Grid Projects NSW Pty Ltd v Proyalbi Organic Set Plaster Pty Ltd

Supreme Court of NSW|2012-12-06|Before: Stevenson J, Slattery J

Judgment 1These proceedings relate to a dispute under the Building and Construction Industry Security of Payment Act 1999 ("the Act"). 2The plaintiff, Grid Projects NSW Pty Ltd ("Grid Projects"), seeks a declaration that a determination ("the Determination") made on 17 September 2012 by Mr Ted Smithies, an adjudicator appointed under the Act ("the Adjudicator") is void because: - (a)it was made without jurisdiction; (b)the Adjudicator did not make a bona fide attempt to determine the matter referred to him; and (c)the Adjudicator did not afford Grid Projects procedural fairness. 3The Adjudicator determined that Grid Projects should pay the first defendant, Proyalbi Organic Set Plaster Pty Ltd ("Proyalbi"), a "progress payment" within the meaning of s 8 of the Act of $59,399.95. 4No adjudication certificate has yet been issued pursuant to s 24 of the Act. 5Grid Projects commenced these proceedings on 27 September 2012. On 27 September and 3 October 2012 Slattery J made various interlocutory orders, including that Grid Projects pay into court $68,199.95 on account of the Determination and interest.

Decision 6In my opinion, the Determination was made without jurisdiction and is void. It is therefore unnecessary for me to consider the other challenges to the Determination. Nonetheless, I have done so and have concluded they should not be accepted.

Background 7Grid Projects is a builder. It engaged Proyalbi to do rendering and plastering work at a site in Cremorne. 8Proyalbi's workmen commenced work on the site on 22 November 2011 and completed work on 25 June 2012. 9Proyalbi sent Grid Projects four payment claims for the purpose of s 13 of the Act as follows: - (1)the first payment claim was dated 16 December 2011 and was for work done between 22 November 2011 and 16 December 2011. The amount claimed was $20,831.25. Grid Projects paid that claim in full; (2)the second payment claim was dated 12 March 2012 and was for work done between 19 December 2011 and 8 March 2012. The amount claimed was $75,013.40. Grid Projects paid $55,687.40 of that claim; (3)the third payment claim was dated 2 July 2012 (that is, after the work was completed) and was for work done between 9 March 2012 and 25 June 2012 (the last day on which work was done). The amount claimed was $62,554.80. On 11 July 2012 Grid Projects served on Proyalbi a payment schedule pursuant to s 14 of the Act in respect of the 2 July 2012 payment claim. In that payment schedule Grid Projects stated that it proposed to pay only $17,952.40 of the $62,554.80 claimed in the 2 July 2012 payment claim. Proyalbi did not make an adjudication application pursuant to s 17 of the Act in respect of that payment schedule; (4)the fourth payment claim was dated 14 August 2012 and was, again, for work done between 9 March 2012 and 25 June 2012. This payment claim was for $62,963.95 (slightly more than the $62,554.80 claimed in the 2 July 2012 payment claim). The difference was because of the deletion of a small amount of labour claimed, and an additional claim for some materials. On 20 August 2012, Grid Projects served a s 14 payment schedule on Proyalbi in response to its 14 August 2012 payment claim. In that payment schedule Grid Projects stated that it proposed to pay $4,966.46 of the $62,963,95. 10On 31 August 2012 Proyalbi made an Adjudication Application, pursuant to s 17 of the Act, in respect of Grid Projects' 20 August 2012 payment schedule. 11Grid Projects served an Adjudication Response pursuant to s 20 of the Act in respect of that Adjudication Application. 12The latter was referred to the Adjudicator who made the Determination.

Was Proyalbi's 14 August 2012 payment claim invalid? 13Grid Projects claims that Proyabli's 14 August 2012 payment claim was invalid because: - "Proyalbi was not entitled to any progress payment after 30 June 2012 because no further work was carried out or undertaken to be carried out after the reference date of 30 June 2012. Proyalbi had already issued a payment claim for the reference date of 30 June 2012. It was not entitled to issue the payment claim made by [the 14 August 2012 invoice] because it was not entitled to a progress claim for a later reference date." 14Section 8(1) of the Act provides that "on or from each reference date" under a construction contract, a person who has undertaken to carry out construction work "is entitled to a progress payment". 15The question of "reference date" is dealt with by s 8(2) of the Act. Section 8(2) states what "reference date" means "in this section". Ms Oakley, who appeared for Grid Projects, submitted that it was "clear" that, despite these words, the term "reference date" is used in the same sense throughout the Act. Mr Roberts SC, who appeared for Proyalbi, accepted that this was so. 16Section 8(2) is in the following terms: - "(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 date 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." (emphasis in original) 17Section 8(2) contemplates two different circumstances. One is where a date can be determined "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...under the contract". The other is where "the contract makes no express provision with respect to" the date on which such a progress claim can be made. 18The present case falls into the second category, as the contract made no such "express provision". 19In that case, the "reference date" is the "last date of the named month in which construction was first carried out...under the contract" and "the last day of each subsequent named month". 20My attention has not been drawn to any authority that considers the meaning of the expression "named month" in this section. In Rubana Holdings Pty Ltd v 3D Commercial Interiors Pty Ltd [2008] NSWSC 1405, McDougall J described the operation of s 8 of the Act at [12] to [16] but did not, in terms (as it was not relevant for his Honour to do so) deal with this aspect of the section. 21In my opinion, in the context in which it appears in s 8 of the Act, the expression "named month" means the month "named" in the claim for a progress payment as being the month in which the work referred to in the claim for progress payment was undertaken. 22Thus, the "last day of the named month in which the construction work was first carried out" in this case was 30 November 2011; as construction work was first carried out in November 2011. 23Similarly, "the last day of each subsequent named month" was the last day of each subsequent month in which work was undertaken, as named in a claim for progress payment. 24The last month "named" in a claim for progress payment as being a month in which work was undertaken was June 2012; hence the last "reference date" to arise under the contract was the last day of that month: 30 June 2012. 25Proyalbi served a payment claim (that of 2 July 2012) in respect of that "reference date". 26Section 13(5) of the Act provides: - "A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract." 27On the face of it, that would appear to prevent Proyalbi from serving a second payment claim (such as that of 14 August 2012) in respect of that reference date. 28The difficulty with this approach is that it appears to be inconsistent with that favoured by Hodgson JA (with whom Mason P and Giles JA agreed) in Brodyn Pty Ltd v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421 at [63] where his Honour said: - "However, s 8(2) of the Act does not provide that reference dates cease on termination of a contract or cessation of work. This may be the case under s 8(2)(a) if the contract so provides but not otherwise; while s 8(2)(b) provides a starting reference date but not a concluding one. In my opinion, the only non-contractual limit to the occurrence of reference dates is that which in effect flows from the limits in s 13(4): reference dates cannot support the serving of any payment claims outside these limits." 29Section 13(4), to which Hodgson JA referred, provides, relevantly, that a payment claim can only be served within 12 months after construction work was last carried out. 30As can be observed, Hodgson JA did not refer to the requirement in s 8(2)(b) that the "reference date" be determined by reference to the "last day of each subsequent month". 31Since Brodyn, the Court of Appeal has considered a factual situation similar to that in the present case in Dualcorp Pty Limited v Remo Constructions Pty Limited (2009) 74 NSWLR 190. 32In that case, Allsop P held that the Act was "not intended to permit the repetitious use of the adjudication process to require an adjudicator or successive adjudicators to execute the same statutory task in respect of the same claim on successive occasions" (at [2]). 33His Honour said: - "[9] Here, Dualcorp, after undertaking the works, left the site in November 2007. It claimed to have substantially completed the works under the contract in November 2007. [10] A payment claim was made on 29 January 2008 attaching six invoices, four of which were dated 24 January 2008 and two of which were dated 29 January 2008. The relevant reference date was not identified on the claim or invoices. [11] On 3 March 2008, Dualcorp purported to serve a second payment claim annexing the same invoices and claiming the same amount. Again, no reference date was identified on the documentation. [12] Whether or not this was a final claim or a progress claim does not matter. The claim represented by the six invoices must have been in respect of only one reference date - either 15 December 2007 or 15 January 2008, if pursuant to Annexure A, Item 11 or the reference date pursuant to the operation of cl 8.13, if a final payment claim. In either case, there must have been one reference date under the contract or the last day of the month as provided for by the [Act], s 8(2)(b). [13] I see no warrant under either the contract or the Act, s 8 for permitting a party in Dualcorp's position to create fresh reference dates by lodging the same claim for the same completed works in successive payment claims. That is not the intended operation of the last phrase of s 8(2)(b) ('and the last day of each subsequent named month'). [14] Here, the work had been done; Dualcorp, the subcontractor, had left the site; it claimed payment by six invoices; six weeks later it repeated that claim by reference to the same invoices and, in my view, in respect of the same reference date. Dualcorp was prevented from serving the second payment claim. The terms of s 13(5) are a prohibition. The words 'cannot serve more than one payment claim' are a sufficiently clear statutory indication that a document purporting to be a payment claim that is in respect of the same reference date as a previous claim is not a payment claim under the [Act] and does not attract the statutory regime of the Act. [15] For these reasons, Dualcorp was not entitled to proceed to judgment on a claim founded on the operation of the Act premised on the second payment claim of 3 March 2008 being a payment claim under the Act." 34As Ms Oakley acknowledged, the views expressed by Allsop P in Dualcorp "might be considered to differ" from those expressed by Hodgson JA in Brodyn. 35The tension between Allsop P's observations, and those of Hodgson JA has been recognised in at least one earlier decision of this Court. In Allpro Building Services Pty Ltd v C&V Engineering Services Pty Ltd [2009] NSWSC 1247 McDougall J said at [10]: - "For the reasons that I gave in Rubana Holdings Pty Ltd v 3D Commercial Interiors Pty Ltd [2008] NSWSC 1405 at [19]-[21], I do not think it is open to a court of first instance to proceed on the basis that the relevant aspect of the decision in Brodyn was incorrect. Although Rubana was decided before Dualcorp, that does not seem to me to change the position. If there is something in Dualcorp which renders it appropriate for this aspect of the reasoning in Brodyn to be re-examined, that is a matter for the Court of Appeal." 36However, later decisions of single judges in the Court appear to favour acceptance of the views expressed by Allsop P: eg City of Ryde v AMFM Constructions Pty Ltd [2011] NSWSC 1469 per Brereton J at [33] and The Trustees of the Roman Catholic Church for the Diocese of Lismore v T F Woollam and Son [2012] NSWSC 1559 per McDougall J at [41] - [49]. 37The facts in Dualcorp were different from those in the present case. In Dualcorp the party in the position of Proyalbi had served a payment claim, applied for and obtained an adjudication in respect of that payment claim and then, dissatisfied with the result, served a further identical payment claim and sought an adjudication in respect of that second payment claim. 38Further, the majority (Macfarlan JA, with whom Handley AJA agreed) decided the case of the basis of issue estoppel (at [68]). 39Nonetheless, I consider the remarks of Allsop P (especially at [13]) to be of direct relevance to the issue before me, to be consistent with my reading of the Act, and to compel the conclusion I have expressed at [27] above. McDougall J came to the same conclusion in similar circumstances in The Trustees of the Roman Catholic Church at [48]-[49]. 40Proyalbi could have, but did not, make a s 17 adjudication application following receipt of Grid Projects' payment schedule of 11 July 2012. It did not do so; and it is now too late (s 17(3)(c)). 41By reason of s 13(5) of the Act, Proyalbi was not, in my opinion, entitled to serve a second payment claim (that of 14 August 2012) in respect of the "reference date" of 30 June 2012. That purported payment claim did not provide a jurisdictional basis for the Adjudicator to make the Determination; that is, the Adjudicator had no jurisdiction to make a determination on the basis of the purported payment claim of 14 August 2012. 42The Adjudicator came to a contrary view. But that does not bind me. The existence of a valid "payment claim" was a pre-requisite to the Adjudicator's jurisdiction, in the absence of which he had no jurisdiction: see Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190; (2010) 78 NSWLR 393 per Spigelman CJ at [33] to [55]; Basten JA at [95] and McDougall J at [199] to [237]. 43That finding is sufficient to dispose of the proceedings. The Determination was made without jurisdiction and is void. 44Nonetheless, in deference to the arguments put by counsel on the remaining issues, I shall consider them, albeit briefly.

Did the 14 August 2012 payment claim comply with s 13(2)(a) of the Act? 45Ms Oakley submitted that, assuming the payment claim of 14 August 2012 was valid, it did not comply with s 13(2)(a) of the Act. I do not accept this submission. 46Section 13(2)(a) provides that a payment claim: - "...must identify the construction work (or related goods and services) to which the progress claim relates." 47The payment claim of 14 August 2012 identified the Cremorne "site address" at which the work was done and set out a "description" of the work by reference to the date the work was done, the number of men involved, and the number of hours worked. The payment claim also identified the materials provided. 48In these circumstances, my opinion is that the progress claim did identify the construction work. It did so by reference to the specified dates, and hours worked. 49In any event, the payment claim identified the "services" to which the progress payment relates (namely the hours worked). It also identified the materials supplied and thus the "related goods" to which the progress payment relates.

No bona fide attempt to determine? 50In the well known passage in Brodyn (at [53]) Hodgson JA set out a non-exhaustive list of the "basic and essential requirements" for the existence of an adjudicator's determination. His Honour held (at [55]) that a determination will be void if those "basic and essential requirements" are not complied with, or if a bona fide attempt is not made by the adjudicator to exercise the statutory power. 51In Laing O'Rourke Australia Construction Pty Ltd v H&M Engineering & Construction Pty Ltd [2010] NSWSC 818 McDougall J, after reviewing the authorities, held that the obligation of good faith required "at least that adjudicators should turn their minds to, grapple with and form a view on all matters they are required to 'consider'" (at [34]). 52In this case, Ms Oakley submitted that there are five indications that the Adjudicator did not do this.

Alleged failure to determine the amount of the progress payment to be paid by Grid Projects to Proyalbi 53Ms Oakley pointed to the obligation imposed on the Adjudicator by s 22(1)(a) of the Act to determine the amount of the progress payment to be paid by Grid Projects to Proyalbi and submitted that, instead of doing this, the Adjudicator: - "...identified various matters that were addressed in the Adjudication Application and expressed an opinion about whether those matters were sufficient to withhold payment." 54Ms Oakley submitted that the Adjudicator had thereby assumed that Proyabli's claim was correct and did not make a bona fide attempt to discharge his obligations. 55In my opinion, this is not a fair assessment of the process undertaken by the Adjudicator. 56In the payment schedule served by Grid Projects on Proyalbi pursuant to s 14 of the Act in response to Proyalbi's payment claim of 14 August 2012, Grid Projects set out 19 reasons "why the scheduled amount [of $4,966.43 to which Grid Projects contended Proyalbi was entitled] is less than the total amount of this payment claim [i.e. $62,953.95]". 57In its Adjudication Application pursuant to s 17 of the Act, Proyalbi provided a "response" to each of those 19 reasons. In turn, in its Adjudication Response, Grid Projects, amongst other things, set out its reply in relation to each of those 19 matters. 58Not surprisingly, the Adjudicator approached the question on the same basis; namely to consider the merits of each of the 19 reasons advanced by Grid Projects as to why Proyalbi was not entitled to the payment it sought. 59In my opinion, the Adjudicator was not thereby failing to determine the amount of the progress payment within the meaning of s 22(1)(a) of the Act. On the contrary, he was seeking to do just that, using the same template adopted by the parties. 60I do not accept the submission that the Adjudicator thereby failed to make a bona fide attempt to determine the relevant issues.

Did the Adjudicator misunderstand Proyalbi's submission? 61There was an issue between the parties as to whether it was a term of the contract that Proyalbi would do the work within a "budget" of a nominated number of hours. 62It was Proyalbi's case before the Adjudicator that the "budget" was merely an estimate; whereas Grid Projects' case was that there was a fixed upper limit of the amount payable by it to Proyalbi based on the "budget". 63In that regard, Proyalbi submitted to the Adjudicator that there "was no continual acknowledgment the work could be performed for the budgeted hours" and that: - "There was one discussion and one budget." 64The Adjudicator misquoted that submission and recorded it as: - "There was no discussion on budget." 65Ms Oakley submitted that this misquoting and, she argued, misunderstanding, of Proyalbi's position showed that the Adjudicator had not made a bona fide attempt to resolve the dispute. 66I dot not accept this submission. First, it appears likely, as Mr Roberts submitted, that there has been a simple typographical error in the transposition of Proyalbi's submission ("no" for "one" and "on" for "and one"). 67In any event, the Adjudicator accepted Proyalbi's submissions and found: - "Based on the information before me, I am satisfied that the agreement between the parties was based on an hourly charge -out rate with an estimated budget rather than a lump sum or fixed upper limit contract sum." 68The Adjudicator reached this conclusion on the basis of his reading of an email exchange between representatives of the parties. 69Thus it seems clear to me that, although the Adjudicator misquoted Proyalbi's submission in the manner set out above, he did not misunderstand the submission. Not only that, he accepted it.

Inconsistent findings 70Ms Oakley argued that the Adjudicator's finding set out at [67] was inconsistent with a later finding as follows: - "In section 5.2 above, I determined that the arrangement or contract between the parties was based on an hourly rate. Accordingly, I do not consider that [Proyalbi] in not notifying [Grid Projects] when the 'Total Estimated cost to Render' was reached is a basis to withhold payment." 71I do not accept the submission that the latter finding is inconsistent with the former. 72Even if it was, that would indicate no more than that the Adjudicator had made an error. It could not follow from that fact, alone, that the Adjudicator had not made a bona fide effort to determine the relevant matters.

The claim for applying bees wax 73Part of the dispute between the parties was as to the amount that Proyalbi was entitled to charge for the application of bees wax to parts of the premises. 74There was a dispute as to whether a quotation given by Proyalbi for the application of bees wax had been accepted (thus confining Proyalbi's entitlement to amount of that quotation for that work) or whether Proyalbi was entitled to charge for this work on an hourly rate basis. 75The Adjudicator considered this question over three pages of the Determination. Ms Oakley criticised the manner in which the Adjudicator dealt with the issue and submitted that the Adjudicator "had no basis" for making the findings he did. However, as I read the Determination, the Adjudicator did apply his mind to this question. He may or may not have come to correct decision. However, I cannot conclude that he did not make a bona fide attempt to do so.

Adjudicator's failure to have regard to discrepancies in Proyalbi's evidence 76Grid Projects provided the Adjudicator with a schedule which purported to reconcile the hours claimed by Proyalbi with something called the "Grid Site Diary". 77In response, Proyalbi provided invoices from its sub-contractors and a spreadsheet which purported to reconcile its claim to those sub-contractor invoices. 78Ms Oakley submitted that there were many discrepancies between Proyalbi's spreadsheet and the invoices, that the Adjudicator ignored these discrepancies and acted capriciously by paying no regard to Grid Project's submissions about the discrepancies or "manifest errors in the document submitted by Proyalbi in support of its claim". 79However, the Determination reveals that the Adjudicator did give consideration to this issue. One conclusion he came to was that there was "anomalies" in the reconciliations provided to him by Grid Projects that "cast doubt on the veracity of [Grid Projects'] representations". 80Ms Oakley submitted that the Adjudicator had regard to matters other than those referred to in s 22(2) of the Act. I do not accept this submission. The Adjudicator was considering the submissions put to him by Grid Projects and concluded that there was insecure basis for some of those submissions. The Adjudicator may have drawn erroneous conclusions from the documents presented to him. But that is not a sufficient basis from which to conclude that he did not attempt in good faith to carry out his obligations.

