Pinnacle Construction Group Pty Ltd v Dimension Joinery & Interiors Pty Ltd

Supreme Court of NSW|2018-06-08|Before: Stevenson J

Solicitors: M&A Lawyers (Plaintiff) Moray & Agnew (First Defendant) File Number(s): SC 2018/46946

The reference date point

Sections 13(5) and (6) of the Act provide: "(5) A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract. (6) However, subsection (5) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim."
Pinnacle contends that the payment claim was invalid by reason of being in breach of s 13(5) in that: 1. it claimed only for work that had been the subject of previous payment claims; and 2. must have been in respect of earlier reference dates which had already been used by those earlier payment claims.
It is common ground that, in cl 4.1, the contract made provision for a reference date and that, accordingly, that reference date must be determined in accordance with "the terms of the contract as the date on which a claim for a progress payment may be made" (s 8(2)(a)).
The reference date must be determined in accordance with the express terms of the contract: Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd [2016] HCA 52; (2016) 260 CLR 340 at [70].
The matter that divided the parties was the proper construction of those express terms.
The chapeau to cl 4.1 of the contract provides that Dimension must submit a progress claim to Pinnacle's representative "once". It was common ground that this expression should be read to mean "once in respect of each reference date".
Clause 4.1(vii) provides that "claims are to be submitted on the 15th of every month".
The question is whether, on the proper construction of the contract, the effect of that provision is that a new reference date arose on the 15th day of every month during the life of the contract, whether or not construction work had been carried out in any of those months.
If not, and assuming that Dimension had carried out no construction work since it served its claim on 25 May 2017 (a matter which is controversial and to which I return below), the 12 December 2017 payment claim would be in respect of a reference date the subject of an earlier claim. It would therefore be a nullity, depriving the adjudicator of jurisdiction to make the determination: for example Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69; (2009) 74 NSWLR 190 at [8] to [15].
As Allsop P said in Dualcorp at [8]: "As can be seen from [the Act] s 13(5), a claimant is limited to one payment claim in respect of each reference date. Section 13(6) permits, however, inclusion in another payment claim (necessarily by reference to another reference date) of an amount that has been the subject of a previous claim. Amongst other usual and uncontroversial examples, this permits the submission of cumulative payment claims by reference to later reference dates, which include an amount the subject of a previous claim."
Generally speaking, reference dates continue to arise after work ceases, unless the contract otherwise provides: see Brodyn Pty Ltd t/as Time Cost and Quality v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421 at [63] (per Hodgson JA with whom Mason P and Giles JA agreed).
The question is whether this contract otherwise provided.
Mr Di Francesco who appeared for Pinnacle submits that provisions of cll 4.1(1) and 4.2 of the contract make clear that Dimension's entitlement to submit a claim under cl 4.1(vii) was confined to the 15th day of a month in which it had performed construction.
I see nothing in those clauses to compel that conclusion.
Clause 4.1(i) provides that a claim must include Dimension's "valuation of work executed and incorporated" in the works "to the date of the claim". I see that provision as being relevantly neutral. It simply means that Dimension was required to include in the payment claim its "valuation" of the work it had done to date. The provision thus reflects the requirements of s 13(2)(b) that the claim "must indicate the amount of the progress payment that the claimant claims to be due".
As Mr Hume who appeared for Dimension points out, cl 4.1(i) does not require that Dimension include in the claim a valuation of the work "in the month" of the claim or "in the month preceding" the claim. It merely requires a valuation of the work done "to the date" of the claim. That valuation could be of work the subject of a previous claim; as s 13(6) of the Act permits.
I do not see what light cl 4.2 casts on the issue. That clause is concerned with the question of when payment is to be made. It is not directed to the question of when a claim can be made.
Mr Di Francesco drew attention to cases where a payment claim was served after work had ceased to be carried out and where the court has concluded that the payment was a nullity by reason of s 13(5) of the Act.
Dualcorp is one such case; as is McDougall J's decision in Trustees of Roman Catholic Church for Diocese of Lismore v TF Woollam & Son [2012] NSWSC 1559.
But each case must be determined by reference to the proper construction of the contract in question. In each of Dualcorp and Woollam the contract provided for reference dates to arise while work was being performed and, separately, after work had ceased (see Dualcorp at [6]-[7] and Woollam at [32]). That may explain the conclusion in those cases that reference dates could not arise progressively after work was complete otherwise than as expressly provided by those contracts.
There are no such provisions in the contract here and I see no reason to read down the plain words of cl 4.1(vii); save perhaps to limit Dimension's entitlement to make a claim to the 15th day of the month during the life of the contract; not a limitation relevant in this case.
Meagher JA (sitting as a trial judge) came to a similar view when construing the contract in question in Kyle Bay Removals Pty Ltd v Dynabuild Project Services Pty Ltd [2016] NSWSC 334 at [39].
For those reasons, my conclusion is that, as asserted in the payment claim, a reference date arose on 15 November 2017 and therefore the payment claim does not offend the requirements of s 13(5) of the Act.
In any event, it is common ground that Dimension did work on the site between 31 October 2017 and 3 November 2017.
There is a dispute as to whether this work was additional contract work or merely defects rectification work for which Dimension would not be entitled to make a charge.
However, as Mr Hume submits, even if the work should be characterised as defect rectification, and assuming contrary to my finding that Dimension can only make a claim on the 15th day of a month in which it has performed work, performance of defect rectification work would be sufficient to cause a further reference date to arise.
Clause 9.1 of the contract entitles Pinnacle to deduct from monies otherwise due to Dimension damages or expenses it may incur by reason of defective work. Thus rectification of defective work would entitle Dimension to payment of funds withheld under cl 9.1 by reason of that defective work.
The parties must have intended that Dimension be entitled to make a claim for that work and thus for a further reference date to arise in respect of that claim.
Further the evidence establishes that some construction was performed after the date of Dimension's 25 May 2017 invoice. A further reference date would thereby arise.
For these reasons, the reference date point fails.

