EASY STAY MINING ACCOMMODATION PTY LTD -v- FAIGEN [2017] WASC 266 (30 August 2017)

1. There was no construction contract pursuant to the Construction Contract Act 2004 in that;

1. The parties had not agreed rates or quantities, or 2. That it was a costplus contract, and

1. Has provided no 'reasons' or made any findings of fact sufficient to support a conclusion that there is a 'cost plus' contract.
2. The claim was invalid under the Construction Contract Act 2004 as it was quantum meruit claim without agreement as to the rates or quantities.
3. Failing to give reasons for finding a contract existed (as opposed to finding construction work had been done), not finding the terms of that contract and without making a positive finding as to jurisdiction, assumed a contract existed by reversing the onus of proof.
4. Failing to provide reasons as that term is used in S36(d) of the Construction Contracts Act 2004 for finding whether the payment claim satisfied the requirements of the implied terms of the contract.
5. Failing to appreciate the complexity of the Applicant's claims in that;
   1. The Applicant failed to provide any sufficient evidence of and the adjudicator failed to make any findings about the reasonableness of the work done or material supplied, or

b. The reasonableness of the rates, or

c. The reasonableness of the times claimed.

1. Made four (4) simultaneous determinations without agreement of the parties and contrary to the Construction Contracts Act 2004.

4 On 16 August 2017, Easy Stay brought an application by chamber summons for an interlocutory injunction that:

The defendant [Grounded Construction Group] be restrained and an injunction is hereby granted restraining it whether by itself, its officers, servants, agents or otherwise, until further order from enforcing or further enforcing the adjudication determinations issued and as amended [identifying the four adjudication determinations numbered 03/17/02 to 03/17/05 and dated 21 July 2017, 22 July 2017, 23 July 2017 and 25 July 2017].

5 The relief sought, to the extent that it was articulated at the hearing, differed considerably from that set out in the chamber summons. For the purposes of the interlocutory application, Easy Stay's counsel confined his arguments to the first four grounds of the application for principal relief.

6 When the application for an interlocutory injunction was filed, there had not yet been a first directions hearing or strategic conference on the principal application. On 17 August 2017 the solicitors for Easy Stay wrote to the court requesting an earlier date for the return of the chamber summons on the basis that Grounded Construction was attempting to enforce the determinations and had served enforcement orders on Easy Stay's contract principal, Mt Morgan WA Mining Pty Ltd, on 16 August 2017. Easy Stay referred also to proceedings commenced in the Federal Court, following the service of a statutory demand by Grounded Construction.

7 I had the matter listed for 23 August. On that day Grounded Construction was ready to proceed but Easy Stay was not. Counsel for Easy Stay advised the court that the urgency had abated and wished the matter to be adjourned to 28 or 29 August. The lawyer for Grounded Construction was not available after 28 August. To accommodate both parties, I listed the matter on 25 August. Easy Stay only filed submissions and further affidavit evidence at lunchtime on the day of the hearing.

8 Grounded Construction has filed a certified copy of each determination and an affidavit as to the amount not paid in the District Court, in compliance with s 43(2) of the Construction Contracts Act. As a result of amendments to s 43 made by the Construction Contracts Amendment Act 2016 (WA), it is no longer necessary for a party to obtain leave of a court to enforce a determination. The effect of filing the determination is that it is taken to be an order of the District Court and may be enforced accordingly: s 43(3).

9 Grounded Construction has obtained orders under pt 4 div 5 of the Civil Judgments Enforcement Act 2004 (WA) to appropriate debts owed by Mt Morgan to Easy Stay. I was told that two debt appropriation orders have been served on Mt Morgan. Part 4 div 5 of the Civil Judgments Enforcement Act sets out the effect of those orders, the obligations of Mt Morgan on being served, and when and how the orders cease to have effect. In particular, Mt Morgan may be obliged to pay to Grounded Construction any debt due and payable to Easy Stay at the time when the order was made. It was still uncertain, on the evidence before me on 25 August, whether there was a debt that was due and payable to Easy Stay and that was captured by the two debt appropriation orders served on Mt Morgan.

