Greenwood Futures v DSD Builders

The issues

1. In broad outline, the case for Greenwood proceeded as follows. First, the second payment claim and, if it matters, the first payment claim were not invalid only because they did not contain the "supporting statement" required by s 13(7) of the Security of Payment Act. Secondly, each of the three payment claims related to the same milestone event: the "Enclosure Stage". Thirdly, the relevant reference date was therefore the date when that milestone event was achieved. Fourthly, the third payment claim was invalid pursuant to s 13(5) of the Security of Payment Act, which forbids the service of more than one payment claim in respect of any one reference date. Accordingly, and fifthly, it was not open to DSD to make the fourth adjudication application, in the absence of a valid payment claim.
2. Greenwood propounded an alternative argument. It submitted that it had not been open to DSD to "withdraw" the second adjudication application (which was based on the third payment claim), nor to the Authorised Nominating Authority to accept that purported withdrawal [1] . It followed, Greenwood submitted, that it had not been open to DSD to make the third adjudication application in respect of the same payment claim and the same reference date [2] . Accordingly, and a fortiori, it had not been not open to DSD to make the fourth adjudication application, again based on the same reference date and payment claim.
3. Finally, Greenwood submitted, as an alternative and it must be said subsidiary argument, that the Adjudicator had failed to address an essential element of his statutory function because he had not valued the construction work, the subject of the third payment claim (and fourth adjudication application), in accordance with s 10(1)(b) of the Security of Payment Act.
4. Having said all that, it is more than a little difficult to distil the precise issues either from the quasi-pleadings or from Counsel's submissions (and I do not intend the latter observation to be critical of Counsel). Doing the best I can, and hoping to give some structure to these reasons, the issues for decision could be stated as follows: 1. were the first two payment claims (served on 12 March and 7 April 2018 respectively) void, or ineffective to engage the processes of Part 3 of the Security of Payment Act, because they did not contain the "supporting statement" required by s 13(7)? 2. What was the relevant reference date? Specifically, was it the date of achievement of the milestone event, or was it the last day of the month in which construction work leading up to the achievement of that milestone event was carried out? 3. Was it open to DSD to make the second adjudication application when it did, bearing in mind in particular the provisions of s 17(1), (2) of the Security of Payment Act? 4. Was it open to DSD to withdraw the first and second adjudication application, and was it open to the authorised nominating authorities and the adjudicators to accept those withdrawals? 5. Having regard to the answers to the previous questions, was the fourth adjudication application (also founded on the third payment claim) validly made? 6. Did the adjudicator fail to value the construction work, in a way that amounted to a failure to carry out in good faith the task statutorily entrusted to him?

Rejection of a further issue

1. Mr Hicks of Senior Counsel appeared for Greenwood. His written submissions dated 3 September 2018 identified a further issue. That issue was, in substance, whether the relevant milestone event had been achieved, so as to give rise to an entitlement to the milestone payment and to give rise to a reference date which could ground a payment claim. Mr Kaplan of Counsel, who appeared for DSD, objected to the evidence relied upon in support of that issue, on the basis that the issue had not been raised in the Amended Technology and Construction List Statement.
2. Greenwood's solicitors, in answer to correspondence from DSD's solicitors, asserted that the issue had been flagged in the Amended List Statement because, among the issues likely to arise, there appeared: Whether the various payment claims were valid.
3. That stated issue, it was said, was referable to para 15(c) of the contentions, which stated: 15. The 30 April 2018 Payment Claim was: … served in the absence of a reference date within the meaning of s 8(2) of the [Security of Payment] Act.
4. It will be seen immediately that both the issue and the supposed material fact said to give rise to it could be understood to relate to several of the issues as I have stated them in the preceding section of these reasons. That is of some significance, because the statement of contentions does not allege, as a matter of material fact, that the contract works had not reached the relevant milestone, so that there was no entitlement to a milestone payment. Nor does it allege any material facts that could be seen, even with the illumination of hindsight, to give rise to such an issue.
5. As I have said, the issue was raised only in submissions dated 3 September 2018, that were provided for a hearing on 6 September 2018. In those circumstances, I declined to permit the issue to be argued, and on that basis rejected the evidence that would have been relied upon in support of it.