The failure to afford natural justice point

A denial of procedural fairness will establish jurisdictional error entitling a party in the position of Pinnacle to have a determination set aside (for example Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151; (2017) 95 NSWLR 82 at [99] (McColl JA with whom Beazley ACJ and Macfarlan JA agreed).
McDougall J summarised the position in Watpac Constructions (NSW) Pty Ltd v Austin Corp Pty Ltd [2010] NSWSC 168 at [141] to [147] as follows: "141 Hodgson JA discussed natural justice, in the scheme of the Act, in Brodyn at 441-442 [55]. His Honour said in that paragraph that an adjudication determination will be void if, among other things, 'there is a substantial denial of the measure of natural justice that the Act requires to be given'. 142 Any entitlement to natural justice must accommodate the scheme of the Act, including the extremely compressed timetable provided for the submission of payment schedules, adjudication applications, and adjudication responses; and the limited time (subject to the consent of the parties, which they may give or withhold at their will) for an adjudicator to determine an application. It must also accommodate the fact that, in many cases, claimants and respondents will prepare their documents themselves, and will not avail themselves of legal advice in doing so. 143 In Musico v Davenport [2003] NSWSC 977, I said at [107] that where an adjudicator is minded to decide a dispute on a basis for which neither party has contended, then natural justice requires the adjudicator to notify the parties of that intention, so that they could put submissions on it. 144 However, as I pointed out in John Goss [Projects Pty Ltd v Leighton Contractors [2006] NSWSC 798;] (2006) 66 NSWLR 707] at 716 [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.' That meant, I said, that the principles of natural justice 'could not… require an adjudicator to give the parties an opportunity to put submissions on matters that were not germane to his or her decision'. 145 I see no reason to depart from those views; and neither party submitted that I should. In particular, I think, my insistence on materiality is consistent with the reference by Hodgson JA in Brodyn to 'substantial denial… of natural justice.' 146 In this context, Gleeson CJ said in Re Minister for Immigration and Multicultural Affairs; ex parte Lam [[2003] HCA 6;] (2003) 214 CLR 1 at 13 - 14 [37] that fairness is not abstract but practical. His Honour said that '[w]hether one talks in terms of procedural fairness or natural justice, the concern of the law is to avoid practical injustice'. To like effect, Kirby J said in Minister for Immigration and Ethnic Affairs v Wu Shan Liang [[1996] HCA 6;] (1996) 185 CLR 259 at 291 that the court should not undertake the task of 'combing through the words of the decision-maker with a fine appellate tooth-comb [sic], against the prospect that a verbal slip will be found warranting' the intervention of the court. 147 I accept, however, that the court should not be too ready to find that a denial of natural justice was immaterial; that it had no real or practical effect; or that (in the present context) there was nothing that could have been put on the point in question. But it remains the case, I think, that the denial of natural justice must be material, and that submissions that could have been put might have had some prospect of changing the adjudicator's mind on the point."
Pinnacle submits that the adjudicator made adverse findings about it without giving it an opportunity to be heard. It submits that those impugned findings went beyond those sought by Dimension in its adjudication application.
Further, Pinnacle submits that the impugned findings were material in two senses. First, that Pinnacle could have made submissions or adduced evidence that might have caused the adjudicator to come a different view, and second, that it was reasonable to apprehend that the impugned findings affected the manner in which the adjudicator dealt with the matter.
The impugned findings of the adjudicator related to Pinnacle's claim that Dimension had failed to rectify defective works.
The adjudicator stated: "45. As for the alleged defects claims, I am largely persuaded by paragraph 16 of the submissions in support of the Adjudication Application. It seems to me that the Respondent has merely plucked numbers out of the air in an attempt to substantiate a position that it is not liable to make further payment. 46. On my reading of what occurred here, the Respondent made fairly regular payments during the period where the Claimant was consistently on site, but once the Claimant had completed the bulk of its work, the Respondent was content to hold onto payments for its own cash-flow purposes. The Respondent then had to entice the Claimant to return to the site to complete some defects by making some further payments. After that work was done and the sale of various units settled, the Respondent suddenly has expressed concern about the extent of work to be completed. However, the central flaw with such contention is that if the units were in the poor state suggested by the Respondent, It would be very surprising if the purchasers would have completed settlement of the units had extensive defects been present."