10 Easy Stay did not seek any relief in relation to the statutory demand proceedings in the Federal Court.

11 Although it did not seek to amend its chamber summons, at the hearing on 25 August Easy Stay reformulated the relief sought as an injunction restraining Mt Morgan from complying with the debt appropriation orders that had been served on it. In effect, the court was being asked to restrain Mt Morgan from doing something that it was both lawfully entitled and legally obliged to do.

12 Counsel for Easy Stay then proposed an order that the court relieve Mt Morgan from its liability to comply with the debt appropriation orders, perhaps by drafting an 'appropriate injunction'. Finally, counsel suggested a combination of an injunction restraining Grounded Construction from continuing its enforcement action under the Civil Judgment Enforcement Act and a mandatory injunction compelling Grounded Construction to write to Mt Morgan releasing Mt Morgan from its liability to comply with the debt appropriation order. The precise terms of such an order were never stated, and it remains unclear how the proposed order would operate within pt 4 div 5 of the Civil Judgment Enforcement Act.

13 Both parties approached the application as one for the grant of an injunction in the court's equitable jurisdiction to keep matters in status quo until the parties' rights are determined at trial. In such a case, it is necessary to first identify the legal or equitable rights that are to be determined at trial. The applicant for the injunction must show a sufficient likelihood of success to justify preserving the status quo until the trial of the action and that the balance of convenience justifies the order.

14 On reflection, however, I am not satisfied that is the proper characterisation of the issues in this case. In essence, Easy Stay is seeking the injunction so that any eventual relief it might obtain on judicial review will not be rendered, in a practical sense, nugatory. The relief sought is more akin to an application in the court's inherent power to protect the integrity of its processes once set in motion: CSR Ltd v Cigna Insurance Australia Ltd [1997] HCA 33; (1997) 189 CLR 345, 391 392. That inherent power is not restricted to closed categories, but may be exercised when the administration of justice so demands or when necessary for the protection of the court's proceedings or processes.

15 Easy Stay could have applied for suspension of enforcement, by an application for an order under s 15 of the Civil Judgments Enforcement Act. The principles applicable to such an application are well recognised: see Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308; Ladang Jalong (Australia) Pty Ltd v Callander [2005] WASCA 203. The principles are materially the same as those which applied in the exercise of the court's inherent jurisdiction.

16 In my opinion, those principles are relevant to this application. That is, there is a further relevant consideration of whether the injunction is necessary to preserve the subject matter or the integrity of the proceedings for judicial review. Easy Stay must establish that it has reasonable prospects of success, and that the balance of convenience lies in its favour.

17 Grounded Construction served four adjudication applications on Easy Stay in June 2017. The applications related to four invoices totalling just under $1 million.

18 On 5 July 2017, Mr Faigen was appointed adjudicator for the four applications. The adjudicator made four determinations on four successive days from 21 July 2017.

19 There is a great deal of repetition between the four applications and adjudications. Grounded Construction claimed that it entered into a contract with Easy Stay on or about 22 February 2017 to supply Easy Stay with labour, plant, equipment and materials for the construction of a mining village. The contract was said to be 'comprised of [Grounded Construction's] 4 page letter of offer which was accepted by [Easy Stay's] project director, Aaron Liang, in writing by email and by returning a signed copy of [Grounded Construction's] letter'.

20 In their adjudication response, Easy Stay submitted that there was no construction contract as defined by the Act. Alternatively, if there was a construction contract its existence and terms would require investigation, 'including the discovery of documents and cross-examination of witnesses, that could not be conducted under the process contemplated by the Act and the adjudicator is required to dismiss the application under s 31(2)(iv)'. Alternatively, Easy Stay submitted that there was no valid payment claim complying with sch 1, div 4 of the Act. It further submitted that the claim is a quantum meruit claim not permitted under the Act. As a further alternative, Easy Stay submitted that it has claims against Grounded Construction, and that the adjudicator would need access to documents and the cross-examination of witnesses. Easy Stay also submitted that Grounded Construction had abused the process under the Act by making four applications rather than properly disclosing the total number of invoices raised and an amount paid, and that there was a need to set off payments against any amount found to be payable.

