HIS HONOUR: The Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) seeks to ensure, amongst other things, that those who perform construction work pursuant to construction contracts have enforceable rights to progress payments. There is a statutory right to progress payments despite any contractual provision to the contrary. In the event of disagreement, there is a statutory mechanism, called adjudication, for the interim determination of entitlements to progress payments: Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393 (Chase) at [110].
The Act provides for a claimant to make a payment claim for a progress payment on the person who, under a construction contract, is or may be liable to make the payment (s 13(1)). A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract (s 13(5)). A reference date in relation to a construction contract is a date determined under the contract as the date on which a progress payment may be made, or if the contract makes no express provision, the last day of the named month on which the construction work was first carried out under the contract, and the last day of each subsequent named month (s 8).
The respondent to a claim may reply by providing a payment schedule, which must indicate the amount of the payment (if any) that the respondent proposes to make (s 14). Where no payment schedule is served, the claimant may recover the unpaid portion of the claimed amount as a debt due in a court of competent jurisdiction, or make an adjudication application in relation to the claim. Where the payment schedule indicates a scheduled amount which the respondent proposes to pay, and the respondent does not pay it, the claimant has the same option with respect to the unpaid portion of the scheduled amount (s 17). It is not uncommon for a respondent to indicate a nil amount.
The adjudication process entails the making of an adjudication application by the claimant and the appointment by an authorised nominating authority of an adjudicator (s 19). The respondent may lodge an adjudication response (s 20). The Act provides for adjudication procedures (s 21) and for the adjudicator to determine the amount of the progress payment (if any) to be paid by the respondent to the claimant (s 22) and the issue of an adjudication certificate (s 24).
The statutory mechanism to make the claimant's rights enforceable includes s 25(1) of the Act which provides that an adjudication certificate may be filed as a judgment for a debt in any court of competent jurisdiction and is enforceable accordingly.
Not unsurprisingly, the Act has spawned a significant amount of litigation. Proceedings are regularly commenced in this List for orders including quashing an adjudication, restraining enforcement of a judgment resulting from the filing of an adjudication certificate, and setting a judgment aside.
Section 25(4) of the Act provides:
If the respondent commences proceedings to have the judgment set aside, the respondent:
(a) is not, in those proceedings, entitled:
(i) to bring any cross-claim against the claimant, or
(ii) to raise any defence in relation to matters arising under the construction contract, or
(iii) to challenge the adjudicator's determination, and
(b) is required to pay into the court as security the unpaid portion of the adjudicated amount pending the final determination of those proceedings.
On 3 January 2014, the first defendant (Top Quality) and the plaintiff (Nazero) entered in to an agreement under which Top Quality would do formwork and concreting for Nazero at 507 Military Road, Mosman.
In January 2014, Top Quality served what Nazero says were two payment claims in respect of the same reference date. Nazero responded with a payment schedule for a nil amount where upon Top Quality made an adjudication application to the second defendant nominating authority which appointed the third defendant as the adjudicator (the adjudicator).
Nazero contended that Top Quality has impermissibly served two payment claims in respect of the same construction work and reference date. It is well established that because of the prohibition in s 13(5) of the Act, a document purporting to be a payment claim in respect of the same reference date as a previous date is not a payment claim under the Act and does not attract its statutory regime: Dualcorp Pty Limited v Remo Constructions Pty Ltd (2009) 74 NSWLR 190 at [13] - [14].
On 13 February 2015, the adjudicator made an adjudication determination in favour of Top Quality for $199,163.00, concluding that there was only one payment claim embodied in two invoices.
Nazero contends that the adjudicator wrongly concluded "by way of jurisdictional error" that there was only one payment claim when in fact there were two payment claims, or in the alternative, that he wrongly concluded that he had jurisdiction to determine the two payment claims in a single adjudication application or two payments in respect of a single reference date.
On 3 March 2015, Nazero sued out of this Court a Summons and accompanying Technology and Construction List Statement seeking the following relief:
1. A declaration that the adjudication application made on 23 January 2015 pursuant to the Building and Construction Industry Security of Payment Act 1999 ("the Act") was for the adjudication of two payment claims dated 24 December 2014 in respect of two construction contracts and was an abuse of the processes of the Act.
2. A declaration that the adjudication determination dated 13 February 2015 of the Second and Third Defendant ("Adjudication Determination") be quashed and is void and of no effect.
3. An order restraining the First Defendant from relying or seeking to enforce any judgment based upon the Adjudication Determination.
