Pacific General Securities Ltd & Anor v Soliman & Sons Pty Ltd & Ors - [2006] NSWSC 13 - NSWSC 2006 case summary — Zoe

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Pacific General Securities Ltd & Anor v Soliman & Sons Pty Ltd & Ors

[2006] NSWSC 13

Supreme Court of NSW|2006-01-31|Before: Brereton J, Finmore Holdings P, Sons P

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Source facts

Court

Supreme Court of NSW

Decision date

2006-01-31

Before

Brereton J, Finmore Holdings P, Sons P

Source

Original judgment source is linked above.

Judgment (119 paragraphs)

[1]

CITATION : Pacific General Securities Ltd & Anor v Soliman & Sons Pty Ltd & Ors [2006] NSWSC 13

[2]

DECISION : Declare determination void, order that defendant builder be restrained from requesting, and nominating authority from issuing, adjudication certificate.

[3]

CATCHWORDS : CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - Resolution of disputes - Adjudication - Determinations - Judicial review - minimum requirements for validity - whether 12-month limit for serving a claim is a basic and essential requirement non-compliance with which results in invalidity - held it is not - whether payment claim made within 12 months of performance of the latest of the construction work to which it related - whether specificity in payment claim is basic and essential requirement non-compliance with which results in invalidity - held it is not - whether payment claim sufficiently specified the construction work in respect of which it was made - whether service on receiver of respondent required - held it is not - whether adjudicator failed to have regard to relevant submissions - where submissions were outside ambit of payment schedule - held adjudicator rightly did not have regard to submissions - whether adjudicator entitled to determine progress payment at amount claimed upon rejection of respondent's material - held such approach is jurisdictional error or failure of basic and essential requirement of validity as to minimum content of adjudication - whether further prosecution of adjudication application should be restrained as abuse of process - where proceedings at law on foot but not advanced - held no basis for stay. CORPORATIONS - Proceedings - Service - whether service on receiver of corporation required - effect of appointment of receiver on means of service - service on sole director sufficient service on company.

[37]

29 For the Owners, Mr Parker submits that:- * There was a non-compliance with a basic and essential requirement prescribed in the Act for there to be a valid determination, in that the payment claim was not made within 12 months of performance of the latest of the construction work to which it relates; * There was a non-compliance with a basic and essential requirement prescribed in the Act for there to be a valid determination, in that the payment claim did not sufficiently specify the construction work in respect of which it was made; * There was a non-compliance with a basic and essential requirement prescribed in the Act for there to be a valid determination, and/or there was a denial of natural justice, in that the adjudication application was not validly served on Finmore; * There was a non-compliance with a basic and essential requirement prescribed in the Act for there to be a valid determination, in that the adjudicator did not have regard to certain of the submissions contained in the adjudication response; * The adjudication determination was not a valid and effective discharge of the adjudicator's function, because the adjudicator did not apply his mind to a consideration of the claim within the parameters of the Act, but having rejected the matters raised by the Owners simply accepted without examination the Contractor's claim; and * The Court should as a matter of discretion restrain Soliman from prosecuting its adjudication claim, pending resolution of the proceedings in the Technology and Construction List, in circumstances where the contract has long since been terminated, and Soliman has brought two previous unsuccessful adjudication applications. Is the determination void for service out of time of the payment claim? 30 The Owners submit that there was a non-compliance with a basic and essential requirement prescribed in the Act for there to be a valid determination, in that the payment claim was not made within 12 months of performance of the latest of the construction work to which it relates.

