Fitz Jersey v Atlas Construction Group

Background

1. The developer is the proprietor of land at Mascot. In about December 2010, it retained the builder for several purposes, including to undertake the design of a mixed use (residential and commercial) development of the Mascot property, to prepare the necessary documents and to make the necessary applications. That agreement is said to be oral. It is said to have been supplemented, or superseded, by a written agreement (which is said to include implied terms) made on about 17 December 2010. Under that agreement, the developer says, the builder undertook to design and construct the project for a fixed price of $180 million (excluding GST), plus reimbursement of design costs.
2. The work was divided into two separable portions: effectively, one for the northern part of the site and one for the southern part of the site. It is the developer's case that Separable Portion 1 reached practical completion in about November 2013, and that Separable Portion 2 reached practical completion in about September 2014.
3. The written contract required there to be a Superintendent (cl 20). It provided, in the usual way, for the Superintendent to certify practical completion (cl 34.6). However, the particulars given of the allegations of practical completion in respect of the two Separable Portions do not refer to any Superintendent's certificate. They refer instead to facts which, presumably, are intended (if proved) to show that each of the Separable Portions reached practical completion in fact, having regard to the pleaded facts and the definition of practical completion (which was in the usual form.)
4. The draft amended technology and construction list statement (ATCLS) "pleads", further, that in about mid 2013, there was an oral agreement made between the developer and the builder whereby the former agreed to pay the latter $10 million in full and final settlement of all claims that the builder might have against the developer under the contract, including for variations. The alleged settlement is expressed not to extend to, or include, the developer's liability to reimburse the builder for design costs. The ATCLS pleads that the builder claimed the amount of $10 million together with GST, and that the developer paid it on about 31 October 2013. In those circumstances, the developer says, it has paid the builder the entire fixed contract price (as amended by the alleged settlement agreement).
5. On 15 November 2016, the builder served on the developer a document that was said to be a payment claim for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act). That payment claim sought payment of $10,748,466 including GST. On 29 November 2016, the developer served on the builder a document described as a payment schedule. The payment schedule denied that the payment claim was valid. It said that there had been no reference date within the 12 month period preceding 15 November 2016. It said, further, that as a result of the commercial settlement to which I have referred, the builder was not entitled to any further payment. Accordingly, the payment schedule stated a scheduled payment of "$NIL".
6. The builder sought adjudication of its payment claim. The authorised nominating authority referred the matter to an adjudicator. The adjudicator, apparently after calling for submissions, concluded that he had jurisdiction, and that the builder had made good its entitlement to the claimed amount.
7. The developer did not pay the amount of the progress payment that the adjudicator had determined to be payable. Accordingly, the builder obtained an adjudication certificate (s 24(1)(a) of the Security of Payment Act). It filed that certificate in this court and recovered judgment for a debt accordingly. It then procured the issue of a garnishee notice directed to the developer's bank, and by those means recovered payment of the adjudicated amount.
8. The developer sought an interlocutory mandatory injunction, requiring the builder to repay the amount that it had recovered from the bank, and either to pay it into court or to pay it to the developer for payment into court. I heard and decided that application on 6 February too, concluding that the relief sought should be refused [1] . The developer sought leave to appeal. After a hearing which covered both leave and the arguments on the proposed appeal, the Court of Appeal, although granting leave, dismissed the appeal [2] .