4. An injunction or permanent stay of the enforcement of the Adjudication Determination or any certificate issued by the second defendant in respect of that determination.
5. Such further order as the Court deems fit.
6. Costs.
The relief in prayer 3 is no longer sought.
Up to now, Top Quality has not, under s 25(1) of the Act, filed an adjudication certificate as a judgment for a debt in any court of competent jurisdiction. It has indicated that, pending final determination of the proceedings, it does not intend to do so.
Where a respondent to an adjudication determination commences proceedings to have a judgment based on an adjudication certificate set aside, s 25(4)(b) of the Act requires it to pay into court, as security, the unpaid portion of the adjudicated amount pending the final determination of those proceedings. There is no discretionary element. The requirement is mandatory.
However, these are not proceedings to have the judgement set aside and s 25(4)(b) does not apply.
Top Quality, however, moves for an order pending the final determination of the proceedings requiring Nazero to pay the unpaid portion of the adjudicated amount (being the whole of it) as security, and in the alternative, an order staying the proceedings unless Nazero pays the sum into Court.
Mr B. DeBuse of counsel appeared for Nazero, and Mr S. Goldstein of counsel appeared for Top Quality.
In Filadelfia Projects Pty Limited v Entirity Business Services Pty Ltd [2010] NSWSC 473 (Filadelfia) (which was during the Brodyn era - see later) a plaintiff sought an interim injunction in relation to a determination restraining reliance on an adjudication where no adjudication certificate had been filed, and accordingly no judgment for debt obtained. At [11], McDougall J said:
In the ordinary way injunctive relief would be granted on condition that the amount in dispute, including the cost of the adjudication and some allowance for interest, be paid into Court pending a final resolution of the dispute. That is generally done firstly where s 25(4) of the Act applies, simply because that is a requirement of the section. Where (as here) s 25(4) does not apply in terms (and it does not apply in terms because there has been no adjudication certificate, and hence no judgment for a debt) the Court nonetheless, taking into account the clear objects of the Act and its underlying policy, generally orders payment into Court by analogy with s 25(4).
Earlier, in Tombleson v Dancorell Constructions Pty Ltd [2007] NSWSC 1169 (Tombleson), a plaintiff brought proceedings seeking orders in the nature of a writ of certiorari (certiorari) quashing an adjudication based on which the defendant had judgment entered in the District Court. It sought declarations that the determination was void as well as injunctions restraining the first defendant from taking any action in order to enforce the adjudication determination or any judgment based on any adjudication certificate issued pursuant to the determination. The relief claimed did not extend to an order that the judgment be set aside. The defendant sought an order that the proceedings be stayed until the plaintiff paid the adjudicated amount into Court as security. Section 25(4) of the Act did not apply. However, Bergin J (as her Honour then was) found that the plaintiff was seeking to avoid triggering the section, but nevertheless prevent the defendant from enforcing the judgment by injunction. Her Honour considered that just resolution of the proceedings (including that the legislation under which the proceedings were brought was not circumvented) warranted the proceedings being stayed until the plaintiff provided a bank guarantee or paid money into Court, slightly reduced from the adjudicated amount because of a concession by the defendant that there was an issue about possible defects in the work done; see too Lanmac (NSW - ACT) Pty Ltd v Wallace [2010] NSWSC 976.
Mr DeBuse put that rather than there being policy reasons favouring requiring a plaintiff to put up the money pending the proceedings where s 25(4)(b) of the Act does not apply, there were policy reasons against it, particularly post Chase.
In Chase, the Court of Appeal declined to follow the approach earlier sanctioned by that Court in Brodyn Pty Ltd t/as Time Cost and Quality v Davenport (2004) 61 NSWLR 421 (Brodyn) with respect to challenging adjudications, in particular, with respect to the availability of prerogative relief in the nature of certiorari.
Mr DeBuse put that this change justifies "reconsideration of the approach of the Court to the application of section 25(4)(b) [of the Act] and the purposive approach given to the protection of the contractor… in the circumstances of the claim for prerogative relief." He put that Chase recognised that there are areas "of appropriate attack… on those administrative decisions which have been obtained in excess of jurisdiction" and that there is no reason to consider that the legislature intended that the exercise of such a right required payment into Court, particularly where such relief is only available from this Court, and ordinarily such matters will be heard quickly, involve little factual dispute, and are focused on matters specific to the Act.