[47]

19 In my view, consistently with Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 390-391, the question of what was intended to be essential for compliance with the basic requirements of a determination is not decided solely by these textual matters. The fact that the language of section 13(4) is in one sense mandatory shows that it sets out a "requirement" , but not that it is a basic and essential requirement. Rather, the question of what is essential needs to be decided, bearing in mind the object and purpose of the legislation. It is concerned with providing a quick and relatively easy way in which an obligation to make a payment on account of what ultimately might be found to be due can be established. Viewed in that light, I do not find that precise compliance with section 13(4) is a basic requirement which is essential to a purported determination actually being a determination under the Act. Rather, section 13(4) is one of the "more detailed requirements" , which Hodgson JA held exist in the Act. When there has been a document which purports to be a Payment Claim served, the fact (if it were a fact) that the construction work to which the claim relates was last carried out more than 12 months before the payment claim was served does not mean that the "basic and essential requirement" of "service … of a payment claim (s.13)" has not been complied with. And even if it turned out that the adjudicator was mistaken in deciding that section 13(4) had been complied with, that would not mean that his determination was void, when he has addressed in a bona fide way the question of whether section 13(4) has been complied with. 34 And in Energetech Australia Pty Ltd v Sides Engineering Pty Ltd [2005] NSWSC 801, McDougall J (at [25]) concluded that compliance with s 13(4) was not "basic and essential" in the relevant sense. His Honour explained why:- 25 Secondly, I think (and this may be no more than a variant or consequence of the first reason) the requirement of s 13(4) is not "basic and essential" within the meaning of that phrase as it was explained by Hodgson JA in Brodyn . It may be readily understood (if I may say so with respect) why the matters identified by his Honour in that paragraph have the "basic and essential" quality to which he refers. As to the first, the terms of the Act are not engaged if there is no construction contract. Equally, in terms of the second, third and fourth alternatives, there is no valid adjudication unless they are engaged. Finally, in the case of the fifth requirement, it is simply a reflection of the statutory duty cast upon the adjudicator. 26 Those matters do not by and large require the investigation and resolution of difficult questions of fact or law. Usually, it will be clear whether or not there is a construction contract (particularly having regard to the wide definition of that expression in s 4 of the Act); and equally it will usually be clear whether (for example) a document of the kind described by s 13(1) has been served. 27 However, when one looks at the question of s 13(4), a determination of the point raised by that question necessarily involves considerations of questions of fact, in the context of the relevant statutory provisions. The entitlement may well be conditional upon (in this case) service of a payment claim within the period determined or in accordance with the terms of the contract. That, however, I think, is a matter for the adjudicator to determine. If it is a matter for the adjudicator to determine, then, consistent with the approach indicated in Brodyn at 441 [54], it is a matter that, prima facie , does not fall within the "basic and essential requirement". 35 Although Mr Parker argued that Energetech could be distinguished on the basis that there it was s 13(4)(a) and not, as here, s 13(4)(b) which was relevant, it would be an extraordinary and improbable construction of the section that resulted in compliance with the time limit being not essential when it was fixed by the terms of the construction contract, but essential when it was not so fixed.

[70]

55 The evidence establishes the following:- * The construction contract showed Finmore's address as Suite 3, Level 10, 55 Lavender Street, Milsons Point, and that of Pacific to be Level 1, Burns Philp House. * However, immediately prior to 16 September 2004, Finmore's ordinary place of business was an office adjacent to Pacific's, at Level 1, Burns Philp House at 7 Bridge Street, Sydney, which Soliman knew as Finmore's address. * On 16 September, a receiver and manager, Mr Reidy of Rogers & Reidy, was appointed to Finmore. No notice of his appointment was given to Soliman before 21 October 2005. * Although Mr Dixon said that with the appointment of a receiver and manager, Mr Reidy was "in charge" of Finmore's affairs and operated from other premises, Mr Dixon was, at least as late as 26 September 2005, acting on behalf of Finmore in respect of the payment claim of 2 September, since a letter to Soliman dated that day was signed for and on behalf of Pacific and Finmore by Mr Dixon, on Pacific's letterhead and using the Burns Philp House address. * Finmore had no employees other than Mr Dixon, who was also its sole director, and directing mind. * On 13 October, Soliman's solicitors served a single copy of the adjudication application, addressed to both Pacific, and to Finmore "care of" Pacific, at Level 1, Burns Philp House. * The adjudication application came to the notice of Mr Dixon, the sole director of Finmore, on or about 13 October. This finding is supported by Mr Dixon's concession that he thinks he saw the application, and the evidence that he received and acknowledged the adjudicator's subsequent notification of acceptance of the reference. * The adjudicator's acceptance of the reference came to the notice of Mr Dixon on or about 19 October. * The receiver was not served with the adjudication application. However, he was notified of its pendency by facsimile letter from the adjudicator on 24 October. 56 I am not satisfied that the appointment of the receiver had, by 13 October 2005, effected any change to Finmore's ordinary place of business, which I find remained adjacent to that of Pacific at Level 1, Burns Philip House. The adjudication application was therefore lodged at Finmore's ordinary place of business, and accordingly, it was served on Finmore in compliance with s 31(1)(b).