21 In the body of its submission, Easy Stay submitted that the parties contemplated that a formal contract would be prepared to document any agreement between the parties. It alleged that it sought to finalise the contract on about 15 May 2017, but no agreement was made. Referring to the letter relied upon by Grounded Construction, Easy Stay submitted that the 'acceptance' was merely a component of a contract and a step in negotiations towards a contract that was not made.

22 In his adjudication in matter number 03/17/03 (which I take as one example) the adjudicator found, at page 4 of 10, that there was a contract that satisfies s 3 of the Act. The adjudicator noted Easy Stay's argument that the application was essentially seeking payment by way of quantum meruit claims, but rejected the argument. Although the adjudicator did not immediately set out his reasons for rejecting that argument, he later found that the contract was a 'cost plus contract' based on agreed rates.

23 At pages 7 8 of 10, the adjudicator stated under the heading, 'The Contract':

The various Annexures to the Application revealed there was discussion between the parties about 'budgets', changes of rates of pay, the sorts of matters that will be included in the costs air fares, labour, accommodation, fuel, equipment rates and that '... Day work would be [signed off] daily and invoiced weekly.'

The contract is not in the form of a pro forma industry produced pro forma document but in the form of an exchange of emails between them in the period 22-23 February 2017 (Annexure 3).

Despite the Respondent did not execute the documentation there is a clear intention to enter into a legal relationship, there is an offer in the form of a 'Letter of Offer'(Annexure 3 in the Application) and there is acceptance of that offer by virtue of the email dated 22 February 2017 reference: email from Respondent dated 22 February 2017 in Annexure 3 (as revision 4) in the Application - which states:

'ESMACC is pleased to advise acceptance of your SOR V3 subject to amendment of the 3 rates mentioned below. Please proceed on the basis of this acceptance... Accounts will issue an order along with and order for the transit frames ...'

...

The notion of 'fixed' or 'lump sum' contracting is dispelled by documents in Annexure 4 which refer to ' BUDGET' ... And confirms '... Grounded Construction will supply materials and labour at cost plus 10%...' Attached to the facing page were several pages of rates for labour and machinery.

Annexure 5 in the Application confirms that works were carried out with the knowledge of the Respondent with copies of labour charges, bin charges, and updates of plant and equipment registrations.

There is a clear dialogue between the parties before acceptance that establishes involved labour and machinery hire rates and that this arrangement was to be cost plus.

24 The adjudicator found that there was a payment dispute within s 6 of the Act (page 4 5 of 10) and that the application by Grounded Construction was made within the time required to comply with s 26.

25 He further found, at 8 of 10, that the claim was in writing and in accordance with the format requested by Easy Stay. Specifically, he found that it was signed by the representative of Easy Stay, saying this nullified any argument that Easy Stay was not provided with sufficient material to substantiate the claim.

26 The starting point is that the determination of an adjudicator under s 31(2)(b) cannot be appealed or reviewed: s 46(3). Section 46 does not exclude judicial review of a determination for jurisdictional error, but review for a non-jurisdictional error, such as an error of law on the face of the record, is not available: Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217; (2011) 43 WAR 319 [118] [126].

27 Section 31(2)(a)(i) of the Construction Contracts Act provides:

(2) An appointed adjudicator must, within the prescribed time or any extension of it made under section 32(3)(a)

(a) dismiss the application without making a determination of its merits if

(i) the contract concerned is not a construction contract;

28 The matters in s 31(2)(a)(i) (iv) are 'jurisdictional facts' which condition the lawful exercise of the function committed to an appointed adjudicator under s 31(2)(a): Perrinepod [115]. An adjudicator will not exceed the jurisdiction to make a determination merely because he or she misconstrues the contract or makes an error in the application of its terms to the facts found: Laing O'Rourke Australia Construction Pty Ltd v Samsung C&T Corporation [2016] WASCA 130 [101] (Martin CJ). But the power of the adjudicator is dependent upon the actual existence of a construction contract as defined in s 3: see Laing O'Rourke [197] [198] (McLure P).