Mr Hume submits that in making the impugned findings, the adjudicator did no more than accept the contentions made by Dimension in its adjudication application. Accordingly, Mr Hume submits, there was no denial of procedural fairness as Pinnacle was on notice of Dimension's contentions and had an opportunity to deal with them in in its adjudication response.
I will deal with each of the three impugned findings in turn.

That Pinnacle "plucked numbers out of the air in an attempt to substantiate a position that it is not liable to make further payment"

The adjudicator described Pinnacle's claim for defective works at par 43(b) of the determination as follows: "[Dimension] failed to rectify its defective works in respect of which [Pinnacle] makes the following estimates: (i) $51,500.00 as identified in the defects lists prepared by Tyrrells; (ii) $25,000-$40,000.00 for post settlement joinery defects; (iii) $10,000.00 for additional caulking; (iv) $20,000.00 for additional cleaning and waste removal through the course of the works".
"Tyrrells" is Tyrrells Property Inspections Pty Limited, a company Pinnacle engaged to inspect all of the units at the Dee Why complex. Tyrrells' report covered the work of all trades. The report did not attribute a cost to the defects that they opined arose from the work carried out by Dimension.
In its adjudication application, Dimension dealt with each of the four amounts referred to at [48] above.
In relation to the $51,500 in the Tyrrells' defects list, Pinnacle prepared a detailed schedule which set out, in relation to each of the 103 apartments in the complex, what it contended to be the "material cost" and "labour cost" associated with each of the defects identified by Tyrrells.
In relation to those matters, Dimension, in its adjudication application said: "There is nothing to establish that there is $500.00 worth of defective work in each and every unit. This deduction has not been made, is unsupported and is rejected."
In relation to the $25,000 - $40,000 claim for "post settlement joinery defects" Dimension said: "This is a totally baseless statement. [Pinnacle] has failed to establish that there are any defects. Further there are no details and no basis for this valuation. This is unsubstantiated and is rejected."
As for the $10,000 claimed for "additional caulking" Pinnacle stated: "Again, [Pinnacle] makes an unsubstantiated allegation that there is $10,000 of incomplete caulking works…[Pinnacle's] allegation here is again totally unsupported with any evidence or detail".
Finally, in relation to $20,000 claimed for "additional cleaning and waste removal through the course of the works", Dimension submitted: "[Pinnacle] argues that it is entitled to a further $20,000 for cleaning costs attached to the defect and caulking works; neither of which have been established or proven. There is no basis for this charge as no cleaning work has occurred nor has the case [been] made that it will occur."
These are robust assertions. In the case of the figures claimed by Pinnacle for post settlement joinery defects ($25,000 - $40,000) and for additional cleaning ($20,000), Dimension's contentions came close to an assertion that Pinnacle had made the figures up.
I read the adjudicator's finding that Pinnacle had "plucked numbers out of the air" as doing no more than accepting that submission (albeit in somewhat more colourful language).
Mr Di Francesco submitted the adjudicator's finding that Pinnacle "plucked numbers out of the air" in an "attempt to substantiate a position that it is not liable to make further payment" attributed an improper motive to Pinnacle and amounted to a finding that it had acted in bad faith, dishonestly or recklessly indifferent to the truth.
I do not read the adjudicator's finding that way.
I read the adjudicator's conclusion that Pinnacle had plucked numbers out of the air "in an attempt to substantiate a position that it is not liable to make further payment" as meaning no more than that Pinnacle had done so in an attempt to justify its position. I do not read into the adjudicator's words the more sinister implication the subject of Mr Di Francesco's submission.
I see no procedural unfairness here.