Chronology of relevant events

1. The contract was made on 4 September 2017. The evidence does not disclose (and it is immaterial) when work commenced.
2. By 12 March 2018, DSD considered it had reached the Stage 4 milestone. It submitted a payment claim for $220,000 inclusive of GST. That payment claim bore the reference "Claim ID:00011751". It said, in terms, that it was a claim for the "Enclosure Stage".
3. Greenwood provided a payment schedule on 16 April 2018. As the case was run, nothing turns on the delay. The scheduled amount was "$nil". The reason given was that the project had not reached the Enclosure Stage.
4. Between the date of submission of the first payment claim and the date of provision of the payment schedule for it, DSD served a second payment claim, dated 7 April 2018. The Claim ID and the details were the same as those on the first payment claim.
5. Neither the first nor the second payment claim contained the supporting statement required by s 13(7) of the Security of Payment Act.
6. On 9 April 2018, Greenwood sent an email to DSD which said, among other things, that "we don't agree that this stage is 'substantially complete'". DSD chose to treat that email as a payment schedule responding to the second payment claim. That appears from the first adjudication application, which DSD lodged with The Australian Solutions Centre (TASC), an authorised nominating authority, on 17 April 2018.
7. TASC notified DSD and Greenwood that Mr Ted Smithies had accepted the adjudication of the second payment claim. That was done by letter of 18 April 2018, presumably emailed to the parties on that day.
8. Greenwood lodged an adjudication response on a date that is unclear.
9. On 27 April 2018, Greenwood's solicitors gave notice to DSD purporting to terminate the contract for breach of an essential term. DSD denied the breach and denied that the purported termination was efficacious.
10. On the same day, Mr Smithies sought an extension of time to complete his determination. That was apparently unacceptable to DSD, because on 29 April 2018 it sought to withdraw its application. TASC accepted that this could be done. By email of 3 May 2018, it notified the parties that the application "is formally withdrawn".
11. DSD served the third payment claim on 30 April 2018. It was identical in form to the second payment claim (right down to the date of 7 April 2018 and the due date of payment, 13 April 2018), but it attached what purported to be a supporting statement pursuant to s 13(7) of the Security of Payment Act.
12. On 7 May 2018, Mr Daniel Roberts, a principal of or otherwise associated with DSD, provided what purported to be a payment schedule in respect of the third payment claim. It is worth setting out the substantive terms of that document in full: RE - Contract for 3 x Townhouses, 44 William Street, Jesmond I'm the appointed agent on behalf of the owner and authorised to make this assessment on behalf of the owner. I issue this payment schedule for claim 11751 served on 30/04/2018 in the amount of $220,000 with nil adjustments. There is no reason for adjustments at this stage nor is there any provision to do so, I accept this stage is substantially complete and that the claim is due for payment by 07/05/2018.
13. The kindest thing that one can say about this document is that it was, at the very least, an outrageous misuse of whatever authority DSD, or Mr Roberts, might have had under the agency to which he referred. There are other, less kind, descriptions that could be applied.
14. On 7 May 2018, DSD lodged the second adjudication application. That was based on the third payment claim; although it refers to the date of the payment claim as 7 April 2018, it states that the payment claim had been served on 30 April 2018. Further, it refers to the payment schedule as being the document of 7 May 2018 to which I have just referred.
15. On 14 May 2018, Greenwood provided its own payment schedule for the third payment claim. That payment schedule: 1. asserted that the contract had been terminated on 27 April 2018; 2. denied that the works had reached the Enclosure Stage; 3. in those circumstances, denied that there was a reference date and therefore denied that the payment claim was valid; 4. denied that DSD was entitled to any payment; and 5. claimed an entitlement to set off, against any amount owing, the cost of completing the works and rectifying defects, assessed at a sum in excess of $202,000.
16. Also on 14 May 2018, Greenwood lodged an adjudication response in answer to the second adjudication application. That response essentially repeated, and enlarged upon, the matters referred to in the payment schedule of the same date.
17. For reasons that are entirely unclear, DSD decided that it did not wish to proceed with the second adjudication application. It sent an email to the Authorised Nominating Authority dated 15 May 2018 stating that "we would like to withdraw this application". The Authorised Nominating Authority accepted the withdrawal, and submitted an invoice for costs incurred to date.
18. Also on 15 May 2018, DSD sent Greenwood an email asserting that Greenwood was in breach of the contract, and purporting to terminate the contract with immediate effect. The consequence is that although many things in this case are unclear, there is no doubt that the contract between Greenwood and DSD has come to an end.
19. 15 May 2018 was a day of much activity, because on that day DSD lodged the third adjudication application. It was based on the third payment claim and the payment schedule of 14 May 2018 provided in answer to it.
20. On 16 May 2018, Greenwood informed the Authorised Nominating Authority and DSD that it did not consent to the withdrawal of the second adjudication application, and stated that it required the Adjudicator (to whom this application had been referred) to proceed to make a determination. That protest fell on deaf ears.
21. On 25 May 2018, Greenwood lodged an adjudication response to the third adjudication application. That response effectively repeated its position as stated in the payment schedule and the adjudication response to the second adjudication application.
22. On 1 June 2018, the Authorised Nominating Authority, on behalf of the adjudicator, requested an extension of time for the Adjudicator (to whom also the third adjudication application had been referred) to complete his determination. Greenwood did not consent. DSD did. In the absence of consent from both parties, the application was "timed out" on 6 June 2018.
23. DSD thereupon exercised its right pursuant to s 26 of the Security of Payment Act to withdraw the third adjudication application, and to lodge the fourth adjudication application. That, like the third adjudication application, was based on the third payment claim and the payment schedule provided in answer to it.
24. On 14 June 2018, Greenwood lodged an adjudication response in answer to the fourth adjudication application. That response traversed the same territory as the payment schedule and the earlier adjudication responses.
25. The Adjudicator dealt with the fourth adjudication application. He made his determination on 20 June 2018. He concluded that DSD was entitled to be paid $220,000, and that Greenwood should pay the costs of adjudication.