The applications for leave to amend and for summary dismissal

1. In substance, the developer contends that the adjudicator's determination is void, because he lacked jurisdiction to decide the claim. Thus, it says, this court can set aside the judgment recovered upon filing of the adjudication certificate, even though the judgment debt has been paid. If that happens, presumably, the developer would be entitled to have repaid to it the amount paid out to the builder (see s 32(3)(b) of the Security of Payment Act).
2. The developer's argument as to invalidity is put in two ways: 1. first, the developer says, practical completion was achieved by about 15 September 2014 (being the alleged date of practical completion of Separable Portion 2). The last reference date under the contract was therefore 13 October 2015. That date takes into account the contractual defects liability period (DLP) of 52 weeks commencing on the date of practical completion (cl 35 read in conjunction with item 32 of Part A of the Annexure to the contract) and the contractual requirement for a final payment claim to be delivered within 28 days after expiry of the DLP (cl 37.4). 2. Alternatively, the developer says, the effect of the settlement agreement is that thereafter, the builder had no entitlement to be paid under the contract, and there was no available reference date.
3. The builder accepts that the existence of a reference date was a precondition to the making of a valid payment claim. It was correct to do so: Southern Han Breakfast Point Pty Ltd (In Liq) v Lewence Construction Group Pty Ltd [3] . However, the builder submits, each of the two arguments had been put to and rejected by the adjudicator. In each case, the adjudicator had rejected the arguments because of his conclusions on the underlying facts. In those circumstances, the builder submitted, there was no basis for this court to intervene. Thus, the builder contends, the developer's case, both as presently pleaded and as proposed to be pleaded, is hopeless.
4. The developer submits, in response, that the adjudicator could not authoritatively determine jurisdiction, so as to preclude this court from intervening if there were jurisdictional error. The developer cited Southern Han [4] , and Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [5] . In this context, the developer submitted, the limitation set out in s 13(4)(b) of the Security of Payment Act - that a payment claim may only be served within the period of 12 months after the construction work to which the claim relates was last carried out - was jurisdictional. The developer cited Chase Oyster Bar [6] and Maxcon Constructions Pty Ltd v Vadasz (No. 2) [7] .

The adjudicator's reasons

1. The adjudicator reviewed in some detail the evidence put before him and the parties' submissions. So far as is relevant, he dealt with the first of the developer's arguments as a question of fact. He concluded that he was not satisfied that practical completion of Separable Portion 2 occurred at the latest by mid 2015. He noted that no Certificate of Practical Completion had been sought from or issued by the Superintendent (or the developer). Finally, he concluded that the builder had performed some work under the contract as late as January 2016. The adjudicator reasoned that it was work of a kind that one would expect to be performed within a DLP, which led him to infer that the contractual DLP "is likely to have been ongoing at that time". It followed, in his view, that a payment claim made in November 2016 was made "within 12 months of expiry of the DLP".
2. As to the second reason, the adjudicator pointed out an internal inconsistency in the developer's submissions. On the one hand, the developer relied on an invoice given on 15 September 2014 and paid shortly thereafter (relating to the $10 million said to be owing under the settlement agreement). On the other hand, as the adjudicator noted, it was the developer's case that practical completion of Separable Portion 2 occurred no later than July 2015. That led him to infer, as the builder had submitted he should, that the $10 million payment related to Separable Portion 1 and was not "evidence of the commercial settlement relating to the whole of the construction works".

