Easy Stay Mining Accommodation Pty Ltd v Grounded Construction Group Pty Ltd

Adjudications under the Construction Contracts Act 6 GCG has sought adjudications under the CCA in respect of the amounts claimed in nine of the invoices. Just before GCG signed the statutory demand, it made four applications for adjudications under the CCA. Each application related to the claims in one of the invoices referred to in the statutory demand. 7 On 21, 22, 23 and 24 July 2017 (that is, just before Easy Stay applied to set aside the statutory demand) the adjudicator published determinations in respect of each of the four applications. Each determination was in favour of GCG and the total amount adjudicated to be paid by Easy Stay to GCG was $948,018. 8 GCG then took action to enforce the determinations and, on or around 24 October 2017, GCG received a payment of the full amount of $984,018. The payment was made on the basis of a personal undertaking from Mr Paul Natoli, a director of GCG, that he would repay the amount if an application for judicial review of the four adjudications which had been commenced by Easy Stay was successful. In the present proceedings, GCG accepts that despite this condition, the payment was received in satisfaction of the four invoices: see the affidavit of Mr Joshua Leslie sworn on 22 March 2018 at para 4. Therefore, I do not need to consider the significance, if any, of the condition for the present application. 9 The application for judicial review has not been determined. However, in those proceedings, in the course of considering whether to grant some form of injunctive relief to restrain GCG from taking action to enforce the determinations by the adjudicator pending the outcome of the application for judicial review, Allanson J in the Supreme Court of Western Australia found that Easy Stay's case on the application was arguable (though his Honour declined to grant injunctive relief): Easy Stay Mining Accommodation Pty Ltd v Faigen [2017] WASC 266 at [32]. 10 In August 2017, GCG commenced applications for adjudication in respect of five more of the invoices. Those applications were successful and the total further amount adjudicated to be paid by Easy Stay to GCG was $549,013.06. This amount has not been paid. 11 Steps have been taken by GCG to enforce these further adjudications. Judicial review has been sought by Easy Stay. 12 On both applications for judicial review, one of the grounds raised is that there is no enforceable contract between the parties and GCG is only entitled to a claim in quantum meruit for the work at the mining camp. It is said that in those circumstances there is no construction contract for the purposes of the CCA and therefore no statutory authority for an adjudicator to make any determination in respect of the invoices. In other words, the adjudicator's jurisdiction does not extend to determining whether there is a construction contract to which the CCA applies. The proposition that there is jurisdictional error if an adjudicator was to purport to determine an application where there was no construction contract and therefore no dispute that can be adjudicated under the CCA finds support in the recent decision in Samsung C&T Corporation v Duro Felguera Australia Pty Ltd [2018] WASCA 27 at [167] and [179] (Buss P & Murphy JA).

Grounds of application to set aside 13 On the present application, Easy Stay relies upon the same argument that it has raised in the two judicial review proceedings in support of its contention that there is a genuine dispute between the parties. It says there is no contract and there can be no adjudication under the CCA of a claim in quantum meruit. It also says that the statutory liabilities arising from the adjudications were not the subject of the statutory demand because the demand describes the debt as unpaid monies due pursuant to an agreement dated 22 February 2017. Easy Stay also relies upon the fact that the applications for judicial review are pending as 'some other reason' why the demand should be set aside. Finally, it claims that the statutory demand is an abuse of process because the pursuit of the adjudications is, in effect, an acknowledgement that there is a genuine dispute about the claims in the invoices. 14 GCG says that there is no genuine basis to claim that there is no contract between the parties. It says that the contract was entered into by a Mr Aaron Liang of Easy Stay signing a document dated 22 February 2017 which recorded schedules of rates to apply to the works and incorporated GCG's standard terms and conditions. It says that the adjudications have the effect of deciding that there is a contract and that the debt the subject of the statutory demand is due and payable. Further, this court must give effect to this determination. It denies the claim of abuse of process and says that it was raised for the first time at the hearing, it was not raised by the affidavit filed with the applications to set aside the statutory demand and it therefore cannot now be raised. 15 GCG claimed in written submissions that the application to set aside was defective because Easy Stay had not provided evidence as to the statutory demand. Reliance was placed upon a number of authorities including Expressway Spares Pty Ltd v CTK Engineering Pty Ltd [2000] NSWSC 1200 at [3] and Cartwright Hill Pty Ltd v Stargames Corporation Pty Ltd [2003] NSWSC 703. It is not necessary for me to consider this point because I received into evidence, without objection by GCG, a late affidavit for Easy Stay which annexed the statutory demand.

