Omega House Pty Ltd v Khouzame

Supreme Court of NSW|2014-12-11|Before: Darke J

Introduction 1By its Summons, the plaintiff seeks an order that an adjudication determination, made by the second defendant on 16 September 2014 in favour of the first defendant under the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act") be quashed. The plaintiff further seeks orders in the alternative restraining the first defendant from taking steps in reliance upon the adjudication determination (hereafter referred to as "the adjudication"). The adjudication is in the amount of $179,221.74 (including GST). 2By its Amended Technology and Construction List Statement, the plaintiff identifies twelve separate grounds in support of the relief claimed. The grounds include alleged jurisdictional errors on the part of the second defendant, and various complaints about the conduct of the first defendant which is alleged to amount to misleading or deceptive conduct, and an abuse of process. The first defendant opposes the relief claimed. The second defendant submits to any order of the Court, save as to costs. 3Before turning to the determination of the matter, it is convenient to set out a summary of the factual background.

Determination 36Mr Macfarlane of Counsel, who appeared for the plaintiff, described the main issue as whether there was a reference date pursuant to which payment claim 11 could be made. This was Ground 3 in the List Statement. Mr Macfarlane submitted that in the absence of an available reference date, there was no entitlement to make a progress payment under the Act. It was then submitted that because s 13(5) of the Act precludes a claimant from serving more than one payment claim in respect of each reference date, a reference date other than 15 November 2013 (which was the reference date for payment claim 10) was required to support payment claim 11. Mr Macfarlane further submitted that there was no reference date after 15 November 2013, and payment claim 11 was therefore not a valid payment claim under the Act capable of being the subject of an adjudication under the Act. 37Reliance was placed upon the recent decision of Ball J in Patrick Stevedores Operations No. 2 Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2014] NSWSC 1413. In that case, his Honour dealt with the same issue in the context of contractual provisions similar to those found here, including a clause very similar to clause 14.9. Mr Macfarlane submitted that the decision is directly on point and ought be followed. 38Mr Moujalli of Counsel, who appeared for the first defendant, submitted that the contract did not preclude reference dates arising after termination of the contract or the cessation of work by the first defendant. Reference was made to the statement of Hodgson JA (with whom Mason P and Giles JA agreed) in Brodyn Pty Ltd t/as Time Cost and Quality v Davenport and Anor [2004] NSWCA 394; (2004) 61 NSWLR 421 at [63]: "However, s 8(2) of the Act does not provide that reference dates cease on termination of a contract or cessation of work. This may be the case under s 8(2)(a) if the contract so provides but not otherwise; while s 8(2)(b) provides a starting reference date but not a concluding one. In my opinion, the only non-contractual limit to the occurrence of reference dates is that which in effect flows from the limits in s 13(4): reference dates cannot support the serving of any payment claims outside these limits." 39Mr Moujalli submitted that clause 14.9 did not specify the reference date in relation to the payments under the clause, and the second defendant was thus correct to conclude that s 8(2)(b) of the Act provided the reference date. 40Mr Moujalli further submitted that Patrick Stevedores (supra) could be distinguished because of critical differences between the respective contracts under consideration. In particular, he pointed to clause 37 and item 28 of the contract in Patrick Stevedores (supra) and submitted that, unlike the contract here, payment claims had to be made in respect of work carried out in the month in which the claim is made. He did not, however, suggest that the approach taken by Ball J in that case was in any respect erroneous. 41In Patrick Stevedores (supra) the relevant contract provided for progress payments in clause 37.1 and item 28, which stipulated the time for progress payments as the last day of each month for work under contract done to the second last day of that month. Clause 39A.1 gave the Principal a right to terminate for convenience, and clause 39A.2 provided (in terms similar to clause 14.9 of the Contract) that in that event the Contractor would be entitled to the payment of certain amounts. Clause 39A.2, like clause 14.9 here, was stated to survive termination of the contract. 42The contract in Patrick Stevedores (supra) was terminated under clause 39A.1 on 24 April 2014, and the Contractor served a payment claim on 30 June 2014 in respect of the amount payable under clause 39A.2. 