29 Easy Stay's primary submission is that the determinations are susceptible to challenge on the ground that there was no construction contract between Easy Stay and Grounded Construction. It couples that submission with the related argument that the adjudicator was required to determine the merits of the payment dispute by reference to the construction contract that was before him: see Laing O'Rourke Australia Construction Pty Ltd v Samsung C&T Corporation [2015] WASC 237 [219]. Easy Stay thus submitted:

[A] jurisdictional error in each of the adjudication applications in this case is a failure to find the express terms of the contract regarding agreements as to rates and prices; and a complete absence in the Adjudicator's reasons grappling with the application of those rates to the reasonableness of the work done, the rates and the invoices themselves.

30 Easy Stay also submitted, from the obligation of the adjudicator to give reasons, that it was jurisdictional error if the reasons did not demonstrate a rational approach and reasonably explain the basis for the determination: citing BGC Construction Pty Ltd v Citygate Properties Pty Ltd [2016] WASC 88. As I understood the submission, counsel said that Easy Stay was not challenging the adequacy of the reasons. But where Easy Stay had put in issue whether there was a contract, any payment claim must identify the term of the contract under which the claim is made, and put on evidence sufficient to support its claim that the amount of money claimed is as a result of the work having been done in a reasonable time and for a reasonable amount. The reasons of the adjudicator must identify the terms of the contract on which he relied to justify the payment claimed. In the context of this contract, it was submitted, the adjudicator was required to make specific findings of fact about what the contract was, and its terms, and to analyse the reasonableness of the claim as to rates, times and amounts against those terms.

31 Easy Stay also relied in its written submissions on statements by Ipp J in West Boat Builders Pty Ltd v Cull Holdings Pty Ltd [1999] WASCA 72 [7]. The passage relied on is concerned with the adequacy of the invoices in that case to prove the reasonableness of the amounts charged by Cull Holdings for the work it carried out. In my opinion, the error identified by Ipp J in that case would be unlikely to be found to be jurisdictional error in the context of the Construction Contracts Act. But it is unnecessary for me to consider the submission further.

32 The case advanced by Easy Stay is arguable. If the matter is to proceed, it would be preferable for the grounds of the application to be redrafted to more clearly identify the alleged errors as errors going to jurisdiction and perhaps avoid the apparent overlap that permitted counsel to submit that his submission at one point was as to grounds 1, 2, 3 and 4.

33 It was not argued in the interlocutory application, but the parties will need to consider the implications of the determinations being filed in the District Court. In particular, Easy Stay seeks a writ of certiorari. That writ is available only in respect of an exercise or purported exercise of power which has, at the date of order, an 'apparent legal effect': Wingfoot Australia Partners Pty Ltd v Kocak [2013] HCA 43; (2013) 252 CLR 480 [25]. The determinations are now taken to be orders of the District Court. I would be assisted by submissions on whether the determination of the adjudicator now has legal effect and is susceptible to being called up and quashed.

34 Each party has expressed concern about the other's financial position.

35 Easy Stay submits that Grounded Construction has liabilities to its contractors which may result in the funds it obtains by enforcement of the determinations being consumed. It relies primarily on an affidavit of Stephen Craig Laverick, sworn 25 August 2017 the day of the hearing. Mr Laverick deposes that people from three businesses who contracted with Grounded Construction have approached him for payment, saying that Mr Natoli from Grounded Construction had told them he does not have the money to pay them. Easy Stay submits that, should the enforcement process continue, amounts paid to Grounded Construction may be consumed, and it may be unable to recover them.