Lack of procedure fairness 81The Act discloses a legislative intention to require a particular measure of natural justice; only a failure to afford that measure of natural justice would render a determination void: Brodyn at [57]. 82The measure of natural justice must accommodate the scheme of the Act, including the compressed timetable in which the determination is to be undertaken: Watpac Construction (NSW) Pty Ltd v Austin Corp Pty Ltd [2010] NSWSC 168 at [142] per McDougall J. The Court should not undertake a task of "combing through the words of the decision-maker with a fine appellate tooth-comb, against the prospect that a verbal slip will be found warranting" the intervention of the court: Watpac at [146], citing Kirby J in Minister for Immigration and Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259 at 291. 83Further, denial of natural justice must be material before the court will intervene. 84Ms Oakley submitted that the Adjudicator denied Grid Projects procedural fairness in three respects.

Adverse credit findings without notice 85As I have mentioned, the Adjudicator considered Grid Projects' site diary and commented on what he saw as being certain anomalies in that document. 86Ms Oakley submitted that the Adjudicator had made observations about the entries in the site diary for one day, but had drawn conclusions based on those observations as to the accuracy of the entire diary (which covered a period of seven months) and thus the veracity of the entirety of Grid Projects' submissions. 87Ms Oakley also submitted that, in making such an adverse finding, the Adjudicator made a finding about Grid Projects' credit in the absence of submissions from either party on the issue. 88I do not read the Adjudicator's comments this way. He pointed out what he saw as being anomalies in relation to the site diary for a particular day and concluded that he considered that "these anomalies cast doubt on the veracity of [Grid Projects'] representations". 89However the Determination shows that the Adjudicator went on to consider the particular submissions made by Grid Projects and considered what Grid Projects' documentation said about those matters. I can see no evidence that the Adjudicator drew conclusions as to the "veracity of the entirety" of Grid Projects' submissions based upon his comments on the site diary. 90The Adjudicator was entitled to consider the documents put forward as part of the Adjudication Response without necessarily seeking further submissions on each occasion on which an adverse observation might be made. Further, I agree with Sackar J that "very considerable latitude... should be afforded to an adjudicator as to the manner and form of the determination": Avopiling (NSW) Pty Ltd v Menard Bachy Pty Ltd [2012] NSWSC 1466 at [38]. And the mere fact (if it be a fact) that the Adjudicator misconstrued the site diary does not itself bespeak a denial of procedural fairness to Grid Projects.

Application of different standards of proof 91Ms Oakley submitted that the Adjudicator dismissed Grid Projects' contemporaneous records as to who was present on the site, and the work carried out on the site but accepted Proyalbi's corresponding claims on the basis of unverified sub-contractors' invoices. 92Ms Oakley also submitted that there were "numerous errors" in Proyalbi's claim and that the Adjudicator had "completely disregard" Grid Projects' submissions about those matters. 93It may well be that the Adjudicator adopted a somewhat "rough and ready" approach to some of the submissions made on behalf of Grid Projects. However, I am not able to conclude, based upon the material before the Court that the Adjudicator so disregarded Grid Projects' submissions as to deny it the procedural fairness due under the Act.

Conclusion 94For those reasons, I do not accept Grid Projects' submissions concerning the compliance of the 14 August 2012 payment claim with s 13(2)(a) of the Act or the questions of whether the Adjudicator made a bona fide attempt to determine the relevant issues or denied Grid Projects procedural fairness. 95However, I do accept Grid Projects' submission that that progress claim was not a "progress claim" for the purposes of the Act and that, accordingly, the Adjudicator had no jurisdiction to make the Determination. 96I invite the parties to bring in short minutes to give effect to these reasons.

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: 17 December 2012

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