[86]

As you are aware, the contract in respect of 3-11 Hawkesbury Avenue, Dee Why, has been legally terminated, and litigation is underway between our respective companies. We again refute all of your claims and as such do not intend to make the payment claimed. 71 Thus the payment schedule simply asserted that the contract had been terminated and that litigation was underway, and concluded with a repeated refutation of all claims and a refusal to make the payment claimed. Accordingly, it identified two reasons or grounds for withholding payment: (1) that the contract had been terminated, and (2) that litigation was underway. The statement "we again refute all your claims" is not a reason or ground for withholding payment, but simply a statement of Pacific's position. I am inclined to accept, without deciding, that a payment schedule may sufficiently "indicate" reasons for withholding payment by reference to reasons previously advanced in an earlier payment schedule, if appropriately worded - for example, if the sentence just quoted had been prefaced by the words "For the reasons advanced in our payment schedule of 18 February, …". But in my opinion the mere use of the word "again" in the letter of 6 September does not incorporate reasons previously advanced; it simply restates a consistent position of refusal to pay, without indicating reasons for that refusal. I have not overlooked that a payment claim and a payment schedule, in the context in which they are required to be prepared, need not be as precise and as particularised as a pleading [Multiplex Constructions v Luikens, [76]], and that in some circumstances the briefest reference to an issue previously agitated may suffice to indicate a reason for withholding payment [Multiplex Constructions v Luikens, [77]-[78]], but here (save as to the two reasons expressly stated) the payment schedule does not even briefly refer to the essence of any reason for withholding payment. The statement that the claim is again refuted does not involve a statement of any reason for withholding payment [cf Multiplex Constructions v Luikens, [69]-[70]]. Nor is it sufficient to incorporate reasons previously advanced in previous payment schedules, adjudication responses or otherwise: the claimant could not know from it whether all or any and if so which of the grounds previously advanced were now relied upon, and the payment schedule was insufficient to convey what if any grounds (other than the two reasons expressly stated) were relied upon as justifying withholding payment.

[90]

