) 22In Kirk at [73], the majority emphasised "that the reasoning in Craig ... is not to be seen as providing a rigid taxonomy of jurisdictional error". Nor should it be taken, their Honours said, "as marking the boundaries of the relevant field". 23Thus, in Chase at [33], Spigelman CJ stated that "[t]here is no single test or theory or logical process by which the distinction between jurisdictional and non-jurisdictional error can be determined". 24The concept of jurisdiction is simple to define. As Gleeson CJ and McHugh J said in Abebe v The Commonwealth of Australia (1999) 197 CLR 510 at [24], "[j]urisdiction is the authority to decide". Alternatively, as Spigelman CJ pointed out in Chase at [36], the question to be decided in any given case (involving determinations of adjudicators) "is whether the adjudicator had jurisdiction to determine an "application" which had been made without compliance with" the suggested jurisdictional limitation. 25In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, the majority (McHugh, Gummow, Kirby and Hayne JJ) said at [93]: ...a better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an Act done in breach of the provision should be invalid. ... In determining the question of purpose, regard must be had to "the language of the relevant provision and the scope and object of the whole statute". 26The internal quotation came from the decision of the Court of Appeal of this State in Tasker v Fullwood [1978] 1 NSWLR 20 at 24. 27In Chase , Spigelman CJ identified, at [40] to [52], three matters to be looked at in considering whether a statutory requirement was jurisdictional. Those matters were: (1) the language of the statute; his Honour said that substantial, and often but not always determinative, weight should be given to language in mandatory form (at [40]); (2) the structure of the legislative scheme (at [42]); and (3) the adverse effects of finding that a statutory requirement is jurisdictional (at [52]). 28It may be noted that in Chase , the language of the statutory requirement under consideration - s 17(2)(a) of the Act - read within the statutory scheme as a whole, was of determinative importance. See Spigelman CJ at [31] to [53], and my reasons at [207] to [237]; Basten JA agreed with the approach taken by Spigelman CJ and me (see at [96]). Section 9 29Section 9 of the Act reads as follows: 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. The parties' submissions 30Mr F C Corsaro of Senior Counsel, who appeared with Mr I G B Roberts of Counsel for Bergemann, submitted that the starting point was to be found in the decision of the majority in Craig at 176 to 180. Mr Corsaro referred, in particular, to what the court said at 179: At least in the absence of a contrary intent in the statute or other instrument which established it, an administrative tribunal lacks authority either to authoritatively determine questions of law or to make an order or decision otherwise than in accordance with the law. ... If ... an administrative tribunal falls into an error of law which causes it to identify a wrong issue, to ask itself a wrong question, to ignore relevant material, to rely on irrelevant material or, at least in some circumstances, to make an erroneous finding or to reach a mistaken conclusion, and the tribunal's exercise or purported exercise of power is thereby affected, it exceeds its authority or powers. Such an error of law is jurisdictional error which will invalidate any order or decision of the Tribunal which reflects it. 31Mr Corsaro submitted, that the language of s 9(a) of the Act was clear, and mandatory. The entitlement "is to be... the amount calculated in accordance with the terms of the contract". 32Mr Corsaro accepted that not all errors of law were jurisdictional, and thus that if an adjudicator made an error of law in deciding a matter that he or she had been given jurisdiction to decide, the error would not of itself be jurisdictional error. However, he submitted, the statutory requirement under consideration was jurisdictional, simply because it defined, in mandatory terms, the extent of a claimant's entitlement to a progress payment. 33Mr M G Rudge of Senior Counsel, who appeared with Mr F P Hicks of Counsel for Varley, submitted that any error in the adjudicator's construction and application of the relevant provisions of the subcontract was an error within jurisdiction, because the very task given to an adjudicator was to determine the amount of a progress payment to which the claimant was entitled: that is to say, to determine the amount of the contractual entitlement. He relied on what I had said in Musico v Davenport [2003] NSWSC 977 at [47] (where I quoted from Lord Reid in Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147, 171) and following, including in particular at [52]: I therefore conclude that, where the determination of a dispute submitted to an adjudicator under the Act requires the adjudicator to consider issues of law, the adjudicator will not fall into jurisdictional error simply because he or she makes an error of law in the consideration and determination of those issues. It would be otherwise, as the High Court pointed out in Craig (echoing, I think, what Lord Reid said in Anisminic) , if the error of law causes the adjudicator to make one or other (or more) of the jurisdictional errors that the court identified: in such a case, relief would lie, subject to any relevant discretionary considerations . 