First issue: supporting statement

1. Section 13 of the Security of Payment Act deals with payment claims. It provides as follows: 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.
2. It is common ground that the first two payment claims did not include any supporting statement.

The parties' submissions

1. Mr Hicks submitted that the omission of the s 13(7) supporting statement does not invalidate a payment claim. He relied on the decision of Ball J in Central Projects Pty Ltd v Davidson [3] at [36] - [44]. His Honour considered, in effect, that the subsection provided for the consequences of contravention, and that it was not necessary to add, as a further consequence, invalidation of a contravening payment claim.
2. Mr Kaplan relied on my decision to the contrary effect in Kitchen Xchange v Formacon Building Services [4] at [34] - [51]. He referred also to the decisions of Meagher JA, sitting at first instance, in Kyle Bay Removals Pty Ltd v Dynabuild Project Services Pty Ltd [5] at [37] and Duffy Kennedy Pty Ltd v Lainson Holdings Pty Ltd [6] at [37]. Mr Kaplan submitted that I ought follow those three decisions unless I were persuaded, by the later reasons by Ball J in Central Projects, that they were plainly wrong.

Decision

1. I start by observing that my reasoning based on s 13(7) was not essential to the decision in Kitchen Xchange. There were three issues in that case. I answered the first of those adversely to the first defendant. That conclusion was sufficient to support the orders that the plaintiff sought and I made, including one quashing the determination. Section 13(7) provided an alternative but unnecessary support for those orders.
2. However, on my reading of Meagher JA's decisions in Kyle Bay Removals and Duffy Kennedy, the point was central to his Honour's disposition of each case. The question for decision in Kyle Bay Removals was whether a statutory demand based on an adjudication determination and, presumably, judgment debt founded on the determination should be set aside pursuant to s 459G of the Corporations Act 2001 (Cth). There were three reasons advanced why the determination should be set aside. Success on any one of them would have entitled the plaintiff to succeed, subject to any residual discretionary considerations. The first and third questions were answered adversely to the plaintiff. The second question raised directly whether service of a payment claim that contravened s 13(7) was valid. His Honour said at [37] that it was not, and referred to my reasons in Kitchen Xchange in support of that conclusion.
3. The question for decision in Duffy Kennedy was whether the plaintiff builder should have summary judgment for unpaid progress payments. His Honour said at [2] that the application should be dismissed, because the payment claims were served contrary to the prohibition in s 13(7). His Honour's reasons for that conclusion are at [37]. They drew upon what I had said in Kitchen Xchange and on his Honour's own decision in Kyle Bay Removals.
4. I turn to the decision of Ball J in Central Projects. It was not necessary for his Honour to decide the s 13(7) question (as his Honour acknowledged at [36]). However, he gave consideration to it. He referred to what Meagher JA had said in the two cases to which I have referred, and to my decision in Kitchen Xchange. He expressed disagreement with the reasoning in Kitchen Xchange. If I may say so with respect, the reasons that Ball J gave for that disagreement are powerful.
5. Mr Kaplan attacked Ball J's reference to relevant extrinsic material. He submitted that his Honour in effect had construed that material rather than the legislation; or had used that material to deduce a policy by reference to which he construed the legislation. I do not accept that criticism. In my view, Ball J drew appropriately on the extrinsic material, in just the same way (although moving to a different conclusion) as I had done in Kitchen Xchange.
6. Ball J left open the question whether, notwithstanding his disagreement with the reasoning in Kitchen Xchange, he should nonetheless follow my decision and those of Meagher JA. It was not necessary for him to express a view on that question.
7. The position on the authorities is, thus, that two judges of this Court have expressed one view, and another has expressed the contrary view. It is obvious that the point should be resolved. I do not think that I am the appropriate person to resolve it. That is because, as Mr Kaplan submitted, I would need to conclude that I was plainly wrong in Kitchen Xchange, and that Meagher JA was plainly wrong to follow my decision as he did in Kyle Bay Removals and Duffy Kennedy. If there were no more than my view and the contrary view expressed by Ball J, I would think it appropriate to re-examine the matter. But in circumstances where Meagher JA has followed my view in two separate decisions, and in one of them has expressly indicated concurrence with my "reasoning and conclusion", I do not think that it can be said that my view of s 13(7) is plainly wrong.
8. I should add that Mr Kaplan submitted that my reasons in Kitchen Xchange on this point had received the approval of Ward JA in Lewence Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd [7] at [65]. I do not think that this is correct. In that paragraph, her Honour expressed agreement with what I had said as to s 13(5), and added, in parentheses, that I had expressed the same view in relation to s 13(7). I do not think that the parenthetical addition of an unnecessary reference to my conclusion on s 13(7), without more, can be taken to indicate approval. It is therefore unnecessary to consider what weight that hypothetical approval might have, given that the decision of the Court of Appeal in Lewence was overruled in Southern Han Breakfast Point Pty Ltd (In Liquidation) v Lewence Construction Pty Ltd [8] .
9. Following what I perceive to be the weight of first instance authority, I conclude that the first two payment claims were invalid because they did not contain the s 13(7) supporting statement.

Second issue: reference date

1. Section 8 of the Security of Payment Act gives a right to progress payments "[o]n and from each reference date under a construction contract", and specifies how reference dates are to be ascertained. I set out that section: 8 Rights to progress payments (1) On and from each reference date under a construction contract, a person: (a) who has undertaken to carry out construction work under the contract, or (b) who has undertaken to supply related goods and services under the contract, is entitled to a progress payment. (2) In this section, reference date, in relation to a construction contract, means: (a) a date determined by or in accordance with the terms of the contract as the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the contract, or (b) if the contract makes no express provision with respect to the matter - the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and the last day of each subsequent named month.
2. In s 4(1) of the Security of Payment Act, a progress payment is defined to mean, among other things: [a] payment that is based on an event or date (known in the building and construction industry as a "milestone payment").