Decision

1. Since this is a decision on an interlocutory application (or two interlocutory applications, if one takes into account as well the builder's application for summary dismissal), it is not necessary that I express a final conclusion. In some circumstances, where an interlocutory application raises a question of law, the court may decide it. But the court need not decide it. Whether or not it should be decided depends on a number of factors, as McClelland J pointed out in Kolback Securities Ltd v Epoch Mining NL [8] .
2. The question for now really is whether it is arguable that, despite the adjudicator's factual findings, either (or both) of the positions for which the developer contends is (or are) arguable. That question must be answered on the assumption that the facts proposed to be pleaded are correct.
3. The starting point is, as I have said (and as the builder rightly accepts), that adjudicators cannot authoratively determine their own jurisdiction. It must follow, even where an adjudicator's decision that he or she has jurisdiction depends on findings of fact, that the decision (and to the extent necessary, the findings of fact on which it is based) can be examined and if necessary set aside by this court.
4. So far as I know, there is no decision of this court holding that the requirements of s 13(4)(b) of the Security of Payment Act are jurisdictional. That subsection appears within a section which sets out, under the rubric "payment claims", the procedure to be followed by a person who is or who claims to be entitled to a progress payment, and wishes to recover it. For convenience, I set out the whole of s 13: 13 Payment claims (1) A person referred to in section 8 (1) who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment. (2) A payment claim: (a) must identify the construction work (or related goods and services) to which the progress payment relates, and (b) must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount), and (c) if the construction contract is connected with an exempt residential construction contract, must state that it is made under this Act. (3) The claimed amount may include any amount: (a) that the respondent is liable to pay the claimant under section 27 (2A), or (b) that is held under the construction contract by the respondent and that the claimant claims is due for release. (4) A payment claim may be served only within: (a) the period determined by or in accordance with the terms of the construction contract, or (b) the period of 12 months after the construction work to which the claim relates was last carried out (or the related goods and services to which the claim relates were last supplied), whichever is the later. (5) A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract. (6) However, subsection (5) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim. (7) A head contractor must not serve a payment claim on the principal unless the claim is accompanied by a supporting statement that indicates that it relates to that payment claim. Maximum penalty: 200 penalty units. (8) A head contractor must not serve a payment claim on the principal accompanied by a supporting statement knowing that the statement is false or misleading in a material particular in the particular circumstances. Maximum penalty: 200 penalty units or 3 months imprisonment, or both. (9) In this section: supporting statement means a statement that is in the form prescribed by the regulations and (without limitation) that includes a declaration to the effect that all subcontractors, if any, have been paid all amounts that have become due and payable in relation to the construction work concerned.
5. The legislation considered by the Full Court in Maxcon was the Building and Construction Industry Security of Payment Act (2009) (SA) (the South Australian Act). The South Australian Act is substantially similar to the Security of Payment Act. Section 13 of the South Australian Act deals with "payment claims". So far as I can see, subs (1) to (5) are the same as the equivalent subsections in the Security of Payment Act, with the exception that the time limit in subs (4(b)) is 6, rather than 12, months. I set out s 13 of the South Australian Act: 13 - Payment claims (1) A person referred to in section 8 who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the contract concerned, is or may be liable to make the payment. (2) A payment claim - (a) must identify the construction work (or related goods and services) to which the progress payment relates; and (b) must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount); and (c) must state that it is made under this Act. (3) The claimed amount may include an amount - (a) that the respondent is liable to pay the claimant under section 28(3); or (b) that is held under the construction contract by the respondent and that the claimant claims is due for release. (4) A payment claim may be served only within - (a) the period determined by or in accordance with the terms of the construction contract; or (b) the period of 6 months after the construction work to which the claim relates was last carried out (or the related goods and services to which the claim relates were last supplied), whichever is the later. (5) A claimant cannot serve more than 1 payment claim in respect of each reference date under the construction contract. (6) However, subsection (5) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim.
6. The question argued in Maxcon was whether an adjudicator's determination could be set aside for non-jurisdictional error of law. The court held, following the decision of the Court of Appeal in this State in Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No.2) [9] , that it was not. It would seem that their Honours may have been disposed towards a different conclusion, but, based on what the High Court had said in Farah Constructions Pty Ltd v Say-dee Pty Ltd [10] , considered that, because they could not decide that Probuild had been wrongly decided, they should follow it. It was in that context that Blue J, at [114] and following of his reasons, considered the concept of jurisdictional error in the context of the South Australian Act. His Honour said, at [119], [120] (omitting footnotes): [119] There are several provisions of the Act which define or affect the jurisdiction of an adjudicator and the criteria enlivening the exercise of jurisdiction by an adjudicator. Without necessarily being exhaustive, they may be assumed to include: 1 the existence of a construction contract (as defined in section 5) between the parties; 2 service by a claimant of a payment claim in accordance with subsection 13(2) within the time limit in subsection 13(4); 3 application in writing by a claimant for adjudication of a payment claim made to an authorised nominating authority in circumstances prescribed by subsection 17(1) and (2) within the time limit in subsection 17(3)(c), (d) or (e) identifying the payment claim and the payment schedule (if any) to which it