Laing O'Rourke Australia Construction v H&M Engineering & Construction [2010] NSWSC 818 | Case summary

Judgment (7 paragraphs)

[1]

Introduction: the claim and the adjudicator's reasoning 116 I have set out at [11] above the nature of the claim, and summarised the way the adjudicator dealt with it at [14] above. It is not necessary to give further details either of the claim or of the adjudicator's reasoning. The parties' submissions 117 Mr Corsaro submitted, in essence, that the adjudicator had abdicated his statutory function, and had decided the amount payable on a wholly arbitrary basis. According to Mr Corsaro, this meant that the adjudicator did not consider the claim, or deal with it in good faith, in the sense that those requirements have been discussed above. 118 Further, Mr Corsaro submitted, the adjudicator did not tell the parties that he was going to proceed in the way that he did, and offer them an opportunity to be heard on it. That, according to Mr Corsaro, amounted to a denial of natural justice. 119 Finally, Mr Corsaro submitted, by dealing with the claim in the way that he did, the referee overlooked, and did not deal with, LORAC's submissions on its individual constituents. That, he submitted, amounted to a further denial of natural justice. 120 In his submissions in reply, Mr Corsaro pointed out that, contrary to both the adjudicator's approach and the submissions for H&M, there were more reasons for LORAC's rejection of the claim (and the difference between the parties) other than that stated by the referee at para 213 ("Supervisor is included in mark up"). Mr Corsaro prepared a detailed analysis which showed that, of the 39 individual claims that were not treated as withdrawn or dealt with elsewhere by the adjudicator, eight had some other reason given for the difference between the parties. Mr Corsaro submitted that, in failing to deal with those individual grounds of dispute, the adjudicator had once again denied natural justice to LORAC, and failed to exercise his powers in good faith by giving appropriate consideration to the issues. 121 Mr Rudge submitted that the adjudicator had taken a common-sense approach to the problem, in circumstances where, as he had said, to deal with the disputes individually would have resulted in substantial cost to the parties (see para 225 of the determination). Mr Rudge submitted that this approach was justified, in particular, where there was a "common thread" between the individual claims. 122 In any event, Mr Rudge submitted, there was no material denial of natural justice. That was because, in the context of the subcontract amount and the value of payment claim 14, a difference of a little under $100,000.00, and the approach taken by the adjudicator, could not be regarded as material. Analysis 123 I do not think that the adjudicator failed to consider the payment schedule, or that he dealt with it in an unreasoned way. He took a practical approach to what he saw as being a very small part of the overall dispute. He gave reasons for his decision. Those reasons may not have involved attention to the detail of the payment claim and payment schedule, but the adjudicator explained why this was so. 124 Further, in a practical sense, it cannot be said that the result obtained by the adjudicator is capricious. It involved taking a somewhat arbitrary approach of, as he saw it, splitting the difference between the parties. 125 I accept that there may have been some denial of procedural fairness, when the adjudicator dealt with the claim in the way that he did in a manner for which neither party had contended, without giving them notice of his intention to do so. 126 If that conclusion were to have any consequence, in terms of relief, it would require consideration of the concept of materiality. In circumstances where the point is moot, I do not think that any further examination of it is necessary; on the contrary, I think that to embark upon some extended consideration of the point, by way of obiter dictum, would not be consistent with s 56 of the Civil Procedure Act 2005 (NSW). Discretion 127 There is no discretionary consideration relevant to the conclusion that I have reached in relation to claims 110, 115 and 122. Nor is there any point in considering, on a hypothetical basis, what might have been said in relation to the discretionary considerations relevant to claim 100, had I decided that there was a material denial of natural justice. Conclusion and orders 128 For the reasons that I have given, I conclude that the adjudicator denied natural justice in a material way to LORAC, and failed to perform his statutory obligations in good faith in the requisite sense, in relation to claims 110, 115 and 122. As I have indicated at [115] above, it follows from those conclusions that LORAC is entitled to relief of the kind sought and the return of the money that it has paid into Court. 129 The parties did not address on costs. However, I see no reasons why costs should not follow the event in the circumstances of this case. I shall reserve liberty to apply in respect of costs, in case either active party has a different view. 130 I make the following declaration and orders:

(3) "no substantial denial of the measure of natural justice that the Act requires to be given". 21 Hodgson JA said that if one or other of those essential features was lacking then "a purported determination would be void and not merely voidable". 22 At 443 [60], Hodgson JA considered the impact of fraud. There is no suggestion of fraud (in either of the senses to which his Honour referred) in this case. Natural justice 23 As Hodgson JA recognised, in the extract from Brodyn set out at [20(3)] above, any consideration of denial of natural justice must take into account the scheme of the Act. His Honour returned to this at 442 [57] and said, by reference to specified sections of the Act, that natural justice was to be afforded to the extent that those sections contemplated. Thus, his Honour said, "if there is a failure by the adjudicator to receive and consider submissions, occasioned by breach of these provisions, the determination will be a nullity". The provisions to which his Honour referred included s 22(2)(d) of the Act, by which an adjudicator is required "to consider… the payment schedule (if any) to which the [adjudication] application relates, together with all submissions (including all relevant documentation) that have been duly made by the respondent in support of the schedule". 24 That is of particular importance in this case. Mr F Corsaro of Senior Counsel, who appeared for LORAC, submitted that the adjudicator, in breach of s 22(2)(d), had failed, in certain fundamental respects, to consider his client's submissions (including supporting documentation) duly made in support of its payment schedule. 25 The question of natural justice has arisen in circumstances where an adjudicator has decided an application on a basis for which neither party contended, without affording either party the opportunity to be heard. This is not such a case (except, perhaps, in relation to the way that the adjudicator dealt with claim 118). However, those cases show that the denial of natural justice, in that context, must be material. It is convenient to set out what I said in Trysams Pty Limited v Club Constructions (NSW) Pty Ltd [2008] NSWSC 399 at [42] to [45]: [42] The content or extent of the requirement to afford natural justice is to be assessed by reference to the relevant statutory provisions, including: (1) the requirement that a respondent state in its payment schedule its reasons why its scheduled amount is less than the claimed amount (s14(3)); (2) the limited time within which a respondent to an adjudication application may lodge an adjudication response (s20(1)); and (3) the prohibition against a respondent's including in its adjudication response any reason for withholding payment that has not been stated in its payment schedule (s20(2B)). [43] Ms Culkoff submitted that the test for denial for natural justice was that described by me in John Goss Projects v Leighton Contractors (2006) 66 NSWLR 707 . Referring to what I had said earlier in Musico v Davenport [2003] NSWSC 977 at [107], I said (in John Goss at [31]) "that where an adjudicator was minded to decide a dispute on a basis for which neither party had contended, then natural justice required the adjudicator to notify the parties of that intention, so that they could put submissions on it." I adhere to that view. However, as I pointed out in John Goss at [42], "the concept of materiality is inextricably linked to the measure of natural justice that the Act requires parties to be given in a particular case". By that I meant, as I said, that the principles of natural justice could not… "require an adjudicator to give the parties an opportunity to put submissions on matter that were not germane to his or her decision".

[45] It does not follow from what I said in John Goss (or, for that matter, in Musico ) that any failure by an adjudicator to ask for submissions on a matter not raised by the parties will amount to denial of natural justice sufficient to justify the Court's declaring the adjudication to be void, on Brodyn grounds. At the very least, the point must be (as I said) "germane to [the] decision". In addition, perhaps, it must be at least arguable that meaningful submissions could have been put if an opportunity to put them had been afforded: i.e, that there was something to be put that might well persuade the adjudicator to change his or her mind. 26 In relation to claims 110, 115 and 122, LORAC's complaint is, as I have indicated, that the adjudicator did not consider its submissions and supporting documentation. In my view, the concept of materiality is just as important in this context as it was in Trysams and in the cases that I referred to (including John Goss). In other words, if the adjudicator did not consider LORAC's submissions or supporting documentation in relation to those claims, the denial of natural justice would not be material if the submissions and documentation, properly considered, could not have induced him to come to a different view. 27 To the extent that the decided cases have looked at the question of materiality, they have done so in the way just described. Could the submissions that might have been put (or that were not considered), properly considered, have caused the adjudicator to take a different view? Mr Rudge submitted that materiality required also an analysis of the relationship between the amount affected by the denial of natural justice and the amount of the payment claim overall. So far as I know, there is no decision supporting, in terms, that approach. Nor is there anything in the scheme of the Act to suggest that natural justice should only be afforded (to the extent that the Act requires) in report of substantial or significant components of a claim. 28 Mr Corsaro submitted that materiality could not encompass the amount at stake (either in absolute terms or considered in reference to either the amount of the payment claim or the contract sum) because the result of a substantial denial of natural justice was that the determination would be void. That, if I may say so, seems to me to be circular, if the question of amount is thought to be relevant to the question of materiality (in other words, to whether there has been a substantial denial of natural justice). 29 Mr Rudge relied on what Hammerschlag J had said in Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2007] NSWSC 941 at [34]. His Honour had said at [33] that, in considering whether there was a breach of an essential condition for validity of a determination, the Court should look at "the nature, gravity and effect of the errors, if any, made by the adjudicator". Thus, his Honour said at [34], "[t]he required exercise is to determine whether what occurred worked "practical injustice" on the plaintiff sufficient to vitiate the adjudication". His Honour referred to the decision of Gleeson CJ in Re Minister for Immigration and Multicultural Affairs, ex parte Lam (2003) 214 CLR 1 at 13 - 14 [37]. Want of good faith 30 I dealt with the obligation of good faith, in the context of an adjudicator's statutory obligation to consider certain matters pursuant to s 22(2) of the Act, in Timwin Construction v Façade Innovations [2005] NSWSC 548. Having referred at [19] and [20] to what Hodgson JA had said in Brodyn at 441 - 442 [55], [56], I said at [38] to [40]: [38] There has not been any decision to my knowledge elaborating the requirement of good faith to which Hodgson JA pointed in Brodyn . Clearly, I think, his Honour was not referring to dishonesty or its opposite. I think he was suggesting that, as is well understood in the administrative law context, there must be an effort to understand and deal with the issues in the discharge of the statutory function: see, for example, the speech of Lord Sumner in Roberts v Hopwood [1925] AC 578, 603, where his Lordship said that a requirement to act in good faith must mean that the board "are putting their minds to the comprehension and their wills to the discharge of their duty to the public, whose money and locality which they administer." [39] That construction of the requirement of good faith is supported by the provisions of s 22(2), requiring an adjudicator to "consider" certain matters. A requirement to consider, or take into consideration, is equivalent to a requirement to have regard to something: see Zhang v Canterbury City Council (2001) 51 NSWLR 589 at 602 (Spigelman CJ, with whom Meagher and Beazley JJA agreed). [40] As his Honour emphasised, the requirement to "have regard to" something requires the giving of weight to the specified considerations as a fundamental element in the determination, or to take them into account as the focal points by reference to which the relevant decision is to be made. His Honour relied on the tests expounded in The Queen v Hunt; ex parte Sean Investments Proprietary Limited (1979) 180 CLR 322 (Mason J) and in Evans v Marmont (1997) 42 NSWLR 70, 79-80 (Gleeson CJ and McLelland CJ in Eq). 31 Shortly after I decided Timwin, Brereton J considered the obligation of good faith in Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129. In a detailed review of the authorities from [66] to [109], his Honour identified what he described as a narrow view and a broader view of good faith. His Honour explained the narrow view at [80] as "focussing on whether objectively the exercise of power could be regarded as honestly referrable to the purpose for which the power was conferred, and excluding from its ambit the reasoning process leading to the decision". His Honour identified the broader view, at [87] and other paragraphs, as including recklessness or caprice in the exercise of the power, although falling short of a wilful and deliberate failure to exercise, or to attempt to exercise, the power. For the reasons given at [111] to [116], his Honour concluded at [110] and [117], that the requirement of good faith required more than honesty. In particular, it required faithfulness to the obligation and a conscientious attempt to perform it (at [117]), and absence of recklessness or caprice [at 110], [117]). 32 The defendant appealed. The appeal was dismissed (Halkat Electrical Contractors Pty Ltd v Holwood Holdings Pty Ltd [2007] NSWCA 32). Nonetheless, Giles JA (with whom Santow and Tobias JJA agreed) referred at [26] to what Brereton J had said. His Honour did not think that it was necessary to embark on "an exegesis of the reference in Brodyn… to a bona fide attempt to exercise the statutory power". That was because, as his Honour said at [27], "the adjudicator simply did not perform the task required by the Act", and thus did not exercise his power in good faith. 33 The Court of Appeal returned to the topic of good faith in Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157. It appeared that the appellant in that case had submitted that the Court of Appeal did not "fully endorse" the broader approach to good faith that Brereton J had identified in Holmwood. At [114], Giles JA (with whom McColl and Young JJA agreed) said that the Court "did not endorse it at all". 34 I do not think that it is necessary to say more than that, in the words of Lord Sumner in Roberts v Hopwood [1925] AC 578 at 604 (cited by me in Timwin at [38]), for administrative bodies to act in good faith, they must put "their minds to the comprehension and their wills to the discharge of their duty". As I said at [39] and [40], that view of the content of the obligation of good faith was supported by the requirement to "consider" various matters set out in s 22(2) of the Act. It follows that the obligation of good faith requires at least that adjudicators should turn their minds to, grapple with and form a view on all matters that they are required to "consider". 35 It may be easy to see why an exercise of power that could be characterised as reckless or capricious is not undertaken in good faith. But it does not follow that, for there to be absence of good faith, it must be possible to characterise what happened as having been done recklessly or capriciously. The obligation to "consider" 36 Section 22(2) of the Act requires adjudicators to "consider" certain specified matters: 22 Adjudicator's determination

Laing O'Rourke Australia Construction v H&M Engineering & Construction

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