"Once [Dimension] had completed the bulk of the work, [Pinnacle] was content to hold on to payments for its own cash flow purposes"

In its adjudication application Pinnacle submitted that, by an email sent on 6 November 2017, Ms Dianne Bechara, a director of Pinnacle, "notes that when [Pinnacle] gets a payment from another project it will finalise the payment schedule to show dates for final payments". That statement suggested that Pinnacle would only indicate the time at which it would pay Dimension once it received payment "from another project".
Ms Bechara's email was attached to the adjudicator's application.
Pinnacle did not respond to this contention.
The adjudicator's statement that Pinnacle "was content to hold on to payments for its own cash flow purposes" appears to me to be an acceptance that this was the correct characterisation of what Ms Bechara had said.
In fact, what Ms Bechara said in her email was: "I promised I would advise you today of a payment schedule. I just want you to know that Leon is currently finalising a claim to be paid to Pinnacle following defects being completed at Dee Why. We are expecting this claim from the bank to be paid later this week. Leon and I will call you tomorrow morning with an update of payment to be made to you."
Thus what Ms Bechara said was that, now that defect rectification work had been done by Dimension at the Dee Why project, Pinnacle was finalising a claim for the Dee Why project (not "another project") and that payment was expected shortly.
It appears, from the language used by the adjudicator, that he did not look with care at the 6 November 2017 email but rather accepted Dimension's characterisation of it. That may well have been because Pinnacle did not, in its adjudication response, dispute that characterisation.
That may be have been an error by the adjudicator. But I do not consider that by making that error, and accepting Dimension's uncontradicted characterisation of Ms Bechara's email, that a denial of procedural fairness arose.

"[Pinnacle] then had to entice [Dimension] to return to the site to complete some defects by making some further payments"

In its adjudication application, Dimension stated that, in her email 27 October 2017, Ms Bechara agreed "to pay $25,000.00 to get [Dimension] on site to complete the items starting on Tuesday 31/10/2017".
Again, Pinnacle did not dispute in its adjudication response that this was the effect of Ms Bechara's 27 October 2017 email.
The adjudicator's conclusion appears to be an acceptance of Dimension's characterisation of Ms Bechara's email.
Ms Bechara's 27 October 2017 email read: "Thank you for speaking to me to help resolve the outstanding joinery works at Dee Why. As agreed with you I have paid $25,000 to Dimensions [sic] Joinery this morning (see attached receipt). You have agreed to send workers out to the Dee Why site Tuesday to complete and rectify works. Avinash from our office will meet you there to guide you to the most critical items for settlements We will monitor the completion of works from the Buyers list including the additional items which have been raised with you such as Oven Doors and dishwashers. We will review your completed works and speak to you about further payment. Thanking you for your assistance."
Dimension's statement in its adjudication application that Ms Bechara had agreed to make the payment "to get" Dimension back on site is an available conclusion to be drawn from this email. It is also consistent with an email that Mr Joe Bechara, another director of Pinnacle, sent Dimension on 29 November 2017 where he stated that Pinnacle had made payments to Dimension, including the payment of $25,000, "to push completion" of rectification works.
I read the adjudicator's words as doing no more than accepting Dimension's submissions as to Pinnacle's motivation in making the $25,000 payment.
I see no procedural unfairness.