43Ball J stated (at [23]) that the answer to the question whether the contractor was entitled to serve a payment claim under the Act for the amount payable under clause 39A.2 depended on the construction of s 8 of the Act. After making a number of observations concerning s 8 (at [26]-[30]), including referring to the statement made by Hodgson JA in Brodyn (supra) which I have quoted above, his Honour continued (at [32]-[33]): "It is not altogether easy to fit a claim under cl 39A.2 of the contract into the structure of the Security of Payment Act. Clause 39A.2 contemplates a one-off payment calculated in accordance with that clause. The starting point for the claim is the calculation of the amount due under that clause. However, the starting point of a claim under the Act is s 8. That section requires the identification of construction work carried out under the contract and the supply of related goods and services. The question is whether the contract makes provision for progress payments in respect of that work and the supply of those goods and services. The first question, then, is whether the items that are the subject of a claim under cl 39A.2 can be described as construction work under the contract or the supply of related goods or services. The second is, if they can, whether the contract makes provision for progress payments in respect of them and, if so, the precise terms on which it does so. If the contract does not, then provision is made by s 8(2)(b) for the fixing of reference dates and by s 9 for the amount payable." 44Ball J noted (at [36]) that much of the Contractor's claim concerned work done prior to the last reference date provided for under the contract before termination, and that the contract "clearly provided for progress payments in respect of that work". His Honour continued: "In those circumstances, it is clear that s 8(2)(b) of the Security of Payment Act does not apply since the contract provides reference dates in respect of that work. Two questions, however, remain. The first is whether the contract continued to provide reference dates following termination. The second is the position in relation to work done during the period between the last reference date before termination and termination." 45The second of those questions does not arise in the present case. On the first question, Ball J concluded (at [37]) that the contract, on its true construction, did not continue to provide reference dates following termination. He found that aside from clause 37.6, clause 37 did not continue to operate following termination, and indeed the parties made specific provision in clause 39A for what should happen following a termination for convenience. 46In my opinion, despite the differences between the relevant contracts, similar reasoning can and should be applied in the present case to conclude: (1)that the Contract provided reference dates in respect of the construction work carried out under the Contract prior to its termination; and (2)that the Contract does not, after termination, continue to provide reference dates in respect of construction work carried out under the Contract prior to its termination. 47Payment claim 11, at least insofar as it claimed the retention moneys, concerned construction work carried out under the Contract during the period the Contract was on foot. It seems to me that clause 12.6(b)(i) made express provision for reference dates in relation to the construction work carried out under the Contract until termination occurred on 15 November 2013. Moreover, the provisions of clause 12 (including clause 12.6), do not in my view survive termination. Accordingly, the Contract provides that reference dates in relation to such construction work cease on termination (or at least cease to arise following termination), and there is no room for s 8(2)(b) to supply reference dates after termination. Section 8(2)(b) does not operate merely because clause 14.9 does not itself provide any reference dates. 48It follows that no reference date arose after 15 November 2013 which could support payment claim 11. That payment claim was thus not a valid payment claim under the Act, and the second defendant had no jurisdiction to conduct an adjudication in respect of it. The Court will therefore declare that the adjudication determination made by the second defendant on 16 September 2014 is void. 49It should be added that a claim (such as payment claim 11) for payment of all amounts specified under clause 14.9 of the Contract includes claims for amounts which are not for the value of construction work carried out under the Contract or the supply of related goods and services (cf Patrick Stevedores (supra) at [35]). As payment claims under the Act are concerned with such construction work or related goods and services (see s 13(2) of the Act), the inclusion of such claims may provide a further reason to regard payment claim 11 (either as a whole, or to the extent it includes such claims) as not a valid payment claim under the Act. However, as this point was not specifically raised as a ground of complaint, it is not necessary to express a concluded view on it. 50It is also not necessary, given my conclusion concerning Ground 3, to proceed to determine the various other grounds of complaint advanced by the plaintiff. Nevertheless, in case my conclusion concerning Ground 3 is incorrect, I should briefly say something about those other grounds.