Principles to be applied on set aside applications 16 On an application to set aside a statutory demand, it is for the company served with a statutory demand to satisfy the Court that one of the statutory circumstances in which the demand may be set aside has been established: Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 at [15]. 17 If the Court is satisfied that there is a genuine dispute about the existence or amount of a debt to which the demand relates or there is an offsetting claim then it must calculate the substantiated amount of the demand in accordance with the statutory formula in s 459H of the Corporations Act 2001 (Cth). No claim is made by Easy Stay that there is an offsetting claim. 18 So, the Court must consider whether it is satisfied that there is a 'genuine dispute'. It is necessary to give effect to those statutory words without any gloss. In the decided cases, many formulations have been given as to what is meant by those words. McKerracher J helpfully collected together a summary of the cases in Citation Resources Ltd v IBT Holdings Pty Ltd [2016] FCA 1265 at [17]: In short then: (a) For there to be a genuine dispute, there must be a 'plausible contention requiring investigation'. It raises the same sort of considerations as the 'serious question to be tried' criterion applicable to interlocutory injunctions. (b) The company will fail in that task only if it is found upon the hearing of its s 459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. (c) The Court is not called on to determine the merits of, or to resolve, the dispute. (d) The threshold is not high or demanding; however the claim must have some merit and be genuine. That requirement has been described variously as the claim must be 'real and not spurious', the claim must have 'a real chance of success', there must be 'a serious question to be tried'. (e) The Court does not engage in any form of balancing exercise between the strengths of competing contentions. (f) The essential task is relatively simple - to identify the genuine level of a claim (not the likely result of it). (g) A mere assertion of an oral agreement will not necessarily suffice. 19 Separately, under s 459J(1), the Court may set aside the demand if it is satisfied that: (a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or (b) there is some other reason why the demand should be set aside. 20 As to s 459J(1), no claim was made before me that there was a relevant defect in the demand. The authorities as to what may constitute 'some other reason' were collected by Gething AM in Kellogg Brown & Root Pty Ltd v Doric Contractors Pty Ltd [2014] WASC 206 at [40]-[41]. Some divergence in the cases was there identified. Given its statutory context, in my view, the power would not extend to setting aside a statutory demand for a reason that would undermine the evident statutory purpose of providing a clear and fair mechanism by which there may be a formal demand for payment which, if not met, may provide a foundation for a winding up application. In resolving the divergence, there may be significance in the fact that the 'other reason' must be a reason why the demand should be set aside, not a wider reason why a party should not be allowed to proceed with the statutory demand procedure in the interests of justice. The statutory provision does not, in terms, confer a broad discretion to prevent a party from proceeding with the statutory demand procedure. It focusses upon the demand itself and requires a reason why it should be set aside. It may also be significant that s 459L requires the court to dismiss a set aside application unless an order is made under s 459H or s 459J. This appears to manifest an intention that there are limited circumstances in which the demand may be set aside and that outside those limited circumstances the court must not set aside the demand. 21 In Durkan v Sandbank Holdings Pty Ltd [2008] WASCA 249, the court dismissed an appeal against a decision setting aside a statutory demand. When the matter came on for appeal there was less than a month to when a District Court action was to be heard in respect of the claim the subject of the statutory demand. In those circumstances, the Court dismissed the appeal on the basis that there was an 'other reason' why the demand should be set aside. It expressed that reason in the following terms: … that it is not in the interests of justice for this court to analyse the genuineness of the respondent's claim so close to the time the District Court Action is to be decided on the merits, and in circumstances where the appellants did not seek to expedite the hearing of the appeal, did not apply for summary judgment in the District Court Action and did not obtain an order striking out the statement of claim. 22 I note that it was not merely the prospect of an imminent hearing but also the fact that the party seeking to rely upon the demand had not taken other steps that might be expected where there was no genuine dispute that caused the Court to conclude that there was 'some other reason why the demand should be set aside'. 23 In the result, it is not necessary to consider the precise extent of the 'other reason' ground under s 459J(1)(b). In particular, it is not necessary to consider whether the fact that there are other proceedings that will be heard in the not too distant future (being the judicial review proceedings in respect of the adjudications) may be sufficient of itself to constitute a reason for the purposes of s 459J(1)(b) because I am satisfied that the demand should be set aside under s 459H. 24 Finally, a party seeking to set aside a statutory demand is not entitled to rely on any ground which was not raised in the affidavit filed within the 21 day limit for such an application specified in s 459G(3): Energy Equity Corporation Ltd v Sinedie Pty Ltd [2001] WASCA 419 at [29] and MNWA Pty Ltd v Deputy Commissioner of Taxation [2016] FCAFC 154; (2016) 250 FCR 381 at [93]-[97].

