H M Australia Holdings Pty Limited v Edelbrand Pty Limited t/as Domus Homes & Anor

Supreme Court of NSW|2011-06-14|Before: Einstein J

The proceedings 1These proceedings concern a building dispute arising from the Building and Construction Industry Security of Payment Act 1999 (NSW) ('the Act'). The plaintiff sought a declaration that Mr Davenport's 14 February 2011 Adjudication Determination is void by reason of seven alleged basic, essential or jurisdictional errors. 2During the hearing, the plaintiff successfully persuaded the Court that grounds 3, 4 and 7 of the plaintiff's case were outside the pleadings. Consequently, the only issues that remained for consideration were grounds 1,2,5 and 6.

Background facts 3On 15 October 2008 the plaintiff ( HM Australia ) and the first defendant ( Domus ) entered into an agreement for what may be described as the provision of project management services in connection with the construction of a warehouse at 1A Jindalee Place Riverwood, NSW. 4The contract provided for Domus to be remunerated on the basis of a fixed fee and a bonus payment (where applicable). The terms of this remuneration agreement are discussed in more detail below. 5The overriding dispute between the parties is whether Domus is entitled to a bonus of $214,913.60. The adjudicator found that this bonus is payable. 6Pursuant to the contract, Domus undertook to provide a variety of services including coordinating survey and geotechnical investigation, finalising the architectural brief in consultation with HM Australia, coordinating the provision of a building cost estimate by the builder, assisting with the selection of finishes, coordinating updates of building cost estimates, coordinating consultants to finalise the construction contract documents, managing consultants and the builder to deliver the project in accordance with the building contract (which included attending site meetings and inspections to monitor and administer the works), coordinating the rectification of defects and providing instructions to the builder and consultants. 7On 18 October 2008, Brecon (NSW) Pty Ltd, the builder, submitted a budget price for building the works. Agreement was reached and a construction budget set. Subsequently, HM Australia requested a number of variations, which were carried out by Brecon. 8On 20 October 2009, Brecon submitted a final price for construction and a list of additional costs comprising variations and provisional items of $2,599,155.00 plus GST to construct the warehouse . 9On 22 October 2009 Canterbury City Council granted development consent in respect of a development application submitted by Domus on behalf of HM Australia. By 25 November 2010, the building works were completed. 10The building works were completed for $390,752.00 below the budget when one excludes variations to the value of $806,725.00. Domus claims this entitles them to a bonus of $195,376.00 plus GST and on 26 November 2010 served a payment claim for the amount owing. 11It is common ground that a payment schedule was not served by the plaintiff in response. Accordingly, on 22 December 2010, Domus, by email, notified HM Australia of its intention to apply for adjudication of the payment claim. HM Australia again did not serve a payment schedule pursuant to s17 (2)(b) of the Act. 12On 19 January 2011, Domus made an adjudication application and served it on HM Australia. On 20 January 2011, Mr Tonkin accepted an appointment as adjudicator but on 7 February 2011 Domus withdrew the adjudication application and made a new adjudication application by notice in writing served on the nominating authority. 13On 9 February 2011, the second adjudication application was served on HM Australia and Mr Davenport, accepted appointment as adjudicator and notified the parties. 14On 14 February 2011, Mr Davenport published his adjudication determination. He found the adjudicated amount to be $214,913.60 inclusive of GST.

Overview of challenges to the determination 15HM Australia sought judicial review of the Adjudication Determination on seven discrete grounds. The grounds of review can be divided into two categories: (1)The first category of challenges to the Adjudication Determination raise questions at to the basic and essential requirements for the existence of a valid adjudication determination as enunciated by Hodgson JA in Brodyn Pty Ltd v Davenport (2004) NSWLR 421 at [53]. These are the basic and essential requirements said to constitute the oft-cited "Brodyn" grounds for review of an adjudication determination. (2)The second category of challenges to the Adjudication Determination is directed to jurisdictional errors allegedly committed by the Adjudicator that, HM Australia submitted, should move this Court to exercise its discretion to make an order in the nature of certiorari.