75 In Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd [2005] NSWCA 228, Hodgson JA expressed the view, albeit tentatively, that if an adjudicator determined a progress payment at the amount claimed simply because he or she rejected the relevance of the respondent's material, that could be such a failure to address the task (of determining the amount of the progress payment to be paid, which requires determination on the material available and to the best of the adjudicator's ability of the amount properly payable), as to render the determination void. His Honour said:- 50 Before concluding, I wish to note what I believe may be an important error in the judgment of the primary judge, not bearing on the outcome of the case. In the second half of para.[51] of his judgment, the primary judge said this: An adjudicator is bound to consider the provisions of the Act, the provisions to the construction contract, the payment claim and payment schedule and submissions made by the claimant and respondent respectively and the results of any inspection: s 22(2). It seems to follow from all this that, if the point that an amount claimed is not "for" construction work is not taken in the payment schedule, it cannot thereafter be relied upon by the respondent in the adjudication process. The adjudicator would be bound to determine the matter on the basis of the material to which she or he could properly have regard; and if the adjudicator decided that all the reasons advanced by the respondent were invalid, the adjudicator would determine the amount of the progress payment in favour of the claimant. 51 That passage could be read as asserting that, if a respondent to a payment claim does not raise any relevant grounds for denying or reducing the progress claim made by the claimant, then the adjudicator automatically determines the progress claim at the amount claimed by the claimant. My tentative view is that such an assertion would be incorrect. 52 The task of the adjudicator is to determine the amount of the progress payment to be paid by the respondent to the claimant; and in my opinion that requires determination, on the material available to the adjudicator and to the best of the adjudicator's ability, of the amount that is properly payable. Section 22(2) says that the adjudicator is to consider only the provisions of the Act and the contract, the payment claim and the claimant's submissions duly made, the payment schedule and the respondent's submissions duly made, and the results of any inspection; but that does not mean that the consideration of the provisions of the Act and the contract and of the merits of the payment claim is limited to issues actually raised by submissions duly made: see The Minister for Commerce v. Contrax Plumbing (NSW) Pty. Ltd. [2005] NSWCA 142 at [33]-[36]. The adjudicator's duty is to come to a view as to what is properly payable, on what the adjudicator considers to be the true construction of the contract and the Act and the true merits of the claim. 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. 76 That is what the Owners complain has happened here. However Basten JA, without deciding, expressed a different view. His Honour said:- 64 At [50]-[53] Hodgson JA takes issue with a passage in the judgment of McDougall J below, part of which is set out at [50]. In substance the issue in dispute, as I understand it, is this: if, on a proper construction of the Act and the contract, the adjudicator comes to the view that a particular item in the payment claim is not justified, he or she will nevertheless be required to allow the item if an appropriate objection was not taken by the respondent in its payment schedule. In the passage from the judgment below, set out at [50] above, reliance for this conclusion would appear to be rooted squarely in s 22(2) of the Act. However, when read in context, the primary judge expressly placed weight upon a number of other provisions of the Act, to which attention should be given. Before turning to those, it is convenient to note the scope and operation of s 22(2). The provision is set out in full at [29] above. 65 According to the well-known principles governing judicial review under the general law, a decision-maker will fail to exercise a statutory power if he or she fails to take into account a mandatory consideration. Similarly, there will be a failure properly to exercise the statutory jurisdiction where the decision-maker takes into account an impermissible consideration. The same principles are found in the Administrative Decisions (Judicial Review) Act 1977 (Cth), discussed by Mason J in Minister for Aboriginal Affairs v Peko Wallsend Ltd (1986) 162 CLR 24 at 39-40. As his Honour noted (at p.40), many statutory discretions are in their terms unconfined and the considerations will therefore be unconfined "except in so far as there may be found in the subject-matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard …". Section 22(2) of the Act is an exception to this rule: indeed, it has a dual function. On the one hand, it prescribes matters to which the adjudicator is required to have regard; on the other hand, it identifies those matters as the "only" matters to which the adjudicator is to have regard. At least on its face, the list is exhaustive. 66 If that were the whole of the story, the conclusion suggested by Hodgson JA, namely that the adjudicator would be entitled to disallow an item on the basis of the contract and the nature of the claim made, would be made good. The fact that the payment schedule prepared by the respondent did not identify the reason for disallowance would not mean that the adjudicator had failed to take account of a mandatory consideration, or had had regard to an impermissible consideration. However, McDougall J based his reasoning to a contrary conclusion in part on other statutory provisions, in addition to s 22(2), including ss 14(3) and 20(2B). Sub-section 14(3) requires that where a payment schedule indicates an amount of a payment which is less than that the amount of the claim, the schedule must indicate why the amount is less and, if a respondent is withholding payment, the reason for that action. Where the payment schedule indicates an amount which is less than the amount claimed, the claimant may apply for adjudication of its payment claim: s 17(1)(a). Where such an application is made, the respondent may lodge a response to the claimant's adjudication application. That response may contain relevant submissions (s 20(2)(c)), but, subs (2B) provides: "The respondent cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant."