36 Grounded Construction did not address the question of its ability to repay, should Easy Stay ultimately succeed. But Easy Stay only raised that issue squarely in its last affidavit, filed very shortly before the hearing. Further, even if Grounded Construction may need payment of these amounts to meet its immediate obligations to subcontractors, Easy Stay has not shown that any judgment it might later obtain would be nugatory. That is, it has not addressed Grounded Construction's general ability to repay.

37 Grounded Construction relies on the affidavit of Paul Victor Natoli, sworn 23 August 2017. Mr Natoli annexes documents to show:

(1) Easy Stay was only registered as a company on 4 January 2017.

(2) On 6 April 2017, Easy Stay's parent company cancelled the business name 'Easy Stay Mining Accommodation'.

(3) On 5 July 2017, the date of Mr Faigen's appointment as adjudicator, a new company ESMACC Pty Ltd was registered.

(4) On 12 July 2017, the solicitors for Grounded Construction wrote to the solicitors for Easy Stay, referring to information that Easy Stay was requesting contractors and suppliers to replace or transfer existing contracts to OCS International Pty Ltd. Mr Laverick is the sole director of OCS International. The solicitors for Easy Stay responded:

Our client will continue to observe all of its obligations under law and good commercial practice. However, our client is entitled to take action to protect itself from the consequences of your client's breaches and in furtherance of its duty and legitimate interest in mitigating its loss.

The evidence is not sufficient, in itself, to support a finding that Easy Stay is transferring its contracts.

(5) From 1 July 2017, ESMACC Pty Ltd began to pay the former employees of Easy Stay.

(6) On 17 August 2017, a security interest over all present and after acquired property, granted by Easy Stay to OCS International Pty Ltd, was registered.

38 Easy Stay has not responded to any of these claims.

39 On the basis of this evidence, Grounded Construction submits that Easy Stay may be unable to pay the amounts for which it now has judgments. Should the debt appropriation orders not be enforced now, Mt Morgan may not later have debts then due and payable and able to be appropriated to the enforcement of the judgments.

40 In my opinion, both the balance of convenience and wider discretionary considerations require the court to have regard to matters going beyond the two parties.

41 An important factor is that the scheme of the Construction Contracts Act is clearly directed to ensuring the flow of funds in projects. The object of the scheme in pt 3 div 3 of that Act is to determine payment disputes arising out of construction contracts 'fairly and as quickly, informally and inexpensively as possible' (s 30), with the primary aim of keeping the money flowing down the contractual chain: see Perrinepod Pty Ltd v Georgiou Building Pty Ltd [88]. In Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 [55], Pullin JA (Newnes and Murphy JJA) said:

The broad purpose of the Act, insofar as it relates to payment disputes, is to ensure that, in construction contracts, progress claims are paid on time and that principals obliged to pay do not act as their own judge and jury and hold up payment on their own assertion that they have a defence warranting refusal to pay. It is a 'pay now, argue later' system: Multiplex Constructions Pty Ltd v Lui Kans [2003] NSWSC 1140 [96] (Palmer J), with the primary aim of keeping the money flowing by enforcing timely payment: Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217; (2011) 43 WAR 319 [87]. If a payment dispute arises, then the Act provides for a system of rapid and summary adjudication which is conducted without any oral hearing. If the adjudicator, having received written submissions, makes a determination that the payment has to be made, then that determination gives rise to a debt 'presently due' and payable by the principal: see Georgiou Building v Perrinepod [2012] WASC 72 [32].

42 Neither party can be adequately protected from the consequences should that party be unsuccessful at this stage, but ultimately succeed. On balance, I believe that the better course is to not restrain Grounded Construction from continuing in its attempt to enforce its judgments. That is more consistent with the objects of the Construction Contract Act - particularly now that leave is no longer required to enforce a determination.

43 I considered the possibility of requiring Easy Stay to pay the disputed amount into court as a condition of any restraint. Easy Stay seemed ready to accept payment of the amount subject to the debt appropriation order, although it was unclear whether that was to be from its own funds or from any appropriated debt. Ultimately, however, I am not satisfied that tying up the funds in a court order is consistent with the objects of the Construction Contracts Act.

44 The application for interlocutory relief will be refused.