Relevant provisions of the contract

1. Clause 17 of the contract deals with progress payments. It reads as follows: 17.1 The owner must pay the deposit stated in Item 2(b) of Schedule 1 on the later of the day that: (a) this contract is signed by the owner; and (b) warranty insurance described in Schedule 6 is in force and the owner is provided with a certificate of insurance for such insurance. The deposit is brought to account with the first progress payment. 17.2 The owner must pay the contract price progressively as claimed by the builder. 17.3 The builder must give the owner a written claim for a progress payment for the completion of each stage. 17.4 A progress claim is to state: (a) the amount claimed and not paid for the stage substantially completed; (b) the amount claimed and not paid for contract price adjustments; (c) the amount claimed and not paid for variations; and (d) the sum of the above amounts. 17.5 The owner must pay a progress claim within 5 working days of the builder giving the claim. 17.6 Other than in relation to the final progress claim: (a) payment of a progress claim is on account only; and (b) the owner has no right of set off. [Bold print in original removed.]
2. The expression "stage" is defined in cl 1 to mean "any of the stages described in Schedule 2". Schedule 2, which is headed "Progress Payment", describes six stages, ascribes a percentage of the total contract price to each stage, and sets out the GST inclusive amount to be paid on achievement of each stage. The relevant stage for present purposes is the fourth: the "Enclosure Stage". It is unnecessary, having regard to my rejection of the suggested further issue, to give any detail of this stage other than to note that upon its achievement, DSD was entitled to be paid 25%, or $220,000, of the total consideration.

The parties' submissions

1. Mr Hicks submitted that the reference date was the date of achievement of the milestone. In this case, he submitted, that must have been on or before 12 March 2018, which was the date of the first payment claim.
2. It followed, Mr Hicks submitted, that each of the three payment claims referred to the same reference date. Each claimed payment for the same milestone event, and there could only be one reference date when that event had been achieved. Thus, Mr Hicks submitted, the second and third payment claims contravened s 13(5) of the Security of Payment Act.
3. Mr Kaplan submitted that the date when the milestone event had been achieved was not "a date determined by or in accordance with the terms of the contract" for the purposes of s 8(2)(a). Accordingly, he submitted, s 8(2)(b) applied. On the basis that some construction work had been carried out in the month of April 2018 (and this did not appear to be controversial), Mr Kaplan submitted that the reference date was 30 April 2018.
4. It followed, Mr Kaplan submitted, that the first and second payment claims were ineffective for this reason also, because they were not supported by a reference date. He referred to the decision in Southern Han at [61], where their Honours (Kiefel, Bell, Gageler, Keane and Gordon JJ) concluded that: … [T]he existence of a reference date under a construction contract within the meaning of s 8(1) is a precondition to the making of a valid payment claim under s 13(1).

Decision

1. In my view, s 8(2)(a) of the Security of Payment Act has no application in this case. Accordingly, there being no other relevant provision, reference dates are to be determined in accordance with s 8(2)(b).
2. Nothing in either cl 17 or Schedule 2 of the contract expressly nominates dates for the making of payment claims. Neither Mr Hicks nor Mr Kaplan suggested that any other provision of the contract was relevant.