[93]

78 As to whether, in the absence of valid submissions duly made by a respondent, an adjudicator is bound to allow the payment claim in full, it is apparent from Hodgson JA's judgment cited above, that McDougall J at first instance had suggested that in the absence of valid issues raised by the respondent, the adjudicator would be bound to allow the payment claim in full. However, in Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd [2005] NSWCA 142, Hodgson JA, with whom Bryson JA and Brownie AJA agreed on this issue, said:- 33 The only challenge to the primary judge's decision on the second and third issues identified above was to the effect that the primary judge erred in holding that Contrax was entitled to rely on s.34, when that matter had not been raised in its payment claim. This contention relied on John Holland , and also on a suggested anomaly arising from the prohibition in s.20(2B) on a respondent relying on reasons not included in its payment schedule. 34 In my opinion, this suggested anomaly loses force when one considers the true effect of s.22(2). It is true that paragraph (d) of s.22(2) limits the submissions of the respondent that can be considered under that paragraph to submissions duly made by the respondent in support of the payment schedule; and in my opinion, that does have the effect of excluding, from consideration under that paragraph , reasons included in the adjudication response that were not included in the payment schedule. 35 However, paragraphs (a) and (b) of s.22(2) require the adjudicator to consider the provisions of the Act and the provisions of the construction contract; and in my opinion, that entitles and indeed requires the adjudicator to take into account any considerations (other than considerations arising from facts and circumstances of the particular case not otherwise before him or her) that he or she thinks relevant to the construction of the Act, the construction of the contract, and the validity of terms of the contract having regard to provisions of the Act. Thus, in my opinion, if an adjudicator comes to know of submissions of a respondent that he or she thinks to be relevant to these questions (not being submissions based on facts and circumstances of the particular case not otherwise before him or her), he or she can take them into account under paragraphs (a) and (b), even if they cannot be considered under paragraph (d). 36 Similarly, in my opinion, an adjudicator could take into account a contention of an applicant that a term of the contract is void by reason of s.34, when considering matters under paragraphs (a) and (b), even if that contention could not be taken into account under paragraph (c). 79 Despite the reservations expressed by Basten JA in Hargreaves, I should treat what was said in the passage cited from Contrax Plumbing as the decision of a unanimous Court of Appeal, which I should follow. It supports the view expressed by Hodgson JA in Hargreaves, with which, for the additional reasons below, I respectfully agree.

[94]

80 What is referred to an adjudicator for determination is a claimant's payment claim [s 17(1)], and what an adjudicator has to determine is the amount of the progress payment [s 22(1)(a)], on the basis of that claim and considering the other matters referred to in s 22(2) of the Act [Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229, [24] (Hodgson JA)]. Where a construction contract does not make express provision with respect to progress payments, the entitlement of a contractor to a progress payment is to "an 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" [s 9(b)] as at the relevant reference date [s 8(2)(b)]. Although the phrase "or undertaken to be carried out" in s 9(b) creates some confusion, it seems that, as one would expect from the ordinary usage in the construction industry of the term "progress payment", a progress claim can be made only in respect of construction work which has actually been carried out (or related goods and services which have actually been supplied) [s 13(2); s 4, definition of "claimed amount"], at least where the contract does not make express provision with respect to the matter, since a reference date can in those circumstances occur only after construction work has been carried out [s 8(2)(b); cf s 8(2)(a)]. The basis of valuation prescribed by s 10 has the result that, in the absence of express contractual provision, the amount of a progress payment will (prima facie, and subject to the impact of variations under s 10(1)(b)(iii) and defective work under s 10(1)(b)(iv)), be that proportion of the contract price as corresponds with the proportion of the contracted construction work that has actually been performed as at the relevant reference date (less any payment already made). A consequence of this is that, to found an entitlement to a progress payment, in the absence of express contractual provision, construction work must have been carried out (or related goods and services supplied), and to quantify the amount of the payment that work must be valued in accordance with the terms of the contract and, to the extent that the contract does not provide, relative to the contract price. Accordingly, adjudication of a payment claim involves, at least, a determination of what construction work has been carried out (or what related goods and services have been supplied), and the valuation in accordance with s 10 of that work.