Other grounds 51Ground 1, like Ground 3, involved a contention that the second defendant committed a jurisdictional error. Ground 1 concerns the contention that was advanced by the plaintiff that its first Notice of Termination, which was based on an alleged repudiation of the Contract, was effective to bring the Contract to an end. The plaintiff submitted that the second defendant fell into jurisdictional error by failing to deal with the plaintiff's arguments to that effect (and by expressly declining to consider certain material in the plaintiff's Adjudication Response), or failing to provide reasons as to why the first notice was not valid. 52The first defendant submitted that the first adjudicator, Mr Michael, had earlier determined that the first notice was not valid, and that such determination was binding on the parties. Reference was made to the judgment of Macfarlan JA (with whom Handley AJA agreed) in Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69; (2009) 74 NSWLR 190 at [60] where his Honour stated: "These various provisions in my view indicate a legislative intent to render adjudication determinations relevantly conclusive. Such determinations do not conclude contractual rights. Section 32 expressly so provides. The Act however creates special statutory rights to progress payments. When a claim is made, a dispute arises and an adjudication determination resolves that dispute. I consider that determination to be final and binding between the parties as to the issues determined, except to the extent that the Act allows the determination to be revisited. It would in my view be quite contrary to the scheme of the Act to permit claimants simply to resubmit the already adjudicated claims if they were dissatisfied with the adjudication." (see also at [70]). 53Mr Michael does not seem to have expressly determined that the first notice was invalid. However, he was not satisfied that the first defendant was in breach of an essential term or had repudiated, as stated in the first notice (see paragraphs 5.367 to 5.368). Mr Michael further concluded that the plaintiff had not validly terminated the Contract pursuant to clause 14.5, but had terminated for convenience pursuant to clause 14.8 (see paragraph 5.74). 54The second defendant, in paragraph 23 of the adjudication, referred to Mr Michael's finding about the Contract being terminated for convenience, and accepted that position for the purpose of her own determination. She noted that Mr Michael did not "definitively determine" the validity of the first notice, and then went on to state that in her view the notice was invalid as there was no notice of default provided in accordance with clauses 14.2 and 14.4 of the Contract. She further stated that she was not satisfied that the first defendant had repudiated the Contract such that the plaintiff could accept such repudiation and terminate the Contract. 55I do not think that the second defendant committed any jurisdictional error as alleged. It appears that she considered the question whether the first notice was valid, and whilst her reasons were but briefly expressed, it is clear that she concluded that the first defendant had not been shown to have repudiated the Contract. That conclusion is consistent with the conclusion reached earlier by Mr Michael. Moreover, I do not think that the second defendant's refusal to consider the "Background section" of the plaintiff's Adjudication Response constitutes either a substantial denial of natural justice or a failure to consider material she was bound to take into account. That part of the Adjudication Response (paragraphs 12 to 24) was stated to be by way of response to certain allegations made by the first defendant in his Adjudication Application, and was not specifically directed to whether the first notice was valid, or effective to terminate the Contract. The question of termination pursuant to the first notice was expressly dealt with elsewhere in the Adjudication Response (see paragraphs 105 to 108). 56Ground 2 is another allegation of jurisdictional error. It concerns the contention advanced by the plaintiff that because the first defendant had already made a claim for work carried out up to the date of termination, clause 14.9(a)(i) had no further operation. The argument is to the effect that a Contractor seeking payment under clause 14.9(a)(i) must not have already submitted a payment claim for work carried out to the date of termination. It is said that the payment under the clause is predicated on the assumption that such a payment claim had not already been made. 57The plaintiff submitted that the second defendant failed to deal with this argument and that this amounted to a substantial denial of natural justice. 58The argument (which was clearly raised in the plaintiff's payment schedule and Adjudication Response) was not expressly dealt with by the second defendant in the adjudication. It should be noted, however, that in paragraph 107 of the adjudication, the second defendant noted, and rejected, a submission made by the plaintiff that the first defendant had "claimed all of its entitlements in respect of the work performed up until the reference date for (payment claim 10)" and therefore the first defendant "is not entitled to payment for work in excess of the amounts already claimed after the work had been performed". The second defendant concluded that the first defendant was entitled to make its claim under clause 14.9. She regarded the claim as one for the retention monies (see paragraph 50), and she noted that the claim was not the same as the claim made under payment claim 10 (see paragraph 42). 59The second defendant states in the adjudication that she considered the payment schedule and the Adjudication Response. I accept that she did. It is possible that she overlooked the plaintiff's argument concerning the construction of clause 14.9 in coming to her conclusion that clause 14.9 permitted the first defendant to make its claim for the retention moneys. However, even if such an omission is assumed, I would not regard it as a substantial denial of the measure of natural justice that the Act requires such as would render the determination void (see Brodyn (supra) at [55]; John Holland Pty. Limited v. Roads & Traffic Authority of New South Wales & Ors [2007] NSWCA 19 at [55]). It is not necessary to say anything about the merits of the plaintiff's construction argument, and it is not desirable to do so given the prospect that the argument may need to be considered in future litigation between the plaintiff and the first defendant. 60Ground 4 is that the first defendant, in pursuing payment claim 11, engaged in an abuse of process because pursuit of the claim involved making claims that had already been the subject of adjudication under the Act. It was further contended that pursuit of the claim in reliance upon clause 14.9 of the Contract was contrary to either an issue estoppel or an Anshun-type estoppel. By Anshun-type estoppel, I mean the "extended principle" expressed in Henderson v Henderson, as discussed in Port of Melbourne Authority v Anshun Proprietary Limited [1981] HCA 45; (1981) 147 CLR 589 at 598-603. The plaintiff further submitted that, in substance, the first defendant made the same claim (for work undertaken up to the termination of the Contract) in payment claim 11 as had earlier been made in payment claim 10. 61I do not think that such submission should be accepted. Insofar as payment claim 11 concerned work done up to the date of termination, it was a claim for the retention moneys. Those moneys were not in my view the subject of payment claim 10. 62In final submissions, Mr Macfarlane seemed to accept that Mr Michael did not determine the amount the first defendant was entitled to under clause 14.9. However, he submitted that as payment claim 10 concerned all work done up to 15 November 2013, the claim for payment under clause 14.9 made by payment claim 11, which itself concerned work done up to 15 November 2013, could have been brought, and ought reasonably have been brought, as part of the earlier payment claim. 63Nevertheless, assuming that an Anshun-type estoppel may arise in the context of payment claims under the Act (as to which see Watpac Constructions v Austin Corp [2010] NSWSC 168 at [94]-[104] per McDougall J), I would not conclude that an estoppel of that type operated in this case such that the later pursuit by the first defendant of payment claim 11 should be taken to be an abuse of process. 64Payment claim 10 was submitted on 15 November 2013 about half an hour after the notices of termination had been given. I would infer that it had been in the course of preparation well before the notices were served, and hence before any entitlement under clause 14.9 could arise. The intervention of the termination notices (which were sent to the email address of the first defendant which he used to submit payment claim 10) clearly provided an occasion for the first defendant to reconsider the proposed payment claim which was ready, or at least nearly ready, to be submitted. Nevertheless, the payment claim was submitted without including the claim for retention moneys that was later the subject of payment claim 11. 65Viewed in the context of the Act, and the nature of the relatively informal process it envisages for the making of payment claims and the adjudication of them, I do not think that the failure of the first defendant to seek payment of the retention moneys in payment claim 10 should be seen as deliberate or careless or otherwise of such a nature that the later seeking of the retention moneys should be precluded as an abuse of process. It is also relevant to note that a claim under clause 14.9, which includes the costs of removal of equipment from the site, might not be able to be formulated until well after the termination of the Contract. 