Affidavit evidence 25 Easy Stay filed an affidavit of Mr Stephen Laverick in support of the application. Mr Laverick is a director of Easy Stay. He deposed to the terms of a conversation that Mr Laverick said he had in February 2017 with a director of GCG, Mr Paul Natoli, concerning work at the mining camp as follows: Natoli met with me at the Worsley Village, which is two hours sought of Perth to discuss his request for more work including at Mt Morgan. We had a discussion to the following effect: Natoli: 'I have no work on at the moment, can you keep us going?' Me: 'Work is tight in the industry as you know. We may be able to help but there is no money in the job and the management by you of resources and costs would have to be very tight to bring the project in at bare minimum cost.' Natoli: 'We have built camps before and we have plenty of good men that can operate with top efficiency and reduce costs.' Me: 'The rates have to be at cost and I must approve of any commercial arrangements and I will approve the invoices and the work. You can progress matters with my staff but I will be the only person authorized to commit the company.' (by this I made clear that the works and costs would be subject to close personal scrutiny to ensure that the costs were tightly controlled and I would be the only person to enter into any arrangement committing the company and would approve any payment. This reflected my standard approach to contracting and I had insisted on this arrangement with Dacian.) Natoli: 'ok, I understand, I have built camps before and have a crack team working for me.' Me: 'We will agree a percentage around 10%, what will that cover? It will need to cover your time, your accounts team and your head office costs.' Natoli: 'Ok.' (I ignore the words in parenthesis which are a comment about a matter which is in issue on this application rather than evidence). 26 Mr Laverick's affidavit also set out matters said to give rise to issues as to the reasonableness of the cost being charged to Easy Stay and the benefit that has been delivered to Easy Stay being matters relevant to a claim in quantum meruit. 27 Mr Natoli provided an affidavit in response. In the affidavit he said nothing about the conversation deposed to by Mr Laverick. He deposed that on 22 February 2017, Easy Stay and GCG entered into a construction contract for the construction of the mining camp for Dacian Gold at Mount Morgans and produced a document that he described as 'a copy of the signed schedule of rates contract' (Document). The Document was dated 22 February 2017. It was headed 'Construction Schedule of Rates'. It was in the form of a letter addressed to Mr Aaron Liang and described as 'Proposal For: ESMACC' (the expression ESMACC appears to be an abbreviation for Easy Stay Mining Accommodation Pty Ltd). The Document commenced: Grounded Construction Group are pleased to submit our budget submission for your consideration. Our proposal is based on specifications as provided by ESMACC for the installation of Dacian Gold village. Please see below for our costs breakdown and inclusion/exclusion list for your review and acceptance. 28 The Document included some further details and then set out a schedule of 'Trade Rates' and a separate schedule of 'Equipment Rates'. It provided that standard terms and conditions of GCG would apply. The document was signed by Mr Natoli as 'Managing Director'. It provided for client acceptance. The Document was signed by Mr Liang. There was no suggestion that Mr Liang was not an employee or officer of Easy Stay. Equally, there was no evidence as to his position or authority within the company. 29 Mr Natoli's affidavit also produced seven of the invoices the subject of the statutory demand. He then deposed that GCG had 'never received a notice of dispute in relation to any of the invoices'. 30 The affidavit also dealt with the first four adjudication applications under the CCA. There were further affidavits dealing with the other invoices as well as the considerable disputation since the statutory demand in respect of the claims by GCG against Easy Stay under its outstanding invoices and the nine adjudications under the CCA.

The nature of adjudicatIons under the Construction Contracts Act 31 The CCA provides for the adjudication of payment disputes that arise under construction contracts. The object of the adjudication procedure under the CCA is to determine the dispute fairly and as quickly, informally and expensively as possible: s 30. The adjudicator's determination is binding on the parties: s 38. A party liable to pay an amount under a determination must do so: s 39(1). However, the adjudicator does not make a final determination of rights. There are two provisions in the CCA that operate to give the determination a provisional character. First, if the determination is of a payment other than a final payment then 'the payment is taken to be an advance towards the total amount payable under the contract': s 40. Second, in the case of all determinations, the CCA does not prevent a party from instituting proceedings before an arbitrator or court in respect of the dispute: s 45(1). If such proceedings are instituted then what has been said or done in an adjudication is not admissible in those proceedings and once the arbitrator or court has decided the matter there must be an adjustment to reflect the payment made under any determination by an adjudicator: s 45(4). The result is that it is the arbitrator or court that ultimately determines any claim, not the adjudicator. Payments required to be made under the CCA, in effect, are payments on account. 32 So, although the determination of an adjudicator under the CCA creates a binding statutory obligation to pay, it is not a final determination of the merits. Further, none of the material put to the adjudicator or the reasoning of the adjudicator can be relied upon in any other proceedings. In those circumstances, there is no sense in which an issue estoppel arises from the adjudicator's decision. Rather, the adjudicator determines an amount that must be paid by operation of statutory provisions without affecting the underlying common law rights of the parties. 33 When it comes to enforcement of the determination of an adjudicator, the CCA previously provided for a mechanism by which leave could be sought in a court of competent jurisdiction to enforce the determination as if it were a judgment of the court. In 2016, the relevant statutory provision was amended to provide for enforcement as an order of the court by filing in a court of competent jurisdiction a copy of the determination certified by the Building Commissioner and an affidavit as to the amount not paid under the determination: s 43.