Legal principles post Chase Oyster Bar v Hamo 16Prior to the Court of Appeal's decision in Chase Oyster Bar v Hamo Industries (2010) 272 ALR 750; [2010] NSWCA 190 ('Chase'), the Court took a very restrictive approach to the review of adjudication determinations in line with the decision of Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421 (' Brodyn '). The areas of review were limited to the "basic and essential" requirements outlined by Hodgson JA at [53] - [57] of Brodyn . 17However, following the High Court's ruling in Kirk v Industrial Court of New South Wales (2010) 239 CLR 531 ('Kirk'), the Court of Appeal in Chase had cause to reconsider whether this approach was permissible in light of the High Court's decision. 18Considering that issue, Basten JA and McDougall J (Spigelman CJ agreeing) in Chase ruled: (1)To the extent that the New South Wales Court of Appeal in Brodyn Pty Ltd v Davenport decided that the Supreme Court of New South Wales was not required to consider and determine that existence of jurisdictional error by an adjudicator making a determination under the Building and Construction Industry Security of Payment Act , that an order in the nature of certiorari was not available to quash or set aside a decision of an adjudicator, and that the legislation expressly or impliedly limited the Court's power to deal with jurisdictional error, it was in error: at [56], [85]-[95], [108], [262]-[266], [287]. (2)Determinations by adjudicators made pursuant to the Building and Construction Industry Security of Payment Act are amenable to judicial review, leading, in appropriate cases, to the making of orders in the nature of certiorari for jurisdictional error: at [2], [102], [113], [241], [261], [285]. 19Following Chase , it is now open to the Court to quash an adjudicator's determination on the basis of a jurisdictional error, including a jurisdictional fact. 20Turning to the Court's discretion in relation to jurisdictional facts, in Fifty Properties Investments Pty Ltd v O'Mara (2007) 23 BCL 35; Brereton J held [at 18] that: "Where jurisdiction depends on a state of facts, a decision maker's finding that the necessary facts to found jurisdiction exist can be reviewed by a Court notwithstanding that judicial review does not ordinarily extend to errors of fact ... Thus the inherent jurisdiction of superior courts to review decisions on the ground of jurisdictional error includes the power to consider whether there was an absence of jurisdiction because the decision maker made a wrong finding as to the existence of such an essential precondition." See also; Lifestyle Retirement Prjects No 2 v Parisi Homes Pty Ltd [2005] NSWSC 411; Olbourne v Excell Building Corp Pty Ltd [2009] NSWSC 349 at [23]. 21While a decision maker has to decide whether or not facts which are essential preconditions of jurisdiction exist, he or she cannot give himself or herself additional jurisdiction by making a wrong decision on the collateral question as to the existence of such facts. Fifty Properties Investments Pty Ltd v O'Mara (2007) 23 BCL 35 22Brodyn and Chase further support the proposition that where there are preconditions that underpin the existence of a valid adjudication, the existence of those preconditions is a jurisdictional fact. Thus an adjudicator's finding that certain preconditions have been met so as to found his jurisdiction is open to judicial review. 23This above summary is the approach that governs the principled exercise of the Court's discretion under the Building and Construction Industry Security of Payment Act 1999 (NSW).

The grounds of challenge 24Following rulings during the hearing, the plaintiff maintained four grounds of challenge. These were: (1)There is no construction contract between the claimant and the respondent to which the Act Applies; (2)In the alternative, if there is a construction contract between HM Australia and Domus, it is not one to which the Act applies ; (3)Domus failed to notify HM Australia of its intention to apply for adjudication determination under section 17(2) of the Act; and (4)Domus failed to make a fresh adjudication application in respect of Mr Davenport (who was the second adjudicator), in breach of sections 26(2) and 17(5) of the Act. 25HM's submission that it is only required to succeed on one ground to be entitled to relief is, with respect, correct.

