Iskra v MMIR Pty Limited

Court of Appeal (NSW)|2019-05-20|Before: Bathurst CJ, Gleeson JA, Payne JA, Parker J

Background

In about mid-2016, the owner engaged the builder to perform construction work for the upgrade, refurbishment and fit out of the restaurant and function centre at Crown Street, Wollongong. On 4 September 2018, the builder served a payment claim under the SOP Act, s 13(1) for $165,829.95. The claim consisted of a two-page invoice and supporting documents. The progress claim plus GST totalled $615,829.95 for 15 items of work and included a six per cent "project management fee" of $31,689.36. The invoice allowed a credit of $450,000 for amounts already paid, leaving the sum outstanding of $165,829.95.
In response, the owner, on 14 September 2018, served a payment schedule under s 14(1) certifying $nil as the amount it proposed to pay. This was justified on four bases: (a) the works were not undertaken on the basis claimed by the builder; (b) payment had already been made for some amounts claimed; (c) the claim had not been "progressed"; and, (d) the owner was entitled to a set-off in relation to the works.
On 27 September 2018, the builder applied for adjudication of its payment claim under s 17(1). Its application asserted that the contract was an oral "do and charge" contract whereby the builder, as the head contractor, received instructions for the works proposed by the owner from time to time and directed the trades and suppliers to perform the works as instructed. The builder also performed some works.
On 8 October 2018, the owner lodged its adjudication response under s 20 in which it asserted that the construction contract arose from its acceptance of a written quote provided by the builder on about 3 August 2016 for a price of $225,000 (the quote). The owner admitted having paid the builder $450,000 for works performed and stated that it had paid a further $514,200 for further works performed by another builder.
With respect to the amount of the payment claim, the owner asserted that it had not had the opportunity to properly analyse the builder's claim, but the amounts claimed may relate to payments not related to the building works and/or are grossly excessive, and the owner will require the obtaining of expert advice and opinion to properly support its response. In addition, the owner asserted that, in making the claim, the builder had either fraudulently claimed, duplicated his claims, inflated his claims, or acted negligently in carrying out the building works.

Adjudication determination

On 15 October 2018, the adjudicator issued an 11-page purported determination under s 22(1). The determination recorded that the adjudicator was satisfied that a construction contract existed for the purposes of the SOP Act on the alternative contentions of the builder and the owner (pars 15 and 16).
The determination identified three issues, namely: (a) whether the works were undertaken on a "do and charge" basis; (b) whether payment had already been made for some amounts claimed; and, (c) whether the claim had been "progressed". That expression seems to be a reference to an assertion by the owner that it had not had sufficient opportunity or information to consider the claim as made.
After summarising the owner's adjudication response (pars 59-62), the determination recorded that the adjudicator was not satisfied, based on the materials before him, that the owner's allegations had been established (pars 67, 68, 69 and 71).
The determination recorded that there was ample evidence that "the works as claimed were undertaken" (par 66). Reference was made to the communications between the parties, the statutory declaration provided by the builder and supporting documentation, including an index cross-referencing the underlying subcontractor invoices for all works on the project (par 70).
Turning to the amount of the progress claim, the determination referred (par 80) to the value of the construction work carried out in accordance with SOP Act, s 9 or, alternatively, s 10, and then recorded (pars 81, 83 and 84): [81] The claimant has demonstrated that it has an entitlement in accordance with the contract and has provided sufficient information and methodology as to how it arrived at the amount for the works claimed. I have before me by way of submissions, statutory declarations and numerous pieces of correspondence between the parties indicating the works progressing on the project. … [83] Based upon the materials before me, I am satisfied that the claimant is entitled to a payment. [84] I have addressed each and every reason as articulated in the materials before me in relation to the withholding of the claimed amount and have found that in accordance with the above reasons and the terms of the Act, that the claimant is entitled to a progress payment.
The determination concluded that the adjudicated amount owing to the builder was $159,829.95 including GST, after taking into account a deduction of $6,000 including GST which it was common ground that the owner had paid to the builder (par 86). The due date for payment was determined as 25 September 2018 (par 90).