34In the case of s 9(a), Mr Rudge submitted, the decision of Palmer J in Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 showed, at [58], that one of the functions that the adjudicator had to perform was to decide what were the relevant or applicable contractual terms and how they operated in the particular circumstances. It followed, his Honour said, that the adjudicator should be taken to have authority to decide the particular question, for the purposes of making a determination. Decision 35I shall start where Mr Corsaro started, with the observations of the High Court in Craig at 179. The only matter that adjudicators decide "authoritatively" is the amount of the progress payment to which a claimant is entitled. That is the function entrusted to adjudicators by the Act. In the course of making that determination, adjudicators may have to consider (and in many cases will consider) the proper construction of the contractual provisions governing entitlement. Where they do so, they must reach a conclusion as to the meaning and operation of the relevant provisions. But their determinations do not provide any authoritative decision on that point. 36The parties are bound to accept (subject, of course, to the power of this court to review) the determination by an adjudicator of the three matters specified in s 22(1) of the Act: the amount of the progress payment, the date on which it is payable and the rate of interest on it. They are not bound to accept any step in the reasoning of the adjudicator leading to that determination. On the contrary, as s 32 of the Act makes clear, nothing in Part 3 (which is the Part dealing with the procedure for recovering progress payments) affects any right that a party to a construction contract may have under it or in respect of anything done or omitted to be done under it (see subs (1)). Nor does anything done under or for the purposes of Part 3 affect any civil proceedings arising under a construction contract (see subs (2); the exception in subs (3) can be put to one side). 37Thus, whilst I accept the general proposition that, in the absence of clear contrary intention, administrative tribunals lack authority to determine authoritatively questions of law, I do not see that principle as having any particular relevance in the present case. (I put to one side the question that I discussed, relatively briefly, in Musico at [51] as to the limit of the analogy between an adjudicator appointed under the Act and administrative tribunal established under an Act of Parliament.) 38Likewise, the proposition that administrative tribunals have no authority to make orders or decisions otherwise than in accordance with the law may be accepted, at the level of generality. But, as I said at Musico at [52], it is necessary to look at the precise nature of the issues that are given to (in this case) adjudicators for consideration and determination. 39I concluded in Musico at [54] that relief would not lie for non-jurisdictional error of law. I reached that conclusion because I came to the view that the legislative scheme was inconsistent with the availability of that ground of review. That aspect of my reasons was approved by the Court of Appeal in Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421 at [51] (Hodgson JA, with whom Mason P and Giles JA agreed). What his Honour said on this point is not affected by the decision of the Court of Appeal in Chase . 40I turn to the language of 9(a). It may be accepted that the language is peremptory ("is to be"). But it does not follow that it must be treated as "mandatory". As Spigelman CJ said in Chase at [39], the use of words such as "mandatory" is no more than a convenient way of expressing a conclusion resulting from a process of construction applying all the relevant principles of statutory interpretation. Thus, to say that the language is "mandatory" does not answer the question; rather, it is the answer reached if the process of construction of the statute so dictates. 41Section 9(a) defines what it is that an adjudicator is to determine: the amount of a progress payment to which the claimant entitled (s 22(2)(a) of the Act). It states, in a summary way, the very question that is central to the adjudicator's exercise of his or her functions. In this respect, it stands in marked contrast to the basic and essential statutory conditions of validity identified by Hodgson JA in Brodyn at [53], which now may be accepted as jurisdictional requirements (see Basten JA in Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd (2005) 63 NSWLR 385 at [71]). Section 9(a) stands in equally marked contrast to s 17(2)(a) of the Act, identified as jurisdictional in Chase. The jurisdictional requirements so far identified are, for the most part, anterior to the process of adjudication. The only one that is not is the determination of the application in accordance with s 22(1) (calling up ss 19(2) and 21(5)) and the provision of a determination in writing. 42In Chase at [43], Spigelman CJ differentiated elements occurring "at the application stage of the decision-making process" from "matters which can arise during the course of the decision-making process itself". His Honour referred to a distinction between "a fact to be adjudicated upon in the course of enquiry and "an essential preliminary to the decision-making process". In this context, "preliminary" means not so much chronologically as legally antecedent to the decision making process, as his Honour pointed out at [44]. The matters to which s 9(a) directs attention are central to the decision-making process, and arise for consideration, if at all, only during that process. 43For the reasons that I gave in Musico at [47] and following (which I will not repeat, because they are summarised at [52] set out at [33] above), I remain of opinion that, where matters are entrusted to adjudicators for decision, a decision involving error of law is not, for that reason alone, a decision beyond jurisdiction. Any other conclusion would be, as I said and as Hodgson JA agreed in Brodyn , inconsistent with the statutory scheme. In this context, I note that in Chase at [55], Spigelman CJ observed that "the purpose of the legislative scheme [of the Act] is best served by restricting the scope of intervention by the courts". 