Ground 1 - No construction contract 26A basic and essential requirement for an adjudication application is the existence of a construction contract per Brodyn [53]. The plaintiff submitted that the scope of work defined in the agreement between the parties did not fall within the ambit of a construction contract as defined by the Act. 27Section 4 of the Act defines a construction contract as: "A contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party." 28It was common ground that the defendant did not perform actual construction work pursuant to section 5 of the Act and therefore the question was whether the work agreed upon was a "related service" pursuant to section 6(1)(b). 29Section 6(1)(b) of the Act defines "related services" as: (b) services of the following kind: (i) the provision of labour to carry out construction work, (ii) architectural, design, surveying or quantity surveying services in relation to construction work, (iii) building, engineering, interior or exterior decoration or landscape advisory services in relation to construction work, 30It is important to note that not all of the contracted work need fall within this provision to give rise to a construction contract, merely some of it: Brian Leigh Smith & Anor v Coastivity Pty Ltd [2008] NSWSC 313.

The agreement 31The agreement between the parties is critical to determine the scope of Domus' obligations. Counsel for the first defendant took the Court to the salient parts in an effort to highlight that Domus' obligations fell within the definition in section 6(1)(b). The relevant provisions Mr Weinberger referred to were:

Step 1: Contour Survey and Architectural Brief Once the client has signed up with Domus Homes and after a one off payment to Domus Homes of $21,666.67 plus GST, a contour survey and geotechnical investigation and report (if not already available) is carried out by a professional land surveyor and geotechnical engineer, co-ordinated by Domus Homes and paid for by the client. An Architectural Brief Document is completed by the client at this stage for the architect to utilise for his design. Step 2: Design Meeting On Survey, geotechnical report and Architectural Brief completed by the client, David Edelstein, the architect and the project principal/s (client ) meet to finalise the Architectural Brief. The architect is paid directly by the client, but coordinated by Domus Homes. Step 3: Sketch Plans Sketch plans are now drawn. Client sign off is required once the client is happy with the sketch plans which will include location plans, floor plans and elevations. Step 4: Building Cost Estimate On sketch plan sign off by the client, an initial estimate is carried out by the nominated builder, co-ordinated by Domus Homes. A check estimate is carried out by a Quantity Surveyor, paid for by the client. This is used to finalise the design and finishes within budget as well as assisting with the construction documentation finalisation. Step 5: Development Application Drawings These commence on a payment to Domus Homes of $21,666.67 plus GST by the client. Client sign off is required on completion of these plans. Step 6: Council Submission The plans are submitted to council after a payment to Domus Homes of $21,666.67 plus GST by the client. This payment covers the management and coordination of the Development Application including all representations and meetings with Council as required. The additional consultants if required for the application (including planner, hydraulics engineer, traffic engineer, landscape designer, geotechnical engineer and/or geotechnical investigation, BASIX and Section j specialist etc) are co-ordinated by Domus Homes, but are paid for by the client as are application fees and statutory charges. In the event of Council or client requiring post submission changes where extra work is required (excluding minor changes), Domus Homes' rate of $250/hr plus GST will apply and Domus Homes will negotiate fees for the work with the architect and other consultants, if required, for client approval. Step 7: Finishes Selection This can be carried out during or after the DA process. Domus Homes can assist or direct you to various suppliers, depending on the clients' requirements. However, it is more likely that the nominated builder will allow for certain finishes which we can work in with him as part of his price. Step 8: Building Estimate Update Once you have selected your range of finishes and pc items and there is more council certainty, your estimate is updated and refined by the builder, again co-ordinated by Domus Homes. Step 12: Occupation and Completion As the project nears completion, final inspections take place for occupation. Once the building is suitable for occupation, the client can move into the property. An Occupation Certificate is also prepared and issued by the Certifier. On occupation and/or building completion, a reconciliation is done and the bonus to Domus Homes gets settled in full within 7 days of invoice, failing which interest at 10% pa will apply for outstanding payments. Urgent defects, should they occur, will be repaired immediately by the builder, whilst smaller defects will be repaired at the end of the maintenance period. Domus Homes will co-ordinate this work. Hereafter, a Final Certificate is issued where all final payments are made to the builder.