3. Clause 17.2 requires Greenwood to pay the contract price progressively as it is claimed by DSD. Clause 17.3 requires DSD to give Greenwood a written claim for a progress payment "for" the completion of each stage. Clause 17.4(a) is somewhat difficult to fit in with that scheme, because it refers to "… the stage substantially completed". However that is to be reconciled with the regime established by the preceding subclauses, it cannot, I think, assist the argument for Greenwood.
4. The only specification of when a progress claim may be submitted is that contained in cl 17.3. That subclause contemplates that the stage in respect of which the progress payment is claimed will be complete. It requires the claim to be made "for the completion of [that] stage". But it does not say that the claim must be made immediately upon completion of that stage, or indeed on any other date that is defined by reference to completion of that stage (for example, "on the 30th day of the month in which completion of that stage is achieved"). It may be assumed that a builder, seeking to maintain its cashflow, will submit the progress claim as quickly as it can following completion of the stage to which it relates. But that does not enable the date for submission of the progress claim to be "determined".
5. In this respect, the observations of the Court in Southern Han at [70], [71] are directly applicable. Their Honours said in effect that s 8(2)(a) speaks of a date that is fixed by the operation of the contract itself, and that where the contract does not expressly fix, or enable the determination of, the date then s 8(2)(b) applies. I set out those paragraphs of their Honours' reasons: 70. The reference date for which s 8(2)(a) provides is a date set by contractual force as a date for making a contractual claim to be paid the whole or part of the contracted amount. The mention in s 8(2)(a) of "a date determined by or in accordance with the terms of the contract" is of a date fixed by operation of one or more express provisions of the construction contract. The mention is not of a date that is determined independently of the operation of the contract merely having regard to the contractual terms. 71. The reference date for which s 8(2)(b) provides is applicable only where a construction contract contains no express provision for determining a date for making a contractual claim to be paid the whole or a relevant part of the contracted amount. Absent an express contractual provision for determining a reference date, s 8(2)(b) operates of its own force to provide a reference date for the purpose of s 8(1). In so applying, s 8(2)(b) fulfils the statutory promise in s 3(2) of granting a statutory entitlement to a progress payment regardless of whether the relevant construction contract makes provision for progress payments. The provision does not, however, alter the nature of a progress payment in respect of which a claim can be made.
6. As I have said, I conclude that reference dates under the contract between Greenwood and DSD are to be determined in accordance with s 8(2)(b) of the Security of Payment Act. In theory, the first payment claim could have been referable to the date 28 February 2018, and the second payment claim could have been referable to the date 30 March 2018. The third payment claim, having been served on 30 April 2018, is referable to that date. It is no objection that the payment claim was served on the reference date, because s 8(1) expressly gives the entitlement to a progress payment "[o]n and from each reference date under a construction contract".
7. It follows that there has been no contravention of s 13(5) of the Security of Payment Act, and that the third payment claim was made validly in the sense that it was supported by an available reference date.