44In determining the amount of a progress payment, adjudicators are required to consider, among other things, the provisions of the construction contract under which the claimed entitlement arises (s 22(2)(b)). Presumably, they are required to do so so that they can work out "the amount calculated in accordance with the terms of" that contract. In other words, their task requires them to identify the contractual provisions that are relevant to quantification of the amount of a progress payment, to decide (where there is a contest) the proper construction of those provisions and to apply them to the facts of the particular dispute. As Palmer J said in Multiplex at [58]: ...If determination of a disputed progress claim depends upon resolution of a question as to what are the relevant terms of a contract, it must necessarily be implicit in the jurisdiction conferred on the adjudicator by the Act that he or she have jurisdiction to decide that question. 45I agree with his Honour. I should note that Mr Corsaro submitted that his Honour's reasoning was incorrect, and should not be followed. I do not accept that submission. There are indications in at least three subsequent decisions of the Court of Appeal that support the view of s 9(a) that Palmer J expressed. 46In Transgrid v Siemens Ltd (2004) 61 NSWLR 521, Hodgson JA (with whom Mason P and Giles JA agreed) looked, although briefly and by the way, at s 9(a) at [35]. His Honour said that an entitlement "calculated in accordance with the terms of the contract" was the value of the work less deductions, not the amount certified. 47Hodgson JA returned to this topic, again by the way, in John Holland Pty Ltd v Roads and Traffic Authority of New South Wales (2007) 23 BCLR 205 at [38]. His Honour, speaking with the concurrence of Beazley JA, said that: ... "calculated in accordance with the terms of the contract" meant calculated on the criteria established by the contract, and did not mean reached according to mechanisms provided by the contract... 48In the same case, Basten JA spoke at [77] of s 8 of the Act as giving the right to a progress payment, and of s 9 as proving the method of its calculation. 49The question arose more recently in the Court of Appeal, in Plaza West Pty Ltd v Simon's Earthworks (NSW) Pty Ltd [2008] NSWCA 279. Hodgson JA, who agreed with Allsop P but offered some additional reasons, referred at [53] to Transgrid and John Holland , saying that he adhered to the views there expressed. His Honour explained those views as follows, at [54]: This means that contractors are not deprived of entitlement to payment under the Act because a condition precedent, such as the obtaining of a superintendent's certificate, has not been satisfied; and it means equally that contractors are not ipso facto entitled to payment because of the operation of a deeming provision such as cl 37(2) of the contract in this case. 50Allsop P (with whom Giles JA agreed) also dealt with s 9. In that case cl 37(2) of the contract provided that if the superintendent did not issue a progress certificate within 14 days of receiving a progress claim, the progress claim was deemed to be the relevant progress certificate. In those circumstances, the adjudicator came to the view that, because there was a deemed progress certificate, he was not required to consider in detail the answers raised by the respondent in its payment schedule (as would have been required by s 9(b) of the Act in the particular circumstances of the case). Allsop P said at [32] that if the adjudicator thereby erred in law, "that did not mean that the adjudicator did not fulfil his statutory task in s 22". His Honour said at [34] that the adjudicator had not ignored the appellant's submissions, but had dealt with them "appropriately on the hypothesis that he worked upon." 51The significance of his Honour's observations lies in the fact that the peremptory, or what Mr Corsaro submitted was the mandatory, language of s 9 (the use of the words "is to be") governs both para (a) and para (b). If Mr Corsaro's submission is to be accepted, a failure to comply with s 9(b) (in a case where it applied, because para (a) did not) would, equally, amount to jurisdictional error. It is clear from what Allsop P said in Plaza West that his Honour did not regard the adjudicator's failure, in that case, to attend to the requirements of s 9(b) as vitiating his determination. 52The reasoning of Hodgson JA in the three cases to which I have referred, of Basten JA in the second, and of Allsop P in the third, is in my view consistent with the approach that Palmer J took to s 9(a) in Multiplex , and supports my view that s 9(a) is not a condition of jurisdiction but, rather, a description of the mechanical aspects of the essential task to be performed in the exercise of the jurisdiction that is conferred. In my view, it would be most unusual for a mechanical provision such as s 9 to be characterised as jurisdictional. 53Accordingly, I conclude that even if the adjudicator did misconstrue or misapply the relevant contractual provisions, and as a result did not calculate the amount of the progress payment to which Varley was entitled in accordance with the terms of the subcontract, he did not thereby exceed, or fail to exercise, the jurisdiction entrusted to him by the Act. 54Having reached that conclusion, it is not necessary to consider either the contractual provisions in question, their proper construction, or whether the adjudicator misconstrued or misapplied them. Conclusion on first issue 55The adjudicator did not fall into jurisdictional error if and to the extent that he misconstrued or misapplied the relevant provisions of the subcontract.