He put further that s 25(4)(b) of the Act does not address the situation where the party with the benefit of the determination has not obtained judgment and that the staying of the judgment or of "anterior enforcement" is not addressed by the section, and that imposing a requirement to pay into Court gives a defendant greater security than that provided by the Act, and is an impermissible restriction on the availability of prerogative relief.
Finally, he put that the present proceedings have better than reasonable prospects of success because they are based on a relatively apparent departure from the processes of the Act.
Mr Goldstein pointed out that in its Summons, Nazero originally sought interlocutory injunctive relief restraining Top Quality from relying or seeking to enforce any judgment based on the adjudication. He put that the Court's discretion to order payment into Court is unfettered and that in appropriate circumstances, it need not be the full amount. He put that payment into Court is consistent with the object of the Act to ensure that those who undertake construction work are entitled to receive progress payments, and that unless and until the determination is quashed, there is a valid determination in existence on which Top Quality is entitled to obtain judgment. He put that Nazero is not at risk, because if it succeeds, the funds will be returned, and that Nazero has not given any evidence that payment into Court will cause it any particular hardship.
For the reasons that follow, I consider that an order should be made that the proceedings be stayed unless the plaintiff pays into Court the unpaid portion of the adjudicated amount.
Nazero correctly concedes that the Court can make either order sought. An order that Nazero pay the unpaid adjudicated amount into Court pending final determination is purely interlocutory and procedural. It will not finally determine any party's rights. The Court has power to make such orders as part of its inherent power to control its own processes. In addition, s 16(1) of the Civil Procedure Act 2005 (NSW) (the CPA) provides that "In relation to particular civil proceedings, the court may give directions with respect to any aspect of practice or procedure for which rules of court or practice notes do not provide." The Uniform Civil Procedure Rules 2005 (NSW) make no express provision for such an order.
Sections 61(1) and (2) of the CPA provide:
(1) The court may, by order, give such directions as it thinks fit (whether or not inconsistent with rules of court) for the speedy determination of the real issues between the parties to the proceedings.
(2) In particular, the court may, by order, do any one or more of the following:
(a) it may direct any party to proceedings to take specified steps in relation to the proceedings,
(b) it may direct the parties to proceedings as to the time within which specified steps in the proceedings must be completed,
(c) it may give such other directions with respect to the conduct of proceedings as it considers appropriate.
Additionally, s 67 of the CPA provides that "Subject to rules of court, the court may at any time and from time to time, by order, stay any proceedings before it, either permanently or until a specified day." The court possesses inherent power to stay proceedings and an incidental power to control and to ensure the proper and fair use of its jurisdiction: Batistatos v Roads and Traffic Authority of New South Wales (2006) 227 ALR 425.
Sections 56(1) and (2) of the CPA are also pertinent. They provide:
(1) The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceeding.
(2) The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule.
A principled approach as to whether a plaintiff should be required to pay money into Court (and if so, how much) where it challenges an adjudication determination, but there is no judgment, requires, because it involves the exercise of discretion, that regard be had to the particular circumstances of the case. For this reason, such orders should not be made by rote, and it is not correct to say that they are required whenever a person brings proceedings to challenge an adjudication and s 25(4)(b) of the Act is not in play; c.f. Surfabear Pty Ltd v GJ Drainage & Concrete Construction Pty Ltd [2009] QSC 308 at [38] - [42].
Although Chase marked a significant change in the jurisprudential landscape which had earlier existed with respect to proceedings such as these, in my opinion that change has no impact on the present circumstances.
I observe that Tombleson was decided pre Brodyn.
Put briefly, and perhaps over simplistically, early first instance decisions in cases where impeachment of an adjudication was sought for non-compliance with a requirement of the Act were approached on the basis of distinguishing whether the non-compliance was jurisdictional or non-jurisdictional error, holding that prerogative relief in the nature of certiorari was available for jurisdictional error of law, but not for non-jurisdictional error of law; see for example Musico v Davenport [2003] NSWSC 977.
In Brodyn, the Court of Appeal departed from this approach. The Court eschewed an analysis requiring examination of whether the error was jurisdictional or non-jurisdictional, holding instead that there were some conditions laid down by the Act as essential for there to be a determination, and if a determination did not meet these requirements, then it was not in truth any determination and was void, in which event, a court of competent jurisdiction could grant relief by way of declaration or injunction without the need to quash the determination by certiorari.
Brodyn lasted for six years until the Court of Appeal in Chase declined to follow it. Chase concerned s 17 of the Act. Section 17(1)(b) provides that a claimant may apply for adjudication of a payment claim if the respondent fails to provide a payment schedule, and fails to pay the whole amount or any part of the claimed amount by the due date of the claimed amount. Section 17(2)(a) provides that such an adjudication application cannot be made unless 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 the adjudication of the payment claim. This requirement was not fulfilled. The point was taken in the adjudication response and the adjudicator decided that it had been. The Court held that the requirements of s 17(2)(a) are jurisdictional, being a condition of the right to make an adjudication application pursuant to s 17(1)(b), that the adjudicator's conclusion that the requirements of the section had been met was wrong, that there was no valid adjudication application, and that the adjudicator had no jurisdiction to make a determination. The Court held further that it may, and in an appropriate case should, grant certiorari to quash a determination that is vitiated by jurisdictional error and that decisions of adjudicators are amenable to relief in the nature of certiorari for jurisdictional error of law.
The difference in analytical approach between Brodyn and Chase to determining a dispute as to whether an adjudication can stand or not has little or nothing to do with the procedures adopted by this Court to ensure just, quick and cheap disposition of the issue. The different approach in the Brodyn era did not mean that there were not areas of appropriate attack available to a respondent. Perhaps against Nazero's position is the consideration that under Brodyn, adjudications which did not pass muster were void, whereas under Chase they need to be quashed.
The starting point in the exercise of the discretion to make the orders sought here is the general policy aims of the Act, and specific aims of particular pertinent sections. A general policy aim of the Act is to give enforceable rights to progress payments. Another is to ensure the speedy and effective determination of disputes about them. Specific provisions of the Act aim to put a claimant who has the benefit of an adjudication in its favour in a strong position, so much so that it is entitled to automatic judgment. Section 23(2) of the Act imposes a statutory obligation to pay an adjudicated amount before the relevant date. Coupled with this is the burden placed by s 25(4)(b) of the Act on a respondent who commences proceedings to have a judgment set aside to pay into Court, with the corresponding benefit of the security such payment gives the claimant. Where the claimant has not yet obtained judgment, the respondent remains under the statutory obligation to pay. McDougall J's reference in Filadelfia to "analogy with s 25(4)", is recognition of the fact that from a policy point of view, such a respondent has no less an obligation to pay than one against who judgment has been obtained.
The presence in the Act of s 25(4)(b) gives rise to no implication that the discretion of the Court to make the kind of orders sought here is narrowed. If anything, the fact that discretion is removed in only the particular circumstances where the section applies, indicates that there is discretion in all other circumstances.
The policy of the Act, as reflected in s 25(4)(b), is that a claimant is to be given protection of payment into Court when a respondent seeks, whether by injunction or otherwise, to inhibit the claimant's enforcement of an adjudication in its favour. Pendente lite, Top Quality is being held out of payment, with the risk attendant on delay, notwithstanding the statutory obligation on Nazero to pay. It is open to Top Quality to file the adjudication certificate, in which event Nazero would have little option but to seek to have the judgment set aside to protect its position, in which event, s 25(4)(b) of the Act would mandate payment into Court. Here, by happenstance, the section does not apply because the further step has not yet occurred. Top Quality would have to take that step to enforce its statutory right to payment. The only difference is that these proceedings have intervened. The policy of the Act is not served by removing Top Quality's protection pending determination of Nazero's challenge even though s 25(4)(b) of the Act does not apply in terms.
The present position might also be thought to be a close analogue to injunctive proceedings where, pending final determination, Top Quality is practically being held out of its payment. Were it an actual injunction, the usual undertaking as to damages would have to be given.
It is not apt to describe a requirement to pay into Court an amount the subject of a statutory obligation to pay, pending a challenge to that obligation, as a fetter on the right to make the challenge. It may be a practical inhibition, depending on the specific financial circumstances of the challenger. This could be a factor relevant to the exercise of discretion, but in the present case, Nazero leads no evidence of hardship.
The proceedings will be disposed of expeditiously. They already have a provisional final hearing date on 23 March 2015, having been commenced on 3 March 2015.
I accept as relevant that the challenge has reasonable prospects of success. Nevertheless, in my view and in all the present circumstances, it would be a manifestly unfair use of the Court's process to permit Nazero to mount its challenge without having to pay the money into Court.
I will hear the parties on the appropriate form of orders.
[3]
Amendments
17 March 2015 - Para 33 insert not after the word should in the second sentence
18 March 2015 - Paragraphs 31 and 32 moved to follow paragraph 19
18 March 2015 - Paragraph 20 - added in the brackets "- see later"
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Decision last updated: 25 March 2015