Third issue: validity of the second adjudication application

1. The second adjudication application was lodged in defiance of s 17 of the Security of Payment Act. So far as it is relevant, that section provides as follows: 17 Adjudication applications (1) A claimant may apply for adjudication of a payment claim (an adjudication application) if: (a) the respondent provides a payment schedule under Division 1 but: (i) the scheduled amount indicated in the payment schedule is less than the claimed amount indicated in the payment claim, or (ii) the respondent fails to pay the whole or any part of the scheduled amount to the claimant by the due date for payment of the amount, or (b) the respondent fails to provide a payment schedule to the claimant under Division 1 and fails to pay the whole or any part of the claimed amount by the due date for payment of the amount. (2) An adjudication application to which subsection (1) (b) applies cannot be made unless: (a) the claimant has notified the respondent, within the period of 20 business days immediately following the due date for payment, of the claimant's intention to apply for adjudication of the payment claim, and (b) the respondent has been given an opportunity to provide a payment schedule to the claimant within 5 business days after receiving the claimant's notice.
2. At the time the second adjudication application was lodged, the time fixed by s 14 for provision of a payment schedule (in this case, 10 business days after service of the payment claim) had not expired. DSD sought to circumvent this procedural difficulty by purporting, in its capacity as "appointed agent on behalf of the owner… authorised to make this assessment on behalf of the owner", to provide a payment schedule that, not surprisingly, stipulated a scheduled amount of $220,000. Mr Kaplan did not submit that this was a valid payment schedule (or a payment schedule of any kind); indeed, he contended that it was not.
3. It follows, as Mr Kaplan submitted, that it was not open to DSD to make the second adjudication application when it did. I add, only for completeness, that no one suggested that s 17(2) was relevant on the facts of this case.

Fourth issue: withdrawal of first and second adjudication applications

1. The first adjudication application was founded on the second payment claim. For the reasons I have given on the first issue, that payment claim was invalid, for want of the s 13(7) supporting statement. Accordingly, the first adjudication application was a nullity, because it was not made in respect of a valid payment claim. There was nothing to withdraw.
2. For the reasons that I have just given on the third issue, the second adjudication application was invalid because it was made prematurely. Again, there was nothing to withdraw.
3. Mr Hicks contended that the only circumstances in which a claimant could withdraw an adjudication application were those specified in s 26. Mr Kaplan contended, as I understand his submissions, that what might be called an anticipatory withdrawal would be effective once one or other of the time limits referred to in s 26(1) elapsed.
4. Mr Hicks' position is supported by the decision of Nicholas J in John Holland Pty Ltd v Made Contracting Pty Ltd [9] at [30], [37], [44]. Since Mr Kaplan did not submit that his Honour's decision was plainly wrong, it poses a very considerable obstacle to acceptance of his submissions on this issue.
5. Since both the first and second adjudication applications were nullities, the issue of withdrawal does not require resolution. I propose to resist the temptation to deal with it by the way.