The adjudicator's determination 32Considering these provisions, the adjudicator found: [13] The Act does not define architectural, design, surveying or quantity surveying services. I am not satisfied that the services provided by the claimant, or at least some of them, do not fall within architectural, design, surveying or quantity surveying services. The services provided by an architect or quantity surveyor can be very broad. At page 8 of the submission the respondent says that the claimant's role was to source, enlist, organise and co-ordinate the builder, the various sub contractors and the expert consultants as required and to lower the costs of construction. It seems to me that these are services which an architect often provides. I cannot see why these cannot be described as architectural services. [14] The respondent refers me to the decision of McDougall J in Brian Lee Smith v Coastivity [2008] NSWSC 313. At (37) McDougall J found that the claimant was not obliged to provide architectural, design, surveying or quantity surveying services in relation to the construction work. From his judgment, it is not apparent how he came to this conclusion. There is no analysis of what services are architectural services. There is no attempt to define the term. I cannot see from the judgment how McDougall J found that none of the advisory services provided by the claimant in that case fell within the meaning of architectural services. Perhaps there were concessions made by the parties which concessions are not mentioned in the judgment. [15] At (35) McDougall J said that it is not necessary that all the services to be provided should be 'related services' as defined. He found that it is sufficient if some of them fall within the definition. It seems to me that some of the services provided by the claimant could be said to be architectural services in that they are services of the nature which might be provided by an architect administering a construction contract. I am satisfied that the contract under which the claimant makes this payment claim is a 'construction contract' with the meaning of the Act.

Plaintiff's submissions on existence of a construction contract 33It was HM Australia's submission that the work undertaken to be performed by Domus does not fall within the ambit of construction work as defined by the Act. 34HM Australia further submitted that the work that Domus undertook to complete, that was more accurately described as a service; was not a related service as defined by section 6(1)(b) of the Act. 35For this proposition, HM principally relied upon the decision of McDougall J in Brian Leigh Smith & Anor v Coastivity Pty Ltd [2008] NSWSC 313. 36The plaintiff argued that the adjudicator ignored the principles of this case and that either way; it is not enough to find, as the Adjudicator did, that the services undertaken "might be provided by an architect in administering a contract." To accept that proposition would be to also accept that, as architects often print copies of plans to provide to third parties, where that printing is outsourced to a commercial printer, the printer could equally claim under the Act on the basis that such printing forms work that might be provided by an architect in the course of his or her work. That must necessarily be beyond the intended scope that the legislature intended for the Act to cover. 37Concluding, the plaintiff submitted, the agreement required Domus to co-ordinate, control, manage, supervise and co-ordinate services falling within section 6 of the Act, but Domus did not thereby undertake itself to provide those services. Accordingly, Domus did not undertake to provide related goods or services, nor did it undertake to carry out construction work as defined under the Act. The Agreement was therefore not a construction contract. The authority of Coastivity is directly on point and, in HM Australia's submission, ought to be followed.

First defendant's submissions on existence of construction contract 38The first defendant submitted that HM's argument that Domus did not undertake to provide services which gave rise to a construction contract should be rejected for the following reasons: (1)Firstly, as the adjudicator correctly found at least some of the services Domus undertook to provide fell within s6(1)(b)(ii). (2)Secondly, the services Domus undertook to provide included at least both architectural services and building and decoration advisory services in relation to construction work within the meaning of s6(1)(b)(ii) and (iii). (3)Thirdly, it was accepted in Biseja v NSI Group [2006] NSWSC 835 that "project management services" were "related goods or services" within the meaning of s6(1)(b). (4)Fourthly, in Parist Holdings Pty Ltd v WT Partnership Australia Pty Ltd [2003] NSWSC 365, the Court at [25] - [27] agreed with the adjudicator's finding that there is no issue that consultancy work in connection with the development of a project is not related goods and services in relation to construction work within the meaning of the Act.

The authorities 39The parties each advanced a different authority, which they submitted was analogous to the present case, and should therefore govern this Court's discretion.

Plaintiff's authority: Coastivity 40The plaintiff principally relied on McDougall J's judgment in Brian Leigh Smith & Anor v Coastivity Pty Ltd [2008] NSWSC 313. 41This case concerned a profit sharing arrangement between the owner of land at Tweed Heads and a developer (Coastivity). In exchange for the land, Coastivity undertook to provide its project management skills. 42At paragraph [2], His Honour defined the question for determination as: "Whether under the deed Coastivity undertook to supply related goods and services for another party" 43McDougal J explained that the answer to this question is not to be found in some generalised principle concerning project management services, but rather is wholly dependent on construction of the terms of the agreement: "The question to be decided in relation to this issue requires attention to be focused on the obligations that are undertaken under the contract that is alleged to be a construction contract." [34] 44In this respect, the plaintiff's submission that project management services are not by definition "related goods or services" is correct. Only those items listed in s6 (1)(b) are "related services" for the purposes of the Act However, it does not automatically follow that such services are never "related goods or services". The determination of this issue depends on a proper construction of the terms of the agreement. In other words the Court must determine if the contracted project management obligations encompass any of the matters listed in section 6(1)(b).

First defendant's authority: Biseja 45The first defendant rejected the analogy relied on by the plaintiff in respect of Coastivity and submitted that McDougall J's judgment in Biseja v NSI Group [2006] NSWSC 835 should guide the Court's discretion. 46In this case a builder agreed to perform building work at cost and agreed separately to provide project management services for a fee of 10% of the cost of the building works. There was an agreement that the transfer of three units in the completed development would satisfy this project management fee. 47In this case, His Honour noted at [4] that it was common ground that project management services were "related goods and services" for the purposes of the Act. The first defendant submitted it is therefore trite law that project management services fall within the scope of section 6 of the Act. 48This submission must be rejected. The common understanding reached in Biseja does not in anyway undermine the later approach taken by His Honour in Coastivity . This common understanding merely negated the need for His Honour to construct the agreement to determine if it was a construction contract. It did not establish a principle of law.

The principled approach 49The principled approach is that set out by McDougall J in Coastivity , that is the terms of the agreement must be construed to determine if a construction contract as defined in the Act exists. It does not however automatically follow (as the plaintiff contended) that because McDougall J did not accept the agreement in Coastivity constituted a construction contract that the present agreement does not. This can only be decided on a proper consideration of each obligation contained in the agreement and a determination as to whether they are services of the kind listed in section 6(1)(b). 50I have carefully considered each of Domus' obligations contained in the agreement. None of them require anything more than an obligation to coordinate the services of those carrying out the relevant "related services". Coordination of services falling within the Act is not sufficient, this is a point clearly made by McDougall J in Coastivity at [39]-[40]. 51It is not necessary to address each of the grounds raised by Mr Weinberger that he submitted gave rise to an obligation under the Act, but by way of illustration I examine the first two. 52Step 1 requires that: Once the client has signed up with Domus Homes and after a one off payment to Domus Homes of $21,666.67 plus GST, a contour survey and geotechnical investigation and report (if not already available) is carried out by a professional land surveyor and geotechnical engineer, co-ordinated by Domus Homes and paid for by the client. An Architectural Brief Document is completed by the client at this stage for the architect to utilise for his design. (emphasis added) 53Under this obligation, the first defendant is doing nothing more than co-ordinating the services of a professional land surveyor and geotechnical engineer. Domus is not carrying out the services itself. 54Similarly in step 2: On Survey, geotechnical report and Architectural Brief completed by the client, David Edelstein, the architect and the project principal/s (client) meet to finalise the Architectural Brief . The architect is paid directly by the client, but coordinated by Domus Homes. (emphasis added) 55It cannot be assumed that Mr Edelstein would be performing any architectural services at the meeting, anymore than it can be assumed that the project principal (also in attendance) was performing architectural services. This was the role of the architect. Simply attending a meeting and contributing to an architectural brief, in circumstances where a client with no demonstrative architectural experience originally designed the brief, and is further assisting in its finalisation, is not sufficient to attract the operation of the Act. 56The first defendant took the Court to exhibit "HO12", which contained minutes of a meeting between the plaintiff, the first defendant and Mr Taylor. It is certain that architectural matters were discussed at this meeting, but it is impossible to determine what role the defendant played in these discussions. Either way, as McDougall J made clear in Coastivity at [34] the focus of the Court is on the obligations in the contract, not the actual work performed: "Work in fact performed is at best of limited relevance. If it can be seen as falling within the obligations undertaken, it goes no further than the contract (although it may provide concrete examples, or demonstrations, of the obligations undertaken). To the extent that it goes further than the contract, it is presumably to be regarded as having been undertaken under some sort of variation or ad hoc agreement. In this case, as I have said, the only candidate for the role of "construction contract" was the deed..." 57It is clear on the face of the agreement that no services falling within the definition of section 6(1)(b) were required to be provided by Domus. In this regards McDougall J's comments at [39-40] summarise my approach in this case: "[39] In truth, I think, Coastivity's case based on either subpara (ii) or subpara (iii) can succeed only if the introductory words to para (b) are to be read as "services of the following kind, or in relation to such services" . But the introductory words do not so read; and there is no basis for implying them by some process of construction. [40] I accept that the performance of Coastivity's obligations under cl 5(a) would have required it to coordinate, or control, manage, supervise and coordinate, the provision of services falling within either or both of subparas (ii) and (iii). But it did not thereby undertake itself to provide those services ; and, on the evidence, it did not do so." (emphasis added) 58I am aided in this approach by a proper consideration of the meaning of the services listed in section 6(1)(b)(ii). It is true that these services are not defined in the Act, nor has the Court defined them. However, some of the matters listed are given expression in other areas of legislation. 59To take an example, section 4 of the Architects Act 2003 (NSW) defines an architectural service as: architectural service means a service provided in connection with the design, planning or construction of buildings that is ordinarily provided by architects 60This definition is qualified by section 11(1) which requires: An architect corporation or architect firm must ensure that at all times there is at least one nominated architect who is nominated by the corporation or firm and responsible for the provision of architectural services by the corporation or firm. 61Clearly, architectural services require the oversight of a trained professional. A non-architect may provide architectural services but the firm requires a nominated professional to be responsible for their provision. 62Domus provided services connected with architectural work, or as McDougall J put it at [39] in relation to architectural services, but they were not providing the architectural service it self. It is apparent from the agreement that what Domus was obliged to provide was project management services. As a necessary by product of this obligation, they had to deal with architects and those providing architectural services, but they did not provide the service themselves. To provide a related service would have required Domus to perform services that could only be performed if an architect was responsible for their provision. The mere coordination of architectural services (without more) does not so require. 63The same approach should be given to the definition of all the other services listed in section 6(b). 64For these reasons, the adjudicator made a basic and essential error in proceeding to a determination in the absence of a construction contract. No other approach is open to the Court other than to quash the determination. 65Strictly speaking it is not necessary for the Court to examine any of the other grounds advanced by the plaintiff, but in an effort to clarify all issues in dispute, I do so.

Ground 2 - Not a construction contract to which the Act applies 66HM Australia submitted on an alternate basis, that where a construction contract is held to exist between Domus and itself, it is a construction contract to which the Act does not apply by virtue of section 7(2)(c). Counsel for the plaintiff admitted that this was a "finicky" area. 67Section 7(2)(c) provides: (2) This Act does not apply to: (c) a construction contract under which it is agreed that the consideration payable for construction work carried out under the contract, or for related goods and services supplied under the contract, is to be calculated otherwise than by reference to the value of the work carried out or the value of the goods and services supplied.

The payment regime 68The agreement between the parties sets out the consideration for Domus's services in the following terms: "The Domus Homes fee includes a fixed price project management service fee of $130, 000 plus GST plus a bonus payment to be shared on a 50/50 basis between H.M. Australia Holdings Pty Ltd (HMAH) and Domus Homes for all savings affected below the $3,450000 target mark" 69HM submitted that because the consideration for Domus' services was comprised in part of a bonus payment, the consideration was calculated otherwise than by reference to the value of the work and thus the jurisdiction of the Act was ousted. 70Again, determination of this issue turned on the correct interpretation of competing authorities.

The plaintiff's authority: Coastivity 71While the facts of Coastivity have already been outlined in brief, it is necessary to restate them. 72The facts were: In exchange for access to land, Coastivity agreed to provide its skills as a developer to develop a project at Tweed Heads. Profits or losses from the venture were to be shared in agreed proportions. 73At [62] McDougall J explained, "the notion of an entitlement to share in profit is fundamentally inconsistent with the concept of value, or valuation, as it used in the relevant sections of the Act". 74On the facts of this case, it is clear that the terms of the agreement between the owner and the developer made no effort to value the developer's work with reference to the value of the services it carried out. Rather, the consideration was calculated with reference to profit or loss, a determination driven by a multitude of variables other than the value of Coastivity's services. This is the exact category of contract that section 7(2)(c) seeks to exclude.

The defendant's authority: Biseja 75The first defendant submitted that the factual situation in Coastivity is far removed from the instant agreement. Instead, Mr Weinberger relied on McDougall J's statement in Biseja . 76Biseja concerned an agreement whereby a builder agreed to perform building work at cost and agreed separately to provide project management services for a fee of 10% of the cost of the building works. This situation is closely analogous to the current factual situation. 77In this case, His Honour found that the provision of project management services for a fee which was calculated by reference to 10% of the cost of the building works was not caught by section 7(2)(c) because the value of those project management services was 10% of the cost of the building works. The terms of the instant agreement indicate that the bonus payable to Domus was, likewise, payable by reference to the cost of the building works. The value of the services provided by Domus was, relevantly, a percentage of the savings achieved by reference to the budget. The inclusion of a bonus provision, where it is calculated with reference to the value of work carried out, does not fall foul of the Act.

Ground 5 - There was not sufficient notification of Domus' intention to apply for adjudication 78HM Australia submitted that it was not sufficiently notified of Domus' intention to apply for adjudication of the payment claim. 79Section 17(1)(b) provides: (1) A claimant may apply for adjudication of a payment claim (an "adjudication application") if: (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.

Plaintiff's submissions concerning notification 80HM's submission was premised on the argument that the term 'notify' imports a higher requirement than the terms 'serve' and 'provide' under the Act. This is so because notify denotes a state of awareness on the part of the recipient of the contents of that communication, whereas service or provision of a document on a person or corporation, needn't require any element of knowledge on the part of the recipient. 81HM then continued to argue that, as service by email was not a recognised mode of service for the purposes of the Act, the onus lay with Domus to prove the plaintiff was notified. HM Australia argued that that there is no evidence before the Court that its directing mind and will actually received the notice that Domus relied upon for the purpose of section 17 of the Act and the Court should therefore find there was no notification.

First defendant's submissions concerning notification 82The first defendant disputed that the requirement to notify under section 17 imported a higher obligation than that of service. Regardless Mr Weinberger took the Court to the notification email on which it relied. 83The 22 December 2010 email from Mr Edelstein of the first defendant was addressed to Maggie Lo and carbon copied to Harvey Ou Yang. 84The email clearly states: "This letter now serves as formal notice that I intend to apply for adjudication of my payment claim" 85Ms Lo is an officer of the plaintiff and Mr Ou Yang is a director of the plaintiff. Ms Lo replied to the notification email later the same day.