[95]

81 Failure to serve a payment schedule which puts in issue the whole or any part of a payment claim gives rise to alternative remedies: the claimant can sue for so much of the amount claimed as was not put in issue by a payment schedule and remains unpaid in a court of competent jurisdiction [s 15(2)(a)(i); s 16(2)(a)(i)] ("default proceedings for judgment"), or the claimant can make an adjudication application [s 17(1)(b); s 17(1)(a)(ii], in respect of which a respondent who has not lodged a payment schedule at all is not entitled to lodge an adjudication response ("default adjudication proceedings"). In default proceedings for judgment, the only issues are whether there has been a failure to provide a payment schedule within time and/or a failure to pay the claimed or scheduled amount; there is no scope for scrutiny of the merits of the payment claim, or any cross-claim or set-off [s 15(4); s 16(4)]. It is noteworthy that in an adjudication under s 17(1)(a)(ii) - although an alternative to a proceeding for judgment on the undisputed part of a payment claim - there will have been a payment schedule, so that an adjudication response can be lodged and the adjudicator would be bound to have regard to the submissions contained in it. It is also noteworthy that despite s 14(4), which provides that upon failure to provide a payment schedule within time, the respondent becomes liable to pay the claimed amount on the due date, nonetheless if the claimant takes default adjudication proceedings under s 17(1)(b) rather than default proceedings for judgment , the respondent must be afforded a further opportunity to lodge a payment schedule [s 17(2)] - which if availed of would result in ordinary adjudication proceedings in respect of any dispute. This indicates that s 14(4) does not conclude liability for the purposes of any adjudication, but only for the purpose of default proceedings for judgment. These provisions, taken together, indicate that even where no payment schedule has been lodged, if the matter proceeds to adjudication, the adjudicator is still required to proceed in accordance with ss 21 and 22, and in particular to have regard to the matters specified in s 22(2) - save that in an adjudication under s 17(1)(b) there will not be an adjudication response - and is not bound to allow the claim in full. If that be so in the absence of any payment schedule at all, then the same must pertain where a payment schedule has been lodged, even if it does not state sound or sufficient reasons for withholding payment.

[100]

86 One of the "basic and essential requirements of validity" with which Brodyn requires compliance is "the determination by the adjudicator of [the adjudication application]" [Brodyn, [53]]. Hodgson JA allowed, in Brodyn (at [55]) and later in Contrax Plumbing (at [46]), that the list of basic and essential requirements identified in Brodyn may not be exhaustive. I have endeavoured to explain above the minimum content of an adjudication: the 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. In the terminology of Brodyn, it would best be accommodated under the rubric, not of want of good faith - because it falls short of capriciousness [cf Holmwood v Halkat, [117]] - but of failure of a basic and essential element, namely adjudication of a payment claim (which requires as a minimum determination of whether the construction work the subject of the claim has been performed, and of its value). In short, there would not have been an adjudication, within the meaning of the Act, of the payment claim, but only a rejection of the respondent's contentions. Accordingly, I respectfully agree with Hodgson JA's tentative view that for an adjudicator to determine a progress payment at the amount claimed simply because he or she rejects the relevance of the respondent's material is such a failure to address the task set by the Act as to render the determination void.

Pacific General Securities Ltd & Anor v Soliman & Sons Pty Ltd & Ors

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