Natural justice and good faith: the applicable principles 56In Brodyn , Hodgson JA at [53] identified five "basic and essential requirements" for the existence of a (valid) determination. His Honour then said, at [55], that what the legislature intended to be essential to the existence of a valid determination: ... was compliance with the basic requirements..., a bona fide attempt by the adjudicator to exercise the relevant power relating to the subject matter of the legislation and reasonably capable of reference to this power... and no substantial denial of the measure of natural justice that the Act requires to be given. 57His Honour emphasised, at [57], that "natural justice is to be afforded to the extent contemplated by" the relevant provisions of the Act. Thus, his Honour said: ... there is a disclosed legislative intention to make a particular measure of natural justice a pre-condition of validity, [so that] failure to afford that measure of natural justice does make the determination void. 58In Watpac Constructions v Austin Corp [2010] NSWSC 168, I said at [142] and [146] that: (1) consideration of the extent of natural justice required to be given must take into account the scheme of the Act, and other matters; (2) the concern of the law was to avoid practical injustice; and (3) it was inappropriate that the court should sift finely through the reasons of the decision maker in an attempt to find slips warranting the court's intervention. 59I set out those paragraphs: 142 Any entitlement to natural justice must accommodate the scheme of the Act, including the extremely compressed timetable provided for the submission of payment schedules, adjudication applications, and adjudication responses; and the limited time (subject to the consent of the parties, which they may give or withhold at their will) for an adjudicator to determine an application. It must also accommodate the fact that, in many cases, claimants and respondents will prepare their documents themselves, and will not avail themselves of legal advice in doing so. ... 146 In this context, Gleeson CJ said in Re Minister for Immigration and Multicultural Affairs ; ex parte Lam (2003) 214 CLR 1 at 13 - 14 [37] that fairness is not abstract but practical. His Honour said that "[w]hether one talks in terms of procedural fairness or natural justice, the concern of the law is to avoid practical injustice". To like effect, Kirby J said in Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 291 that the court should not undertake the task of "combing through the words of the decision-maker with a fine appellate tooth-comb [sic], against the prospect that a verbal slip will be found warranting" the intervention of the court. 60I dealt with the obligation of good faith in Timwin Construction v Facade Innovations [2005] NSWSC 548 at [38] to [40]. In substance, I said, what was required was that adjudicators should put their minds to the comprehension and their wills to the discharge of their duty (citing Lord Sumner in Roberts v Hopwood [1925] AC 578 at 604). For convenience, I repeat what I said in those paragraphs : [38] There has not been any decision to my knowledge elaborating the requirement of good faith to which Hodgson JA pointed in Brodyn . Clearly, I think, his Honour was not referring to dishonesty or its opposite. I think he was suggesting that, as is well understood in the administrative law context, there must be an effort to understand and deal with the issues in the discharge of the statutory function: see, for example, the speech of Lord Sumner in Roberts v Hopwood [1925] AC 578, 603, where his Lordship said that a requirement to act in good faith must mean that the board "are putting their minds to the comprehension and their wills to the discharge of their duty to the public, whose money and locality which they administer." [39] That construction of the requirement of good faith is supported by the provisions of s 22(2), requiring an adjudicator to "consider" certain matters. A requirement to consider, or take into consideration, is equivalent to a requirement to have regard to something: see Zhang v Canterbury City Council (2001) 51 NSWLR 589 at 602 (Spigelman CJ, with whom Meagher and Beazley JJA agreed). [40] As his Honour emphasised, the requirement to "have regard to" something requires the giving of weight to the specified considerations as a fundamental element in the determination, or to take them into account as the focal points by reference to which the relevant decision is to be made. His Honour relied on the tests expounded in R v Hunt; ex parte Sean Investments Pty Ltd (1979) 180 CLR 322 (Mason J) and in Evans v Marmont (1997) 42 NSWLR 70, 79-80 (Gleeson CJ and McLelland CJ in Eq). 61I looked at the question of good faith more recently in Laing O'Rourke Australia Construction Pty Ltd v H&M Engineering & Construction Pty Ltd [2010] NSWSC 818 at [30] to [35]. At [30], I repeated the paragraphs from Timwin that I have just set out. I continued: [31] Shortly after I decided Timwin , Brereton J considered the obligation of good faith in Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129. In a detailed review of the authorities from [66] to [109], his Honour identified what he described as a narrow view and a broader view of good faith. His Honour explained the narrow view at [80] as "focussing on whether objectively the exercise of power could be regarded as honestly referrable to the purpose for which the power was conferred, and excluding from its ambit the reasoning process leading to the decision". His Honour identified the broader view, at [87] and other paragraphs, as including recklessness or caprice in the exercise of the power, although falling short of a wilful and deliberate failure to exercise, or to attempt to exercise, the power. For the reasons given at [111] to [116], his Honour concluded at [110] and [117], that the requirement of good faith required more than honesty. In particular, it required faithfulness to the obligation and a conscientious attempt to perform it (at [117]), and absence of recklessness or caprice [at 110], [117]). [32] The defendant appealed. The appeal was dismissed ( Halkat Electrical Contractors Pty Ltd v Holwood Holdings Pty Ltd [2007] NSWCA 32). Nonetheless, Giles JA (with whom Santow and Tobias JJA agreed) referred at [26] to what Brereton J had said. His Honour did not think that it was necessary to embark on "an exegesis of the reference in Brodyn ... to a bona fide attempt to exercise the statutory