The decision below

By summons filed on 21 November 2018, MMIR sought a declaration that the determination was void and, in the alternative, an order in the nature of certiorari quashing it. It also sought an interlocutory injunction against the taking of steps to enforce it.
The owner challenged the adjudicator's determination on the basis that the adjudicator had failed to perform his statutory function and to consider whether the work the subject of the payment claim had been performed, and if so, to assess the value of the work that he considered had been performed.
In addressing this contention, the primary judge identified the question in issue as whether the adjudicator had failed to value the construction work in accordance with the terms of the contract: at [19]. The statement of the issue in these terms reflected, as his Honour noted, the builder's acceptance of the statement by Brereton J (as his Honour then was) in Pacific General Securities Limited v Soliman & Sons Pty Limited [2006] NSWSC 13; (2006) 196 FLR 388 at [86]: …[T]he absence of relevant material from a respondent does not entitle the adjudicator simply to award the amount of the claim without addressing its merits, which as a minimum will involve determining whether the construction work identified in the payment claim has been carried out, and what is its value. Adoption of the other approach by an adjudicator - by allowing a claim in full just because a respondent's submissions are rejected, without determining whether the construction work the subject of the claim has been performed and without valuing it - would bespeak a misconception of what is required of an adjudicator. In traditional terms, it would be jurisdictional error resulting in invalidity. (Emphasis added)
After noting that the adjudicator had rejected the owner's contention that there was a fixed price agreed and determined that the contract was a "do and charge" contract, the primary judge made two findings concerning such a contract: at [27]-[29]. First, a "do and charge" contract gives rise to an entitlement by way of quantum meruit to a reasonable payment, referring to the remarks of McDougall J in Krahe v Manfate Pty Ltd [2016] NSWCA 363 at [44]-[45]. Second, that even if the "costs plus" mechanism was appropriate to determine the amount of the reasonable payment, the Court was entitled to consider whether the particular margin claimed, in this case six per cent, was appropriate.
The primary judge next referred to parts of the determination where the adjudicator had rejected the owner's contentions, and observed (at [33]): In my view, the tenor of the adjudication is clear. The Adjudicator treated the issue before him as one which depended upon the owner sustaining the claims and assertions made in the payment schedule and the adjudication response, rather than turning on the validity of the claim made in the payment claim and pursued in the adjudication application.
The primary judge found that the determination did not consider the value of the work undertaken by the builder having regard to the terms of the contract and the reasonable value of the works undertaken: at [34].
The primary judge further found that the determination did not consider the reasonableness of the charge made by the builder for the work done by the builder himself, or the "reasonableness" of the claimed margin of six per cent for project management as a "costs plus" mark-up and a proper consideration of the payment claim required this evaluation: at [35]-[36].
The primary judge concluded that the adjudicator had failed to exercise jurisdiction under the SOP Act because the adjudicator had failed to come to a view as to what was properly payable having regard to the true construction of the contract under the SOP Act and the true merits of the claim, and there had been a jurisdictional error: at [37].

The appeal

The notice of appeal raised three grounds which were related. Ground 1 asserted that the primary judge erred in concluding that the adjudicator failed to consider the validity and merits of the payment claim submitted by the builder under the SOP Act.
Ground 2 asserted that the primary judge erred in concluding that the adjudicator had failed to form a view as to what was properly payable by way of a progress claim under the SOP Act because the adjudicator had not had regard to the true construction of the contract and the true merits of the payment claim made by the builder.
Ground 3 was expressed in general terms and asserted that the primary judge erred in concluding that the adjudicator had committed jurisdictional error.

Relevant legislative provisions

For the purpose of the appeal, it is sufficient to set out the terms of s 22 and also ss 9 and 10 of the SOP Act to which reference was made in the determination.
Section 22 of the SOP Act provides: 22 Adjudicator's determination (1) An adjudicator is to determine: (a) the amount of the progress payment (if any) to be paid by the respondent to the claimant (the adjudicated amount), and (b) the date on which any such amount became or becomes payable, and (c) the rate of interest payable on any such amount. (2) In determining an adjudication application, the adjudicator is to consider the following matters only: (a) the provisions of this Act, (b) the provisions of the construction contract from which the application arose, (c) the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim, (d) the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule, (e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates. (3) The adjudicator's determination must: (a) be in writing, and (b) include the reasons for the determination (unless the claimant and the respondent have both requested the adjudicator not to include those reasons in the determination). (4) If, in determining an adjudication application, an adjudicator has, in accordance with section 10, determined: (a) the value of any construction work carried out under a construction contract, or (b) the value of any related goods and services supplied under a construction contract, the adjudicator (or any other adjudicator) is, in any subsequent adjudication application that involves the determination of the value of that work or of those goods and services, to give the work (or the goods and services) the same value as that previously determined unless the claimant or respondent satisfies the adjudicator concerned that the value of the work (or the goods and services) has changed since the previous determination. (5) If the adjudicator's determination contains: (a) a clerical mistake, or (b) an error arising from an accidental slip or omission, or (c) a material miscalculation of figures or a material mistake in the description of any person, thing or matter referred to in the determination, or (d) a defect of form, the adjudicator may, on the adjudicator's own initiative or on the application of the claimant or the respondent, correct the determination.
Sections 9 and 10 of the SOP Act provide: 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. (2) Related goods and services supplied or undertaken to be supplied under a construction contract are 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 goods and services, 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 goods are defective, the estimated cost of rectifying the defect, and, in the case of materials and components that are to form part of any building, structure or work arising from construction work, on the basis that the only materials and components to be included in the valuation are those that have become (or, on payment, will become) the property of the party for whom construction work is being carried out.

Parties' submissions

It was common ground that the appeal raised a short point.
Counsel for the builder submitted that the primary judge erred in two respects. First, that contrary to the primary judge's observation at [33] of the judgment (which is set out at [19] above), the adjudicator did not determine the progress claim at the amount claimed simply because he rejected the relevance of the respondent's material.
Second, the primary judge erred in finding that the adjudicator had failed to express an assessment of the value of the work carried out by the builder having regard to the terms of the contract. The submission continued that the proper construction of the contract is a matter for the adjudicator and that his Honour erred in making his own findings as to the "true" construction of the contract and then applying that finding when concluding that the adjudicator's determination was outside jurisdiction.
The builder further submitted that an adjudication determination is not to be examined with a fine-tooth comb or a requirement of legally correct language, referring to the remarks of Basten JA in Cockram Construction Ltd v Fulton Hogan Construction Pty Ltd [2018] NSWCA 107 (Cockram Construction) at [17].
The owner sought to uphold the primary judge's finding that the adjudicator had failed to address the task set by s 22 of the SOP Act. Reference was made to the basis of calculation of the value of the construction work in accordance with s 9 or, alternatively, s 10 of the SOP Act. The owner submitted that the determination recorded no more than that the adjudicator had "seen" the builder's methodology with respect to the amount claimed, but had not undertaken a process of evaluating the value of the construction work.

The concept of jurisdictional error

The starting point is that judicial review of an adjudicator's determination is available, but only for jurisdictional error on the part of the adjudicator: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 92 ALJR 248; [2018] HCA 4; Brodyn Pty Ltd t/as Time Cost and Quality v Davenport (2004) 61 NSWLR 421; [2004] NSWCA 394 at [44] (Hodgson JA, Mason P and Giles JA agreeing).
The concept of "jurisdictional error" was most recently explained in the joint reasons of Kiefel CJ, Gageler and Keane JJ in Hossain v Minister for Immigration and Border Protection (2018) 92 ALJR 780; [2018] HCA 34 at [23]-[24]: [23] Jurisdiction, in the most generic sense in which it has come to be used in this field of discourse, refers to the scope of the authority that is conferred on a repository. In its application to judicial review of administrative action the taking of which is authorised by statute, it refers to the scope of the authority which a statute confers on a decision-maker to make a decision of a kind to which the statute then attaches legal consequences. It encompasses in that application all of the preconditions which the statute requires to exist in order for the decision-maker to embark on the decision-making process. It also encompasses all of the conditions which the statute expressly or impliedly requires to be observed in or in relation to the decision-making process in order for the decision-maker to make a decision of that kind. A decision made within jurisdiction is a decision which sufficiently complies with those statutory preconditions and conditions to have "such force and effect as is given to it by the law pursuant to which it was made". [24] Jurisdictional error, in the most generic sense in which it has come to be used to describe an error in a statutory decision-making process, correspondingly refers to a failure to comply with one or more statutory preconditions or conditions to an extent which results in a decision which has been made in fact lacking characteristics necessary for it to be given force and effect by the statute pursuant to which the decision-maker purported to make it. To describe a decision as "involving jurisdictional error" is to describe that decision as having been made outside jurisdiction. A decision made outside jurisdiction is not necessarily to be regarded as a "nullity", in that it remains a decision in fact which may yet have some status in law. But a decision made outside jurisdiction is a decision in fact which is properly to be regarded for the purposes of the law pursuant to which it was purported to be made as "no decision at all". To that extent, in traditional parlance, the decision is "invalid" or "void".
In Goodwin Street Developments Pty Ltd v DSD Builders Pty Ltd [2018] NSWCA 276 at [14], Basten JA (Leeming and White JJA agreeing), added: It may be accepted that the concept of "authority to decide" must be given content in a specific statutory context. The primary source of that content will be the terms of the statute itself; however, there are likely to be implied constraints, sourced in general law principles.
No issue arises in the present case as to the preconditions to the exercise of the adjudication function, such as the existence of a valid payment claim: Goodwin Street Developments Pty Ltd v DSD Builders Pty Ltd at [15]. This case turns on whether the adjudicator exercised the function conferred under s 22(1) of the SOP Act to determine "the amount of the progress claim" which is to be paid and the requirements of s 22(2) that the adjudicator "is to consider the following matters only", which include "the provisions of the construction contract" and "the payment claim".
As mentioned, the owner accepted that there is no dispute that the adjudicator determined that the construction work identified in the payment claim had been carried out, which included the work done by the builder himself and the project management services that were provided. The issue in this case is whether the adjudicator failed to value the work having regard to the terms of the contract.
In Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2018] NSWCA 339 (Icon) at [16], Basten JA (Meagher and Leeming JJA agreeing) noted that given the function conferred on the adjudicator by s 22(1) and the requirements of s 22(2) to "consider the following matters only", the adjudicator is limited to acting upon his or her understanding of the contractual obligations and of the content of the payment claim. Basten JA continued at [16]: While the construction of a contract will usually involve questions of law, the Act implicitly confers on the adjudicator the power to form an opinion as to the meaning of the contract, for the purposes of the adjudication. The adjudication cannot be set aside because an error of law in construing the contract appears on the face of the record, including in the reasons of the adjudicator. The same is true with respect to the scope of the payment claim.
Basten JA also emphasised in Icon at [15] that the SOP Act does not provide a right of appeal, and accordingly, "the adjudicator's findings with respect to matters of fact, within jurisdiction, will be unreviewable". His Honour continued that the SOP Act does not provide review for errors of law on the face of the record and accordingly, "the adjudicator's determination of legal issues will also be unreviewable".
As to the significance of the adjudicator rejecting the respondent's material, the builder accepted the following remarks of Hodgson JA in Coordinated Construction Co Pty Limited v J M Hargreaves (NSW) Pty Limited (2005) 63 NSWLR 385; [2005] NSWCA 228 (Hargreaves) at [52]-[53]: [52] … The adjudicator may very readily find in favour of the claimant on the merits of the claim if no relevant material is put by the respondent; but the absence of such material does not mean that the adjudicator can simply award the amount of the claim without any addressing of its merits. [53] Indeed, my tentative view is that, if an adjudicator determined the progress payment at the amount claimed simply because he or she rejected the relevance of the respondent's material, this could be such a failure to address the task set by the Act as to render the determination void.
It is convenient to proceed upon this basis, which was common ground.
It is not necessary to resolve the difference of opinion in Hargreaves between Hodgson and Basten JJA as to whether the adjudicator is entitled to go beyond the terms of the adjudication response in rejecting part or all of the progress claim: Hargreaves at [52] (Hodgson JA) cf [64]-[68] (Basten JA). This issue does not arise in the present case. The adjudication response by the owner which asserted that the builder's payment claim was "grossly excessive" may be taken to have put in issue the reasonableness of the amount claimed, including for that part of the work carried out by the builder himself and the project management fee.