relates; 4 the adjudicator is eligible under section 18 and appointed by the chosen authorised nominating authority and accepts appointment pursuant to section 19; 5 the adjudicator determines the amount of the progress payment (if any) to be paid by the respondent to the claimant, the date on which it became or becomes payable and the rate of interest payable thereon in accordance with subsection 22(1); 6 the adjudication determination is in writing and includes the reasons for the determination in accordance with subsection 22(3); 7 the adjudicator considers only the matters identified in subsection 22(2) and considers an adjudication response only if it is made within the time limit in subsection 21(2) and a payment schedule was served within the time limit in subsection 14(4) and where applicable section 17(2)(b). [120] If objectively a defined criterion is not present, or if the adjudicator wrongly determines that it is present, the adjudicator will not have jurisdiction to adjudicate the dispute or (depending on severance principles) the relevant element of the dispute.
7. It may be argued that what Blue J said at [119] was not essential to his reasons for deciding the case as he did. Even if that submission were correct, it is a seriously considered statement in what was in effect the majority judgment of an intermediate appellate court dealing with very similar legislation. It may be that, on a final hearing, a judge of this court would decide that what Blue J had said was wrong, and (not being part of the precise reason for decision) not binding. Regardless, the developer's submission on s 13(4)(b) cannot be said, as effectively the builder's opposition in this case requires, to be hopeless.
8. I am not to be taken as expressing a view that Blue J was wrong. On the contrary, I think that there is substantial support for his inclusion of s 13(4)(b) within the list of jurisdictional matters. Support comes, among other things, from the statutory language "may be served only within… the period of 12 months after the construction work… was last carried out". As Spigelman CJ and I pointed out in Chase Oyster Bar [11] , the use of the formulation "may only" has been held to indicate a requirement that must be satisfied if jurisdiction is to be enlivened, or a condition of the grant of jurisdiction [12] .
9. If the requirements of s 13(4)(b) are jurisdictional, they must (if necessary) be proved. This is a case where it was necessary to do so. If the facts relied upon to prove compliance with s 13(4)(b) are not capable of doing so, a positive finding by the adjudicator that they do have that character cannot quarantine, from review in this court, a consequential finding of jurisdiction.
10. Accordingly, in my view, it is open to the developer to attempt to prove in this court that despite the findings of the adjudicator, there was no relevant available reference date, or (to the extent that it is a different point), the builder's payment claim was served outside the time limit prescribed by s 13(4)(b) of the Security of Payment Act, so that in either case the adjudicator lacked jurisdiction to determine the adjudication application.
11. Two things follow. The first is that the standard for summary dismissal set out in General Steel Industries Inc v Commissioner for Railways (NSW) [13] has not been satisfied. The second, following inevitably from the first, is that the amendment cannot be said to be plainly hopeless, so that it should be rejected as futile [14] .
12. For substantially similar reasons, the amendment based on the settlement agreement should also be allowed. If the adjudicator mischaracterised either the facts or the legal effect of whatever the agreement was, and thus found that he had jurisdiction when, on proper factual findings or a proper characterisation of the effect of the agreement he would not have had jurisdiction, then this court may intervene.
13. I add that the builder's written submissions in chief on the application for leave to amend took the point that the judgment recovered on the filing of the adjudication certificate was spent, because it had been satisfied, and thus that the judgment could not be set aside. It is not entirely clear if the builder formally abandoned this position.
14. All that need be said is that the proposition that a judgment can be set aside where an adjudicator's determination on which it is founded has been held to be void is supported by the decision of the Court of Appeal in Brodyn Pty Ltd v Davenport [15] . In my view, this aspect of the reasoning in Brodyn remains untouched by subsequent decisions of the Court of Appeal: in particular, the decision in Probuild. At the very least, the point for which, at one stage at least, the builder contended cannot be said to be unarguably correct, so as to justify summary dismissal (or refusal of leave to amend).
15. I should however note that in Fitz Jersey in the Court of Appeal, Basten JA appears to regard the point as unresolved. His Honour said [16] : It should be noted that little in fact turned on the supposed obligation to give notice of the existence of a judgment. At all stages from the moment that it was served with a copy of the adjudicator's determination, the developer was aware of its legal obligation, within five working days, to pay the amount of the determination, failing which the builder would have a right to obtain a judgment merely by obtaining and filing a copy of the adjudication certificate and taking steps to enforce it. For present purposes it may be accepted that the developer was no worse off having an unenforced judgment against it than it was immediately it had failed to pay the determined amount by the end of the specified period. In other words, it may be assumed that, if its challenge in the supervisory jurisdiction to the validity of the determination were to be successful, effective relief would not be precluded by the existence of the judgment, which might itself be set aside. However, the same assumption cannot be made once the judgment has been enforced and there is no outstanding debt. That result could be avoided if, however, the developer were to be successful on its grounds 2(a)-(c), addressing the circumstances in which the garnishee order was obtained.
16. I should also point out that in the same case, Leeming JA touched upon this (or, perhaps, a related) point [17] : Thirdly, s 25(4) in terms contemplates that the judgment debt may have been wholly or partially satisfied by the time the proceedings are commenced. That is the force of the words "the unpaid portion of the adjudicated amount." That is to say, far from connoting a statutory right to a stay, on the strength of which there may be implied an obligation to give notice to the judgment creditor before steps are taken by way of execution, the very words upon which the developer relies presuppose that there may have been partial or full satisfaction of the judgment debt.
17. The issue (if pressed) need not be resolved at this stage.