power". That was because, as his Honour said at [27], "the adjudicator simply did not perform the task required by the Act", and thus did not exercise his power in good faith. [33] The Court of Appeal returned to the topic of good faith in Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157. It appeared that the appellant in that case had submitted that the Court of Appeal did not "fully endorse" the broader approach to good faith that Brereton J had identified in Holmwood . At [114], Giles JA (with whom McColl and Young JJA agreed) said that the Court "did not endorse it at all". [34] I do not think that it is necessary to say more than that, in the words of Lord Sumner in Roberts v Hopwood [1925] AC 578 at 604 (cited by me in Timwin at [38]), for administrative bodies to act in good faith, they must put "their minds to the comprehension and their wills to the discharge of their duty". As I said at [39] and [40], that view of the content of the obligation of good faith was supported by the requirement to "consider" various matters set out in s 22(2) of the Act. It follows that the obligation of good faith requires at least that adjudicators should turn their minds to, grapple with and form a view on all matters that they are required to "consider". [35] It may be easy to see why an exercise of power that could be characterised as reckless or capricious is not undertaken in good faith. But it does not follow that, for there to be absence of good faith, it must be possible to characterise what happened as having been done recklessly or capriciously. 62I remain of the view that I expressed in those cases as to the content of the requirement that adjudicators exercise their statutory function in good faith. 63Because I saw some connection between the obligation of good faith and the statutory requirement (s 22(2) of the Act) to "consider" various matters, I will set out also what I said, as to the obligation to "consider" in Laing O'Rourke at [36] to [39]: [36] Section 22(2) of the Act requires adjudicators to "consider" certain specified matters: 22 Adjudicator's determination ... (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. ... [37] I looked at the obligation to "consider" in Timwin , in the paragraphs quoted at [30] above. It is, however, necessary to say a little more about the content of that obligation in the context of the Act. [38] As a matter of plain English, the obligation to "consider" something requires that it be given attention, or looked at on its merits (see, for example, the Australian Oxford Dictionary , Second Edition, 2004). Thus, in Tickner v Chapman (1995) 57 FCR 451, Black CJ, speaking of a statutory obligation on a minister of the Crown to consider representations made to him, said at 464 that "the consideration of a representation involves an active intellectual process directed at that representation". In the same case, Burchett J said at 476 that the obligation required "the Minister... to apply his own mind to the issues raised by [the representations]", which involved obtaining "an understanding of the facts and circumstances set out in them, and of the contentions they urged based on those facts and circumstances". Kiefel J said at 495 that the obligation "requires that the Minister have regard to what is said in the representations, to bring his mind to bear upon the facts stated in them and the arguments or opinions put forward and to appreciate who is making them". [39] In my view, the obligation to consider various matters imposed by s 22(2) of the Act should be read in the same way: namely, as requiring an active process of intellectual engagement. It may be thought that this imposes a substantial burden on adjudicators. That may be so; but there are at least two reasons why, even if that is correct, it does not justify reading down the statutory obligation to "consider". The first is that adjudicators are not forced to accept nomination. They may decline nomination; or they may accept only on condition that they are given some longer period of time than ten working days to produce their determination. The second reason is that the outcome of the adjudicator's consideration may have very significant consequences. In this case, the three delay claims total, in round figures, $7.5 million - a little under 75% of the total of the payment claim. Having regard both to the limited ability for adjudicators' determinations to be reviewed and to the nature of the estoppels that they create, the parties to an adjudication are entitled to have the adjudicator's consideration, in the sense that I have explained, of the case that each of them brings. 64Combining those two matters, it could be said that the obligation to act in good faith, insofar as it requires adjudicators to turn their minds to the statutory task entrusted to them, requires that they engage intellectually with the disputes that the parties have framed, and deal with those disputes in a way that is reasoned, and not perverse, arbitrary or capricious. 65Mr Corsaro also brought up for consideration, in the context of good faith, the obligation of adjudicators to give reasons (s 22 (3)(b) of the Act). 66As s 22(3)(b) makes clear, the obligation to give reasons is, in substance, an obligation to state the basis of the determination that the adjudicator has made: compare Housing Commission of NSW v Tatmar Pastoral Co Pty Ltd (1983) 3 NSWLR 378 at 386 (Mahoney JA). The reasons should show that the adjudicator has turned his or her mind to the dispute entrusted to his or her determination, and has addressed the issues raised by the parties in support of or opposition to the payment claim. There is no requirement that they be lengthy, elaborate or detailed. On the contrary, it may be thought, the scheme of the Act tells strongly against any such requirement: in particular, the extremely compressed time (ten business days following acceptance of the nomination, unless the parties agree to extend time - see s 21(3)) and the obvious statutory intent that valid payment claims should be paid as quickly as possible. Indeed, s 21(3) recognises this, because it sets an outer time limit; the primary obligation on adjudicators "is to determine an adjudication application as expeditiously as possible". 67To put the matter compendiously, the reasons should be sufficient to show that the adjudicator has engaged actively with the dispute tendered for his or her decision, and dealt with it in a way that is reasoned, and not perverse, arbitrary or capricious.