Fifth issue: validity of the fourth adjudication application

1. I should note that it was common ground that DSD's withdrawal of the third adjudication application was valid. The Adjudicator had sought an extension of time. Greenwood refused to consent. The Adjudicator was therefore required to produce his determination, at the latest, within 10 business days of notification of acceptance. He did not do so. Accordingly, s 26 of the Security of Payment Act applied. DSD availed itself of its right under that section to withdraw the third adjudication application.
2. Having noted those matters, it follows, from my answers to the first to third issues, that the fourth adjudication application was validly made.

Sixth issue: failure to carry out the statutory task

1. Greenwood said that the work done by DSD was defective. It relied on expert reports to prove the existence of those defects and the cost of rectification. It submitted to the Adjudicator that it should be allowed to set off, against the claimed amount, the cost of rectification.
2. The Adjudicator took the view, based on his understanding of cl 17.6 of the contract, that there was no right of set-off. He considered the expert reports on which Greenwood relied, but only for the purpose of assessing whether, in truth, the relevant milestone event had been achieved. He concluded that it had been, and accordingly he determined that DSD was entitled to the amount of the milestone payment.

Relevant provisions of the Security of Payment Act

1. Mr Hicks referred to ss 9 and 10 of the Security of Payment Act. The former deals with the amount of a progress payment to which a claimant is entitled. The latter tells how construction work is to be valued. I set out those sections: 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. 10 Valuation of construction work and related goods and services (1) Construction work carried out or undertaken to be carried out under a construction contract is to be valued: (a) in accordance with the terms of the contract, or (b) if the contract makes no express provision with respect to the matter, having regard to: (i) the contract price for the work, and (ii) any other rates or prices set out in the contract, and (iii) any variation agreed to by the parties to the contract by which the contract price, or any other rate or price set out in the contract, is to be adjusted by a specific amount, and (iv) if any of the work is defective, the estimated cost of rectifying the defect.

The parties' submissions

1. Mr Hicks submitted that the Adjudicator was required to value the construction work in accordance with s 10(1)(b). The Adjudicator had not done so. Accordingly, Mr Hicks submitted, the Adjudicator had failed to perform an essential element of his statutory function.
2. Mr Kaplan submitted that the contract provided for the valuation of the progress claim: it was to be valued at the amount indicated, for the relevant milestone, in Schedule 2. Thus, he submitted, s 10(1)(b) had no operation.
3. Mr Kaplan submitted, in the alternative, that if the Adjudicator had erred, it was an error within jurisdiction. At the most, he submitted, there was an error of law in the Adjudicator's attempt to perform his statutory function. Mr Kaplan referred, in particular, to what I had said in Kembla Coal and Coke v Select Civil [10] at [96] and following, and Clyde Bergemann v Varley Power [11] at [33], [41]-[43] and [49]-[53].

Decision

1. In my view, the amount of the progress payment is to be calculated in accordance with s 9(a): "in accordance with the terms of the contract". The claim was made for the milestone payment and nothing else. The only relevant question was whether the milestone had been achieved. If it had, the amount of the progress payment was dictated by Schedule 2.
2. It would be otherwise if, for example, the progress claim were made when the stage was only "substantially completed" (cl 17.4(a)), or if there were a claim for adjustments or variations (cl 17.4(b), (c)). In any of those circumstances, there would be a need to value the work (the extent of incomplete work, or the value of adjustments and variations, as the case may be). Because the contract itself does not spell out how that process is to be performed, s 10(1)(b) would be engaged. But in this case, there was no such claim, and there was no room for s 10(1)(b) to operate.
3. Mr Hicks did not submit that what I had said in Kembla Coal and Coke was wrong, let alone plainly so. In my reasons at [99], I said that s 10 was only engaged where the contract itself did not provide for quantification of a progress payment. I remain of that view. I add that in Clyde Bergeman at [52], I concluded, after considering a number of decisions of the Court of Appeal, 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 will be most unusual for a mechanical provision such as s 9 to be characterised as jurisdictional.
4. Mr Hicks did not submit that what I had there said was incorrect [12] . I adhere to it. It would follow that even if the Adjudicator had erred in his approach to the valuation of the construction work, the error was not jurisdictional. But as I have said, I do not think that he did.