The discovery application

1. For the reasons I have indicated at [4] above, the discovery that the developer seeks should be ordered.

Conclusion, costs and orders

1. The developer has made good its application for leave to amend. Since there were some further amendments to the form of amendment that had been propounded, the order to be made should reflect that. The form of amended summons and amended technology and construction list statement for which the developer contended at the hearing were contained behind tabs 3 and 4 respectively of the court book that the developer prepared for the purposes of the interlocutory hearing. I will identify them in the customary way in the orders that I make.
2. The order for discovery can be made in terms of the developer's notice of motion filed on 15 February 2017.
3. As to costs, the usual position with interlocutory applications is that costs should be costs in the cause (UCPR r 42.7). That seems to me to be the appropriate costs order in respect of the application for discovery. As to the application for leave to amend and the opposing application for summary judgment, I think the appropriate costs order is that they should be the developer's costs in the cause. However, the court should make the usual order that the amending party pay costs thrown away by the amendment.
4. If either party wishes to contend for a different costs order, it should file brief written submissions outlining the orders sought and the reasons for it, and the opposing party should have a period of time to provide brief written submissions in reply. I will deal with that question on the papers.
5. I make the following orders: 1. Grant the plaintiff leave to amend its summons and technology and construction list statement by filing amended documents in the forms initialled by me and dated today's date. 2. Direct that the amended summons and list statement be filed and served by 5:00 pm 7 April 2017. 3. Order the plaintiff to pay the defendant's costs thrown away by reason of the amendments. 4. Subject to Order 8 below, order that the costs of the application for leave to amend, and such further costs as may be referable to the defendant's application for summary judgment, be the plaintiff's costs in the cause. 5. Order the defendant to give discovery of the documents set out in the plaintiff's notice of motion filed on 15 February 2017. 6. Direct the parties to agree on the time by which that discovery is to be given. 7. Subject to Order 8 below, order that the costs of the notice of motion for discovery be costs in the cause. 8. Direct any party wishing to seek a variation to order 4 or order 7 to serve on the other party and deliver to my Associate by 19 April 2017, brief submissions setting out the orders sought and the reasons why they are sought; direct the opposing party to serve on the other and deliver to my Associate by 28 April 2017 brief written submissions in reply; any application to be dealt with thereafter on the papers. 9. List for directions in the Technology and Construction List on 5 May 2017. 10. Reserve liberty to apply on three days' notice.

Endnotes

1. [2017] NSWSC 72.
2. [2017] NSWCA 53
3. (2016) 91 ALJR 233.
4. At [47], [61].
5. (2010) 78 NSWLR 393.
6. At [39] to [48] (Spigelman CJ); [96] (Basten JA); and [207] to [228] (in my reasons).
7. [2017] SASCFC 2 at [119] (Blue J, with whom Lovell J agreed).
8. [1987] 8 NSWLR 533 at 535.
9. [2016] NSWCA 379.
10. (2007) 230 CLR 89 at [135].
11. At [40], [226] respectively.
12. See David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, in particular at 275 - 277.
13. (1964) 112 CLR 125.
14. Alamdo Holdings Pty Ltd v Australian Window Furnishing (NSW) Pty Ltd [2006] NSWSC 224 at [26].
15. (2004) 61 NSWLR 421 at [41], [42], [61] (Hodgson JA, with whom Mason P and Giles JA agreed).
16. At [47].
17. At [93]. 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: 05 April 2017