Second issue: denial of natural justice; good faith 68Bergemann's submissions attacked, on the grounds of denial of natural justice and want of good faith, some 37 (or 50%) of the total number of variations addressed by the adjudicator. Those attacked ranged from the most substantial (VO-089, for an amount in excess of $660,000.00) to the more trivial (VO-201, for $812.00, and VO-158, for $734.00). 69At a level of some generality, Bergemann's submissions attacked many aspects of the adjudicator's reasoning on the 37 variations in question by alleging that he had failed to deal with material in the 20 lever arch folders given to him that was said to cast doubt on some aspects of Varley's claims for the variations in question. For example, in relation to VO-089, the adjudicator was criticised, among other things, for failing to take into account an explanation for delay given in the statutory declaration of an employee of Bergemann. 70However, and again at a level of generality, in many of the cases where such a complaint is made, reference to the material that is said to be inconsistent with the claim or with the adjudicator's preference for Varley's approach shows that the material is either non-committal, or cast at a level of unhelpful generality, or obtuse. Further, in some at least of those cases, it is clear that the adjudicator's attention was not specifically drawn to the material that was said to be inconsistent with Varley's approach. 71In other instances, the adjudicator is criticised for accepting, in his quantification of some of Varley's claims, material that not only was plainly wrong (as indeed it was), but also was inconsistent with other material on which he had relied for other claims (as indeed he had). Again, in many of those cases, Bergemann had not troubled to draw the adjudicator's attention to these inconsistencies. 72I was left with the very strong impression that, in respect of most of the 37 variations in question, Bergemann was seeking to reargue the merits of the individual decisions, under cover of nominal reliance on the principles of natural justice and good faith. 73Mr Corsaro focussed his attack on a somewhat more limited selection of the 37 variations, doing so, he said, by way of illustration of problems that were manifested in respect of other of the impugned decisions. As I indicated, during the hearing, that I would do, I propose to limit my consideration of this point to the particular variations that were the subject of criticism. VO-089 74Bergemann makes a number of complaints. The first group of complaints concludes with the proposition that the adjudicator "ignored the submission and evidence that" a certain document "was requested by" Bergemann. 75The answer to this is simple. The adjudicator did not ignore those submissions. It is clear from [110] to [120] of the determination that he had considered Bergemann's submissions. It is equally clear that he did not agree with them. Thus, he rejected them. That is a different matter. The process of reasoning that underlies the rejection is set out in the determination. It appears to be logical, and not perverse, arbitrary or capricious. 76Bergemann launched a separate attack on [126] of the determination, in which the adjudicator dealt with the fact that it had taken twenty weeks, rather than three weeks as programmed, to fabricate, assemble and install the equipment that was the subject of this variation. It is clear that he regarded this factor as supporting his conclusion. Bergemann submitted that he had failed to take into account the explanation for the delay given by its employee Mr Stevenson. However, reference to the statutory declaration that the referee is supposed to have failed to take into account shows that it does not explain the length of time taken for assembly and fabrication. At most (or at face value) it says that Varley proceeded slowly. It does not address the specific problem with which the adjudicator was dealing in [126]. It is a particular example of what I described, at the level of generality, in [70] above. 77There was evidence that did specifically address the three week / twenty week issue: from Bergemann's employee or independent expert, Mr Cook. The adjudicator considered Mr Cook's views at [126]. He did not agree with them. But again, it does not mean that he overlooked them. 78In addition, Bergemann makes two complaints (or further complaints) about the adjudicator's assessment of the value of this variation. It is not entirely clear that some of the allegedly overlooked reasons to which Bergemann referred were raised in its payment schedule. But in any event, the adjudicator set out the parties' competing positions, analysed them and expressed a preference for Varley's position as opposed to Bergemann's. It is clear that he turned his mind to the dispute and sought to deal with it. His reasons for doing so are adequately explained. 