Costs

1. The result is that the challenges to the determination fail, in each of the ways that they are put (save for what I have called the fourth issue, which I did not find it necessary to decide). It would follow, ordinarily, that the amended summons should be dismissed with costs. However, in my view, this is not in any way the ordinary case.
2. Greenwood has been plagued with a succession of payment claims and adjudication applications, each relating only to the one entitlement to payment: the fourth milestone event under the contract. It has been forced to defend itself by preparing adjudication responses. In addition, Greenwood has had to deal with the occasion when DSD's principal arrogated to himself, through an agency that on no view extended so far, the right of providing a payment schedule on Greenwood's behalf that purported to acknowledge liability for the whole amount of the claim.
3. The whole chaotic situation is essentially one of DSD's making. It appears to have proceeded with scant regard for the requirements of the Security of Payment Act. It is open to infer that DSD has sought to harass Greenwood by the repeated service of payment claims and adjudication applications.
4. Two of the payment claims that DSD served lacked the supporting statement required by s 13(7). That was in each case a contravention of the Security of Payment Act. It exposes DSD to a pecuniary penalty. The fact that DSD was prepared to disregard its legal obligations in this way lends support to the view that it was using the provisions of the legislation to harass Greenwood. The same comment applies to DSD's egregiously maladroit assumption to itself of the right to provide a payment schedule on Greenwood's behalf.
5. DSD's conduct, in all the ways that I have narrated at greater length above and just summarised, made it almost inevitable that litigation would result. The fact that the litigation has failed reflects no merit on DSD's part; indeed, in some respects, DSD relied upon its own non-compliance with the Security of Payment Act as a reason why it should succeed.
6. The only reason for declining to order costs against DSD is that costs are ordinarily awarded to compensate a successful party for the expense of litigation. They are not awarded as some form of punishment of the other party. To order costs against DSD in this case would, I think, amount to punishing it for its quite extraordinary misuse of the mechanisms of the Security of Payment Act. With some regret, I conclude that I should not do so.
7. When I raised the question of costs with Mr Kaplan, and indicated my disapproval of his client's actions, he, having sought instructions, said that in the event DSD succeeded, it would not oppose an order that each party pay its own costs. That is the order I propose to make.

Stay?

1. Mr Hicks submitted that there was a great body of evidence to justify a stay. He acknowledged that a stay would be inconsistent with the policy of the Security of Payment Act, and with the transfer of risk of insolvency that it effected [13] . However, he said, the evidence on this point was overwhelmingly in his client's favour.
2. At the conclusion of the hearing, I indicated that if I were to come to the view that DSD should succeed, I would order that the amended summons be dismissed and that the money paid into court be paid out to DSD, but that I would stay the latter order for seven days with a direction for a notice of motion and supporting affidavit to be filed. Mr Kaplan did not oppose that course. I shall take it, although the stay will be for eight days.

Orders

1. I make the following orders: 1. order that the amended summons be dismissed. 2. Make no order as to costs. 3. Order that the money paid into court by the plaintiff be paid out to the first defendant. 4. Order that order 3 be stayed up until and including 5pm on 21 September 2018. 5. Direct that any application for a further stay be made by a notice of motion to be filed and served, together with its supporting affidavits, by 18 September 2018 and made returnable in the motions list on 21 September 2018; abridge the time for service accordingly. 6. Direct that the exhibits be returned.

Endnotes

1. This contention applied equally to the purported withdrawal of the first adjudication application, which was based on the second payment claim.
2. The third adjudication application was properly withdrawn, pursuant to s 26 of the Security of Payment Act, but this does not affect Greenwood's argument.
3. [2018] NSWSC 523.
4. [2014] NSWSC 1602.
5. [2016] NSWSC 334.
6. [2016] NSWSC 371.
7. [2015] NSWCA 288.
8. (2016) 260 CLR 240.
9. [2008] NSWSC 374.
10. [2004] NSWSC 628.
11. [2011] NSWSC 1039.
12. I note, by way of aside, that it was a view that he, as junior counsel to Mr Rudge of Senior Counsel, had urged upon me.
13. R J Neller Building Pty Ltd v Ainsworth [2009] 1 Qd R 390 at [39]-[42] (Keane JA, Fraser JA and Fryberg J agreeing); Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2018] NSWCA 33 at [26] ff (Payne JA). 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: 13 September 2018