Application of principles

On a fair reading of the determination, the adjudicator engaged in a process of evaluation sufficient to warrant the description of the task required by s 22(2). That is, the adjudicator had regard to the matters specified for consideration in the context of assessing the value of the work carried out by the builder: Cockram Construction at [41] (Meagher JA, Barrett AJA agreeing), referring to Weal v Bathurst City Council [2000] NSWCA 88; (2000) 11 LGERA 181 at [80] (Giles JA, Priestley JA agreeing); Azriel v NSW Land & Housing Corporation (2006) 67 NSWLR 256; [2006] NSWCA 372 at [49] (Basten JA, Santow and Ipp JJA agreeing).
First, the determination expressly stated that the adjudicator had considered all of the owner's materials and had rejected all of the owner's contentions in its response. That included the owner's contention that the amount claimed by the builder was "grossly excessive".
Second, having rejected the owner's contentions disputing the amount claimed in the payment claim, the adjudicator did not simply allow the claim by the builder in full in default of any valid submission against it. The adjudicator expressly directed his attention to the matters specified for consideration by s 22(2) including the provisions of the SOP Act, the terms of the contract and the payment claim. Further, the adjudicator referred to the requirement to value the construction work in accordance with ss 9 and 10 of the SOP Act as applicable.
The determination identified the materials which had been considered by the adjudicator, including submissions, statutory declarations and correspondence between the parties. And the determination expressly stated that the builder "has demonstrated that it has an entitlement in accordance with the contract and has provided sufficient information and methodology as to how it arrived at the amount for the works claimed" [emphasis added]. Contrary to the owner's submissions, the process adopted by the adjudicator did not warrant the description that he had done no more than simply make the observation that he had "seen" the builder's methodology with respect to the amount claimed (Tcpt 9 (5-9)).
Third, the primary judge's finding that the adjudicator failed to consider whether the amount claimed was "proper" having regard to terms of the contract and the "reasonable value" of the works performed contains, with respect, two errors.
One error is that to the extent that this finding turns on the language of the determination, in particular, pars [81] and [83] (set out at [13] above), there is no requirement in s 22(3) of the SOP Act for legally correct language, and a "fine-tooth comb" approach to the reasons of the adjudicator is to be avoided: Cockram Construction at [17] (Basten JA, Barrett AJA agreeing), citing Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 271-272; [1996] HCA 6. As Basten JA explained in Cockram Constructions at [17], "the language of a decision-maker, who need not be a lawyer, nor legally trained, is not to be viewed through the prism of legal concepts".
The other error is that to the extent that this finding is dependent upon the primary judge's construction of a "do and charge" contract, it was not part of his Honour's function to determine whether he considered the approach adopted by the adjudicator was erroneous based on his Honour's construction of the contract, namely, what was the "reasonable value" of the works. Even if the adjudicator's construction of the contract was erroneous, "it would not constitute jurisdictional error to act upon such an erroneous view": Icon at [16] and [19].
Read as a whole, the determination makes plain that the adjudicator considered the amount claimed having regard to the terms of contract and the payment claim, and took into account the requirement to value the construction work in accordance with ss 9 and 10 of the SOP Act as applicable, before determining that the claim by the builder should be allowed in the amount claimed less a credit for $6,000 as acknowledged by the builder.
Any error by the adjudicator in construing the terms of the contract or in assessing the value of the amount claimed, including for the work done by the builder himself and the charge for the project management fee, involve matters within the adjudicator's jurisdiction. Any such error does not constitute jurisdictional error and cannot form a basis upon which the adjudication can be quashed.

Conclusion and Orders

The appeal has succeeded. There is no reason why costs should not follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.
I propose the following orders: 1. Allow the appeal. 2. Vacate the stay order made by the Court on 27 February 2019. 3. Set aside orders 1, 2, 3 and 4 made by the primary judge on 29 January 2019 and, in place, order: 1. Dismiss the summons filed on 21 November 2018. 2. Plaintiff to pay the first defendant's costs of the proceedings. 3. That the sum of $138,135.59 paid into court by MMIR Pty Limited on 30 November 2018, together with any interest accrued thereon, be paid out to Ganni John Iskra forthwith. 1. The first respondent to pay the appellant's costs of the appeal.
PAYNE JA: I agree with Gleeson 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: 30 May 2019

Solicitors: William Cotsis & Associates (Appellant) Juris Australia Lawyers Pty Ltd (First Respondent) King Lawyers Australia (Second Respondent) File Number(s): 2019/37762 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Civil Citation: [2019] NSWSC 35 Date of Decision: 29 January 2019 Before: Parker J File Number(s): 2018/357940

At a glance

Court

Decision date

Before

Source

Judgment (10 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (21)

Cited By (7)