79The final complaint raised is as to the adjudicator's rejection of certain submissions, based on s 20(2B) of the Act. As I have said above, that was a matter within the adjudicator's province to decide. He did so. VO-215 80Bergemann contended that this claim involved duplication with other, identified, variations. In its payment schedule, it had identified one only of those variations. In its adjudication response, it identified additional variations. The adjudication said that, to the extent that additional variations were identified in the payment schedule, he would not take them into account, because they were barred by s 20(2B). Whether or not he was right in that is not a matter on which I need comment. It is plain that he considered the submission; he could not have reached the conclusion that he did had he not done so. 81As to the one instance of duplication that the adjudicator did think could be considered, it is clear that he did consider it. The adjudicator pointed out, correctly, that the submissions did not assist him to determine the existence or extent of any duplication. The errors or inconsistencies in his reasoning that are now asserted do not relate to any submission properly put to him in the adjudication process. 82In this instance, as in many others (I shall not refer to them individually) Bergemann's approach appears to be that although it did not put detailed matters before the adjudicator to demonstrate that the claim was wholly invalid or that the amount claimed was excessive, nonetheless, he should have fossicked through the 20 volumes of material given to him and found the inconsistencies or inadequacies for himself. 83The extent of compliance with the good faith obligation is not to be assessed in a vacuum (and nor is the extent of compliance with the requirement to afford natural justice, subject to the scheme of the Act). Particularly where the disputes are substantial and complex, and where there are thousands of pages of material put before an adjudicator, it is in my view incumbent on the parties to identify with precision all reasons that are open to them (based on the payment claim and payment schedule) in support of or opposition to each element of the claim, and to direct the adjudicator's attention to the relevant parts of the material given to him or her. It is not sufficient to put that material before the adjudicator, accompanied by lengthy but diffuse submissions, and to leave it to him or her to come to the right result for the right reasons based on every detail that may be gleaned from whatever is the relevant material. 84On the contrary, in my view, both the requirement to consider in good faith and the requirement to afford natural justice must take into account the magnitude of the task and the way that the parties have put the task before the adjudicator. In particular, it is inappropriate for a party, who has not done what it can to clarify the dispute and guide the adjudicator to the relevant material, to complain, nonetheless, that there was material, that might have borne on the adjudicator's conclusions, that could have led to a different result. 85Thus, in this and many cases, the complaint now made by Bergemann is that the adjudicator denied it natural justice, and did not exercise his functions in good faith, because he did not pick up a problem that Bergemann had not identified in its payment schedule, or had not otherwise drawn clearly to his attention. That is not, in my view, an appropriate basis for a challenge to an adjudicator's determination. VO-225a 86The adjudicator said at [188] that he had reviewed Varley's assessment of costs and was "satisfied that the costs indicated are reasonable in the circumstances". He acknowledged at [189] that there were no plant and equipment invoices in support. Nonetheless, he said, having regard to what was said in the detailed submissions, the claims for plant and equipment seemed to be reasonable. 87This was a case where there was a mistake in the transposition of costs from primary documents to the summary lodged by Varley. What had been stated as a daily rate for the hire of certain equipment in the primary material was taken as an hourly rate in the summary, with the obvious consequence of inflating greatly the amount of the claim. The adjudicator did not pick this up. Bergemann criticised him for this, saying that he had failed to consider the relevant material in good faith, and that his statement at [188] (to the effect that he had considered the relevant material) was evidence of this. 88The short answer to this complaint is that Bergemann did not raise the issue in its payment schedule. Apparently, Bergemann - a party to the subcontract in question, no doubt having intimate familiarity with all the details of the works - had not picked up the mistake. Yet, not having done so (and thus not having pointed it out to the adjudicator), it criticises the adjudicator for not having done so. That criticism must be rejected. VO-222 89This variation related to work carried out on four severable portions of the project. The claim included a claim for a specified number of hours of work at the contractually agreed rate of $70.00 per hour. However, primary documents showed that the claim had been prepared initially on the basis of a lesser number of hours at a higher rate, leading to substantially the same dollar result. 