"After that work was done and sale of various units settled, [Pinnacle] suddenly expressed concern about the extent of the work to be completed"

Mr Joe Bechara attached to his 29 November 2017 email various "Buyer Defects Lists" and asserted that Pinnacle had "not received confirmation that the above defective items in the list relating to joinery have been closed out". He asserted that "these issues are not new…and…are still outstanding and we are facing these issues with the new purchasers".
Mr Bechara also stated that "we retained monies from you and have met a number of times on site and in the office to discuss".
In its adjudication application, Dimension said that this email had been sent "without notice" and was "an attempt to recast its earlier communications" and to ignore Dimension's confirmation that all was completed.
Dimension also stated that: "Mr Bechara says he has attempted to manage this process and speaks of meetings and discussions and so on. There were no such meetings. There was nothing to do. The work is complete."
In its adjudication response Pinnacle maintained that defects remained outstanding and said that Mr Bechara's email "was issued after payments were made to Dimension and only after Dimension failed to visit site and complete the works".
However, the adjudication response did not respond to Dimension's contention that Pinnacle was endeavouring to "recast its earlier communications" nor Dimension's contention that Mr Bechara had falsely stated that there had been meetings to endeavour to resolve the matter.
It appears to me that by stating that Pinnacle had "suddenly expressed concern about the extent of the work to be completed", the adjudicator was doing no more than accepting the submissions of Dimension that I have set out.
Contrary to Mr Di Francesco's submissions I do not accept that it is a fair reading that the adjudicator found Pinnacle's complaints to be disingenuous or a recent invention, let alone that Pinnacle had acted in bad faith or dishonestly.
Again, I find no want of procedural fairness here.
For those reasons, I do not accept that the adjudicator has deprived Pinnacle of procedural fairness so as to establish jurisdictional error on his part.

Irrationality and unreasonableness

Pinnacle's submissions that the adjudicator's findings were so irrational and unreasonable as to be beyond jurisdiction were in substance based upon its allegations that the adjudicator failed to afford natural justice to Pinnacle.
Although the adjudicator at times expressed himself in general terms, my attention has not been taken to anything in his determination (beyond the matters complained of concerning procedural fairness) that would warrant a conclusion of irrational or illogical reasoning bespeaking jurisdictional error.
As Mr Hume pointed, the High Court and the Court of Appeal have recently emphasised the breadth of the power given to adjudicators under the Act. It has been said that the time limits under the Act are "brutally fast", that the Act provides a form of "rough justice" and that rights under the Act are to be determined informally, summarily and quickly: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4; (2018) 351 ALR 225 at [40] and [44]; Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd at [130]. I have earlier expressed agreement with the observations of Sackar J in Avopiling (NSW) Pty Ltd v Menard Bachy Pty Ltd [2012] NSWSC 1466 at [38] that "very considerable latitude…should be afforded to an adjudicator as to the manner and form of the determination": see Grid Projects NSW Pty Ltd v Proyalbi Organic Set Plaster Pty Ltd [2012] NSWSC 1571 at [90].
I accept Mr Hume's submission that it would require a most extraordinary case for a court to find an adjudicator's decision to be unlawful because it is irrational or fails to disclose a logical connection between the findings made and the evidence.
I see no justification for coming to that justification for coming to that conclusion in this case.

Conclusion

Pinnacle's challenge to the determination fails.
The proceedings should be dismissed with costs.

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: 15 June 2018

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