Conclusion as to notification 86In these circumstances, it is unnecessary for me to address the different interpretations the parties have put forward as to the meaning of the term 'notification'. From the evidence it is clear that the controlling mind of the plaintiff, namely the director Mr Ou Yang and an officer Ms Lo, were sufficiently notified for the purposes of section 17(2)(a) of the Act of the first defendant's intention to apply for adjudication of its payment claim.

Ground 6 - Improper appointment of a second adjudicator 87Finally, HM Australia challenged the validity of the adjudicator's determination because it argued that Mr Davenport's appointment was not valid.

Plaintiff's submissions as to the invalidity of Mr Davenport's appointment 88On 1 February 2011, the original adjudicator Mr Tonkin withdrew. 89Domus was therefore required by sections 17 and 26 of the Act to: (a)Withdraw the adjudication application in writing; and (b)Make a new Adjudication Application 90Domus was further required to serve that new adjudication application on HM Australia in accordance with section 17 of the Act. 91It was HM Australia's contention that that Domus; (1)Failed to make a fresh Adjudication Application pursuant to sections 17 and 26 of the Act; or (2)Where it is found that Domus did make a fresh application, it failed to serve that Application on HM Australia pursuant to section 17(3) and 31 of the Act

First defendant's submissions as to the validity of Mr Davenport's appointment 92The first defendant contended that on the facts there was no basis for the plaintiff's submission. In written submissions Mr Weinberger set out the following chronology: (1)19 January 2011 - adjudication application (2)20 January 2011 - Mr Tonkin accepted appointment as adjudicator (3)1 February 2011 - Adjudicate Today advise that Mr Tonkin wishes to withdraw his acceptance of his appointment as adjudicator (note the absence of power to so withdraw) (4)3 February 2011 - Domus' right to withdraw the application arose pursuant to s26(2)(a) (5)7 February 2011 - Domus withdrew application pursuant to s26 (2)(a) and made a new application (6)9 February 2011 - Mr Davenport accepted appointment, notified the parties and served adjudication application on HM Australia 93As evidence of service of the application, Mr Weinberger took the Court to Mr Davenport's acceptance of appointment in which he notified the parties of his appointment and served the required documents on both parties. 94The first defendant also relied on two further grounds; the first is that HM Australia is precluded from raising this issue. It was not raised in its adjudication response and HM Australia submitted to the jurisdiction of the adjudicator. The validity of Mr Davenport's appointment was not put in issue until the commencement of these proceedings. 95The second, invoked the de facto officer rule. That is, the acts of a de facto officer done in apparent execution of his office cannot be challenged on the ground that he has no title to the office. It matters not that his appointment to the office was defective. The de facto officer rule applies to acts of a multi-membered Court as well as the acts of an individual judicial or public officer: G J Coles &Ors v Retail Trade Industrial Tribunal (1987) 7 NSWLR 503 at 525-528.

Conclusion as to the appointment of the adjudicator 96The chain of events proffered by the first defendant demonstrates that it complied with the relevant provisions of the Act. If this were not the case, I accept that the plaintiff must necessarily be bound by its conduct at the adjudication. In failing to raise the issue before the adjudicator, as a matter of procedural fairness, the claim should not be available to them now. As McHugh J stated in Liftronic Pty Ltd v Unver (2001) 75 ALJR 867 at [44]: "It is an elementary rule of law that a party is bound by the conduct of his or her case. As six justices of this Court said in University of Wollongong v Metwally (No 2) : Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so".

Orders 97The Court makes the following orders: (1)Adjudication No 2011ADJT043 made by Phillip Davenport on 14 February 2011 under the Building and Construction Industry Security of Payment Act 1999 is void and should be set aside; (2)The first defendant is to pay the plaintiff's costs in the cause.

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: 21 June 2011

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