90Bergemann criticised the honesty of this reworking of the claim, suggesting that it was in some way underhand. However, although the problem was manifest on the basis of the documents to which Bergemann referred, Bergemann had not picked it up and referred to it in its payment schedule. Two things followed from this. The first is that, not having drawn the matter to the attention of the adjudicator, it is not open to Bergemann to criticise him for having failed to deal with it. (Indeed, given that it was not raised in the payment schedule, he should not have dealt with it even if it had been drawn to his attention.) The second matter is that, because there was no point taken in the payment schedule, Varley was deprived of the opportunity to explain the problem. Mr Rudge submitted that it could be explained. I said that I did not want to know what the explanation was; the point is that there was no opportunity to offer it because the point was not taken when it should have been taken. VO-223a 91Bergemann's complaint was that the adjudicator had decided this variation in favour of Varley, but that he had decided other variations, which it submitted were relevantly indistinguishable, in favour of Bergemann. Thus, it submitted, there was an unexplained failure to deal with like variations in the like way. 92The answer to this complaint is, as Varley submits, that the allegedly similar but rejected variations were rejected because the adjudicator concluded that Varley had not put sufficient material before him to support them. On the contrary, in respect of this variation, the adjudicator, having concluded that Varley had adequately supported the claim, considered that Bergemann's submissions were not an adequate answer. 93Two things flow from this. The first is that the complaint goes nowhere, in terms of demonstrating reviewable error. The second, and perhaps more important, matter is that it shows that, contrary to the thrust of Bergemann's complaints, the adjudicator did grapple intellectually and rationally with the individual variations. 94Bergemann also challenged the adjudicator's reasoning on quantum. However, two points can be made. The first is that some of the issues that Bergemann now relies on were not raised before the adjudicator. The second, and conclusive, matter is that the adjudicator expressly referred (at [233]) to the detail of this aspect of Varley's submissions, and concluded that he was satisfied, on that material, as to the amount claimed. Whether he was right or wrong is irrelevant. He carried out, in a rational way and with sufficient explanation, the task that was entrusted to him in relation to this variation. VO-198 95Bergemann's challenge is that the adjudicator gave insufficient reasons for his conclusion as to quantum. However, as the determination shows (at [300] to [308], there was material before the adjudicator (including, contrary to Bergemann's submission, a detailed break-up of the claim), to which the adjudicator referred, which he analysed and on which he relied. 96Again, it matters not whether he was right or wrong. He carried out the task entrusted to him, and gave logical reasons for his conclusion. VO-150 97Bergemann's complaint is that the adjudicator ignored some of its submissions, and gave insufficient reasons for his conclusion. 98Those submissions were of the most general kind. The adjudicator referred to them. In the absence of any meaningful challenge, he was entitled to conclude, on his review of the material, that the claim was justified. Again, he addressed the dispute that was put before him and dealt with it in an apparently rational way. The attack on [102] to [104] of the determination 99I set out the relevant paragraphs of the determination, together with the heading that preceded them, at [11] above, and noted at [12] above Mr Corsaro's criticisms of those paragraphs. 100If the adjudicator's reliance on s 20(2B) of the Act had been material to his rejection (or non-consideration) of Bergemann's submissions on variations other than those where he expressly made reference to the subsection, there might be some point to this criticism. At least as a matter of principle, it would be undesirable for an adjudicator not to consider a submission, because he or she regarded it as "out of bounds" by operation of s 20(2B), without indicating this. 101However, Mr Corsaro did not identify, in respect of any variation claim that the adjudicator had accepted, an undisclosed failure (presumably based on s 20(2B)) to consider submissions. More pertinently, since any reliance by the adjudicator on s 20(2B) is immune from review, an undisclosed reliance is no more than a deficiency in disclosure of reasons. If s 20(2B) were material to the decision on any matter, that should have been stated. But a hypothetical failure to state it, in the context of a massive amount of material, a large number of claims and a very detailed statement of reasons, is not something that, of itself, would invite, let alone require, review in this court.

Conclusion and orders 102Bergemann's challenges to the determination fail. It follows that the proceedings should be dismissed with costs (as between Bergemann and Varley). The adjudicator submitted save as to costs, and hence there should be no other order as to costs. Since Varley has succeeded, it should be released from the undertaking (not to enforce the determination) given by it to the court on 14 July 2011. It should have access to the bank guarantee provided by Bergemann as the price of obtaining that interlocutory undertaking. 103I make the following orders: (1) release the first defendant from its undertaking given to the court on 14 July 2011. (2) Order that the bank guarantee provided by the plaintiff to the court in the amount of $2,616,530.73 be released to the first defendant. (3) Direct that the first defendant be at liberty to call on the said guarantee in accordance with its terms. (4) Order that the summons be dismissed. (5) Order the plaintiff to pay the first defendant's costs; otherwise no order as to costs.

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: 09 September 2011

At a glance

Court

Decision date

Before

Source

Judgment (8 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (26)

Cited By (12)