66Grounds 6 and 7 also allege an abuse of process. In essence, the plaintiff submitted that it was an abuse of the Act for the first defendant to pursue payment claim 11, having regard to his conduct concerning Saferway Constructions Pty Ltd and payment of the contractors and suppliers for the project who dealt with that company. It was put, broadly, that the first defendant should not be permitted to pursue payment claim 11 because he: (1)arranged his affairs so that he was not personally liable to the contractors and suppliers; (2)pursued his rights as a Contractor to obtain progress payments; (3)failed to take steps to cause the money that he received to go to Saferway Constructions Pty Ltd, or directly to the contractors and suppliers; and (4)caused Saferway Constructions Pty Ltd to go into liquidation owing large debts to the contractors and suppliers. 67In addition, it is alleged that the first defendant, in submitting the statutory declarations in support of payment claims 1 to 7, engaged in misleading or deceptive conduct in that a misleading impression was given as to whether the contractors and suppliers had been or were being paid. The plaintiff submitted that it relied upon the statutory declarations in making payments under the Contract, and that had it known the true position it would have terminated the Contract earlier than it in fact did. The plaintiff contended that it suffered loss as a result of the misleading or deceptive conduct at least in an amount greater than the second defendant's adjudicated amount, and that the first defendant should therefore be restrained from taking steps in reliance upon the second defendant's determination. 68I do not propose to deal with the various issues raised by Grounds 6 and 7. Again, it is not desirable to do so given the prospect that many of the issues may be raised in future litigation between the plaintiff and the first defendant. 69The remaining grounds (5 and 8 to 12), each of which concerns a particular aspect of the adjudication, may be dealt with shortly. 70Ground 5 alleges a denial of natural justice in relation to the determination that the first defendant should be paid $33,000 for materials (plasterboard and framing) left on site. The plaintiff alleges that certain submissions and evidentiary material provided in support were not taken into account by the second defendant, and that inadequate reasons were given for her conclusion. 71I do not think this ground is made out. It is apparent from paragraph 99 of the adjudication that she considered the central submission made by the plaintiff, and did so in the light of the evidence placed before her. I do not discern any denial of natural justice, and her brief reasons seem to be adequate in the circumstances. 72Ground 8 alleges that no claim for retention moneys was made in payment claim 11, and thus such a claim should not have been adjudicated upon. This ground is also not made out. Whilst payment claim 10 did not describe the claim as one for the retention moneys, in substance it was such a claim, as found by the second defendant (see paragraph 50 of the adjudication). 73Ground 9 was a complaint that the amount determined for variation 13 was overstated by $6,037.50 due to an oversight on the part of the second defendant. This error was conceded by Mr Moujalli in final submissions. 74Grounds 10 and 11 (which concern $1,000 and $2,000 respectively) were not developed in submissions and I do not propose to deal with them. 75Ground 12 (which concerns $3,359.09) is an allegation that the second defendant allowed variations that were time barred by clause 16.5 of the Contract. The plaintiff submitted that the second defendant failed to apply the time bar and thus failed to take into account the terms of the relevant contract as required by s 22(2)(b) of the Act. This ground is also not made out. 76It is clear that the second defendant took the relevant contractual provisions into account. The matter was dealt with in paragraphs 109 and 110 of the adjudication. In those paragraphs, the second defendant sets out clause 16.5 and discusses its effect. She concludes that if a claim is not barred at the time of termination of the Contract, the Contractor is entitled to payment. The second defendant then proceeds to deal with the claimed variations. It is implicit, in her allowance of the variations, that, rightly or wrongly, she regarded them as not barred at the time of termination.

Conclusion 77The Court will declare that the adjudication determination made by the second defendant on 16 September 2014 is void. 78Costs should follow the event. The first defendant should pay the plaintiff's costs of the proceedings.

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: 19 December 2014

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