Genuine dispute as to whether there is a contract 34 On the affidavit material filed, an issue arises as to whether a person with the requisite authority on behalf of Easy Stay entered into a contract with GCG when Mr Liang signed the Document. Significantly, the statutory demand claimed that the unpaid monies were due by Easy Stay under an agreement dated 22 February 2017 (being the date of the Document). The affidavit accompanying the statutory demand said that Easy Stay and GCG entered into a contract on 22 February 2017. Therefore, the demand alleged a claim based upon the Document. 35 Counsel for GCG recognised in the course of argument that any claim based upon a course of conduct or estoppel would mean that there would be a genuine dispute. This was no doubt because there were likely to be disputes as to the course of dealings between the parties in relation to the work. In any event, the only claim advanced by GCG to support the statutory demand was a claim that a contract had been made by the terms of the Document dated 22 February 2017. 36 In the course of oral argument, there was an attempt to support the existence of the contract by reference to claims that previous invoices had been issued based upon the schedules of rates in the Document and they had been paid by Easy Stay. However, there was no evidence before me as to those matters. 37 In the result, I am left with the evidence of the conversation deposed to by Mr Laverick to the effect that only he personally could commit Easy Stay to a contract. That conversation preceded the date of the Document. Further, there was some explanation provided in the affidavit of Mr Laverick as to the circumstances in which Easy Stay allowed work to be undertaken by GCG. In particular, he deposed that he 'instructed staff to pay lump sums on account of the invoices in order that cash flow was maintained but also to reserve Easy Stay position pending a final audit'. This explains Easy Stay's case as to how work proceeded despite the absence of a contract. 38 Having regard to the authorities as to what is required to demonstrate a genuine dispute, I am satisfied that there is a genuine dispute in respect of the existence of a contract. Easy Stay accepts a liability to pay on a quantum meruit basis in respect of work done however disputes whether the claims made have been reasonable. In that regard, it is significant that of the amount of $1,828,477.80 the subject of the statutory demand, an amount of $984,018 has now been paid. 39 GCG submits that I am bound to bring to account the determinations under the CCA. It says that those determinations establish that there is a construction contract. However, for reasons I have given, the adjudication process does not make any determination other than the determination of an amount to be paid by force of the statutory provisions. The adjudicator has no authority to determine whether there is in existence a construction contract. The existence of such a contract is necessary for the adjudicator to be able to make a valid determination. However, the adjudicator's views in that regard are not binding in any way. 40 In the adjudication process Easy Stay has challenged the existence of the contract. Further, it has sought judicial review on grounds that include a claim that there is no contract and the adjudicator has exceeded statutory jurisdiction. For reasons I have given, those claims are available to Easy Stay.

Statutory demand not based upon CCA adjudications 41 The statutory demand was made before any of the adjudications. Understandably, in those circumstances, the statutory demand does not claim that there is a debt due by operation of the CCA and the provisions stating that there is a binding obligation to pay the amount determined by the adjudicator. 42 In those circumstances, it is not necessary to consider the matters addressed in Kellogg Brown & Root Pty Ltd v Doric Contractors Pty Ltd and whether the views expressed in that case still apply now that leave of the Court is no longer required before taking to enforce a determination.

Abuse of process 43 In the above circumstances, it is not necessary to consider whether, on the facts I have found, the statutory demand might be set aside on the further basis that it was an abuse of process to issue the demand at a time when it was evident that GCG intended to invoke the adjudication procedure under the CCA in respect of a major part of the claim the subject of the statutory demand.

Conclusion and orders 44 For the above reasons, there should be an order that the statutory demand dated 30 June 2017 served on Easy Stay by GCG be set aside. Subject to one matter, Easy Stay, having been successful, is entitled to its costs. I have mentioned the late affidavit filed by Easy Stay providing the statutory demand and other matters. The proof of the statutory demand should have been addressed in the affidavit filed in support of the application. I will exclude those costs from the costs order. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin.