In this proceeding, the plaintiff, QC Communications, seeks to set aside an adjudication determination made on 18 December 2015 in favour of the defendant, CivComm, in the sum of $149,622 (including GST) on two grounds. The first is that submissions that formed part of the adjudication application were not served on QC Communications. The second is that the determination was procured by fraud.
[2]
Background
QC Communications is a construction company which has a contract with NBN Co Limited to install and to connect high speed data cables to private houses and businesses in New South Wales. CivComm is a subcontractor to QC Communications for the installation and connection of cables in the Queanbeyan area. The subcontract was entered into on or about 14 July 2015. It appears to have been partly in writing and partly oral. Its terms are not material to the resolution of this dispute.
CivComm itself engaged subcontractors to undertake some of the work for which it had contracted. One of those subcontracts was with Pacific Civil and Cabling Pty Ltd. Another was with Poltel Pty Ltd.
Originally, CivComm was represented by solicitors, but at the hearing of this matter Mr Zakaria, who is the Managing Director of CivComm, sought to represent the company. CivComm is in substance the company through which Mr Zakaria carries on business. In those circumstances, I granted leave to Mr Zakaria to appear for the company.
For reasons which were not explained, the Adjudicator, Mr Philip Martin, was not joined as a defendant in the proceeding. However, had the Adjudicator been joined, it is to be anticipated that he would have filed a submitting appearance. In those circumstances, the fact that he was not joined should not affect the outcome of the case.
Following an audit conducted by NBN Co which raised issues concerning work undertaken by CivComm, among other subcontractors to QC Communications, QC Communications stopped paying CivComm's invoices.
On 3 November 2015, CivComm served a payment claim for $163,947.30 including GST in respect of its invoices numbered 9, 10, 11, 12, 13 and 14. The plaintiff served a payment schedule the following day stating the scheduled amount as "Nil".
At 9.02 am on 17 November 2015, Mr Zakaria sent an email to Adjudicate Today enclosing an adjudication application claiming the amount claimed in the payment claim. The application was in the standard form published by Adjudicate Today. The third page of that form set out an "adjudication application index" which was to be completed by stating behind which tab numbers particulars were to be found, including the applicant's written submissions. That page was left blank. It appears that no other documents were included with Mr Zakaria's email. The covering email itself said:
Attached is my application for and a linke [sic] to my Dropbox account with all my supporting evidence.
There was then email correspondence between Ms Sophie Stack from Adjudicate Today and Mr Zakaria. It is not easy from the documents that were tendered to follow the email chain. However, it appears that Ms Stack requested that a hardcopy of the adjudication application be sent to the Adjudicator and that she also be provided with a copy of the attachments that formed part of the adjudication application. At 3.04 pm, or at about that time, Mr Zakaria sent one or more emails to Ms Stack attaching a large number of documents that comprised the material in support of the application. Ms Stack acknowledged receipt in an email sent at 15.06 pm on 17 November 2015.
At 14.08 pm on 19 November 2015, Ms Stack sent a further email to Mr Zakaria following up on a hardcopy of the adjudication application. Mr Zakaria replied at 2.51 pm on 19 November 2015 saying:
I've just posted out a hard copy as requested earlier by phone, you should receive it by midday tomorrow.
There is no clear evidence that a complete copy of the adjudication application (including supporting material) was sent to QC Communications. Mr Zakaria did send an email at 9.15 am on 17 November 2015 to Mr Cameron Shepherd, the Chief Financial Officer of QC Communications, attaching the same material as he sent to Ms Stack at 9.02 am on that day. The email also contained a link to Mr Zakaria's "Dropbox". However, Mr Shepherd gave evidence, which I accept, that the link did not work.
At 15.43pm on 19 November 2015, Mr Zakaria sent Mr Shepherd and email saying:
Attached is the forwarded email regarding application 2015-ADJT442, and as requested the remaining submissions.
The "forwarded email" that was attached was the email that Mr Zakaria sent to Adjudicate Today at 9.02 am on 17 November 2015. It is not clear what the "remaining submissions" were. There is no evidence that anything apart from Mr Zakaria's email to Adjudicate Today was attached to the email to Mr Shepherd. Mr Shepherd denies that he received a copy of any supporting material sent to Adjudicate Today. I accept the evidence given by Mr Shepherd. He came across as an honest witness. His evidence was not contradicted by Mr Zakaria, who did not give evidence.
On 19 November 2015, Adjudicate Today sent to QC Communications a fax which relevantly said:
You are formally advised that Adjudicate Today, an Authorised Nominating Authority under the Building and Construction Industry Security of Payment Act 1999 (NSW) ('the Act'), has received the attached date stamped adjudication application form and attachments. Only page 1 of the adjudication application form is transmitted to the parties in correspondence with Adjudicate Today.
This notification is sent as a courtesy only. By this time, you should have received a copy of the adjudication application form AND attachments directly from the claimant. If not, please promptly advise us in writing on the facsimile number below and please also provide a copy of your correspondence to the claimant.
On 24 November 2015, QC Communications filed and served its adjudication response. It gave four reasons for why CivComm was not entitled to any part of the amount claimed, which was summarised in these terms by the Adjudicator:
The reasons provided by the Respondent [QC Communications] for withholding payment from the amount claimed for the project are:
• The work is incomplete.
• The Claimant [CivComm] has not provided the required documentation.
• The quality of the work is not to the required standard.
• The work is defective.
QC Communications also said in its adjudication response:
20. It has recently come to the attention of the Respondent that certain works have been invoiced, which works have not been completed and the Respondent needs to conduct a thorough forensic audit on all payments made in respect of the works set out in the document attached and marked "QC10".
21. The Respondent will seek relief in respect of the unjustified payments made after the completion of a forensic audit on works for which the Applicant has claimed and the Respondent has paid to the Applicant payments as contained in the document attached and marked "QC10".
The Adjudicator handed down his determination on 3 December 2015. He determined the adjudicated amount at $149,622.00 including GST and that that amount was due for payment by 15 December 2015. In reaching that conclusion, the Adjudicator accepted that QC Communications had established a number of defects in the work. The Adjudicator made deductions from the amount claimed in view of those defects.
CivComm put before the Adjudicator copies of the invoices it had submitted to QC Communications together with "iToWs" (standing for invoice ticket of works) supporting those invoices.
The invoices provided a brief description of the work done at each address such as "1 x Type C, 2 x Underbores". The reference to "Type C" is a reference to an installation meeting a specific description. The reference to "Underbores" was a reference to the number of underbores at the address which were required because it was impractical to dig a trench on a particular part of the premises where the cable was to be laid. The iToWs were forms created by QC Communications and completed by contractors in respect of each address providing more details in respect of the installation.
Where CivComm used subcontractors itself, those subcontractors submitted invoices in a form specified by CivComm. Those invoices provided the same level of detail as the invoices submitted by CivComm to QC Communications in its invoices. Usually, the invoices submitted by subcontractors were prepared by CivComm based on information supplied by the subcontractor orally or in a text message. CivComm then provided a copy of the invoice to the subcontractor and asked the subcontractor to confirm that the invoice was accurate. On some occasions, the subcontractor prepared the invoice itself. CivComm prepared its own invoices from the invoices submitted by subcontractors.
It is not easy to determine precisely what was before the Adjudicator. CivComm did not tender a complete copy of the adjudication application. QC Communications subpoenaed Adjudicate Today for its file. Adjudicate Today produced three folders of documents which included the adjudication application, adjudication response and determination by the Adjudicator. It also produced a disk. The disk contains email correspondence between Adjudicate Today and CivComm attaching a large number of documents in no particular order. I am satisfied, however, that the subcontractors' invoices were not before the Adjudicator. They were not contained in the material that formed part of the adjudication application and the Adjudicator made no reference to them in his determination.
During the audit undertaken by QC Communications in December 2015, it became apparent that the invoices prepared by CivComm did not always correspond with the invoices prepared by CivComm's subcontractors. In particular, amounts were claimed in the invoices submitted by CivComm to QC Communications for work done at particular addresses which were not shown on the invoices submitted by the subcontractors for the work that they did at those addresses.
Both Mr Vaitai, who carries on business through Pacific Civil and Cabling, and Mr Godek, who carries on business through Poltel, gave evidence that in respect of a substantial number of jobs the work they did and for which their respective companies sent invoices was less than the work claimed in the corresponding invoices issued by CivComm to QC Communications. Most often, CivComm charged QC Communications for one or more additional underbores.
I accept the evidence given by Mr Vaitai and Mr Godek. Both struck me as honest witnesses who took pride in their work. Neither had a reason to understate the work that they did. The evidence given by Mr Vaitai and Mr Godek is supported by evidence given by Mr Collins and Mr Evans, who are field supervisors employed by QC Communications. Mr Collins inspected each site that was the subject of CivComm's invoices numbered 9, 10 and 11. Mr Evans inspected each site that was the subject of CivComm's invoices numbered 12, 13, 14 and 15. Both gave evidence of significant discrepancies between the work that they actually observed and the work that was the subject of the CivComm invoices. Their evidence was challenged on the basis that if the work was underground then it was not physically possible to inspect. However, I accept their evidence that in many cases it was possible by an observation of the site to determine, for example, where underbores were necessary and whether there were entrance and exit trenches to particular underbores.
[3]
The issue of service
Section 17 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act) relevantly provides:
(3) An adjudication application:
…
(h) may contain such submissions relevant to the application as the claimant chooses to include.
…
(5) A copy of an adjudication application must be served on the respondent concerned.
Section 31 of the SOP Act provides:
Service of notices
(1) Any notice that by or under this Act is authorised or required to be served on a person may be served on the person:
(a) by delivering it to the person personally, or
(b) by lodging it during normal office hours at the person's ordinary place of business, or
(c) by sending it by post or facsimile addressed to the person's ordinary place of business, or
(d) in such other manner as may be prescribed by the regulations for the purposes of this section, or
(e) in such other manner as may be provided under the construction contract concerned.
(2) Service of a notice that is sent to a person's ordinary place of business, as referred to in subsection (1) (c), is taken to have been effected when the notice is received at that place.
(3) The provisions of this section are in addition to, and do not limit or exclude, the provisions of any other law with respect to the service of notices.
A document will be served in accordance with the requirements of the SOP Act if it actually comes to the attention of the person to be served. It is not necessary that it be served in accordance with s 31. As Hodgson JA stated in Falgat Constructions Pty Ltd v Equity Australia Corporation Ltd [2006] NSWCA 259 at [58]:
In the first place, in my opinion it is clear that if a document has actually been received and come to the attention of a person to be served or provided with the document, or of a person with authority to deal with such a document on behalf of a person or corporation to be served or provided with the document, it does not matter whether or not any facultative regime has been complied with: see Howship Holdings Pty Limited v Leslie (1996) 41 NSWLR 542; Mohamed v Farah [2004] NSWSC 482 at [42]-[44]. In such a case, there has been service, provision and receipt.
There is a question whether the failure to serve an adjudication application goes to the jurisdiction of the Adjudicator. On that question, McDougall J said the following in Douglas Aerospace v Indistri Engineering Albury [2014] NSWSC 1445:
[73] There may be a question as to whether s 17(5) should be regarded as jurisdictional. It was not identified as a "basic and essential" condition of validity in Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421. It was not identified as a jurisdictional prerequisite in [Chase Oyster Bay v Hamo (2010) 78 NSWLR 393]. I was not referred to any decision which holds that compliance with s 17(5) is jurisdictional.
[74] It could be argued that the role of s 17(5) is to ensure that a respondent is given a degree of procedural fairness by being served with the payment claim. If that is the limit of the function of the subsection then, in circumstances where the respondent cannot lodge an adjudication response and thus in effect cannot be heard (see s 20(2A), (2B)), it may be wondered whether there is any reason, on the proper construction of the statute, to hold that the requirements of s 17(5) are jurisdictional.
For the reasons suggested by McDougall J, I doubt that the failure to serve an adjudication application goes to the Adjudicator's jurisdiction. In any event, in this case, the application was served, although it appears that the supporting material was not. In my opinion, the failure to serve supporting material does not go to the jurisdiction of the Adjudicator. There is nothing in the SOP Act which requires an applicant to supply supporting material to the Adjudicator. Consequently, it is difficult to see how the failure to serve supporting material could deprive an adjudicator of jurisdiction. Of course, if supporting material is provided to the Adjudicator and not served, the effect may be to deny the person on whom they were not served natural justice. But whether the practical effect of the failure to serve supporting material is to deny a party natural justice in a way that would attract the intervention of the court depends on the particular facts of the case.
In the present case, I am not satisfied that the failure of CivComm to serve its supporting material on QC Communications had the practical effect of denying QC Communications natural justice. QC Communications was still able to provide submissions to the Adjudicator which addressed the issues relevant to CivComm's claim. QC Communications submits that it was at a disadvantage because it did not understand that CivComm was relying on its invoices and iToWs in support of its claim. However, it seems clear from the nature of the dispute that CivComm would rely on its invoices, since they were the subject of the payment claim. QC Communications was in the process of investigating discrepancies between the invoices and the work that had been done. It made that point to the Adjudicator. It was open to QC Communications to progress that investigation more quickly so that it could present the results of the investigation to the Adjudicator. However, it did not do so. It raised other issues before the Adjudicator that the Adjudicator dealt with. It did not point to any aspect of CivComm's supporting material that it would have sought to answer or answer differently had it known what it contained at the time it lodged its adjudication response. Consequently, although in a technical sense there was a denial of natural justice because QC Communications was denied procedural fairness, I am not satisfied that that denial had any effect on the outcome of the adjudication. Consequently, I am not satisfied that it is appropriate to grant any relief in respect of the failure of CivComm to serve its supporting material on QC Communications.
[4]
Fraud
The general principle in respect of a determination obtained by fraud was stated by Hodgson JA in Brodyn Pty Ltd v Davenport [2004] NSWCA 394 at [60] in these terms:
If the determination is induced by fraud of the claimant in which the adjudicator is not involved, then I am inclined to think that the determination is not void but voidable; and it is liable to be set aside by proceedings of the kind appropriate to judgments obtained by fraud.
That view was accepted by the Queensland Supreme Court in Hansen Yuncken Pty Limited v Ericson [2011] QSC 327.
A judgment may be set aside on the basis of fraud where:
1. The application is based on facts discovered after the judgment which are material: Wentworth v Rogers (No 5) (1986) 6 NSWLR 534; and
2. It is reasonably clear that the fresh evidence would have provided an opposite verdict: Orr v Holmes [1948] HCA 16; (1948) 76 CLR 632 at 640.
I am satisfied that the determination was induced by fraud in this case. That fraud consisted of CivComm relying on invoices in support of its claim that it, and that Mr Zakaria in particular, knew were false because they included claims for work that CivComm knew had not been performed.
CivComm submitted that the discrepancies between the invoices submitted to it by its subcontractors and the invoices submitted by it to QC Communications could have arisen from mistakes. I do not accept that submission. Each invoice contained a substantial number of discrepancies; and they were all in favour of CivComm. To take invoice number 9 as an example, CivComm made a claim for work additional to the work covered by the relevant Pacific Civil invoice in respect of 13 addresses and a claim for work additional to the work covered by the relevant invoice from Poltel in respect of 8 addresses. It is not credible for that number of mistakes to be made, let alone for that number of mistakes to be made all in CivComm's favour.
CivComm also submitted that the Adjudicator disallowed many of the claims that are the subject of the discrepancies, so that it would be unfair to avoid the determination altogether. I do not accept that submission. None of the amounts claimed by CivComm were disallowed by the Adjudicator because the work claimed in the invoices was not done. Again to take invoice number 9 as an example, the Adjudicator observed that QC Communications considered that it needed to carry out an audit of CivComm's work "to establish a final reconciliation". However, the Adjudicator concluded that "The Act requires me to assess the payment claim and as the final audit is not included in [QC Communication's] submissions this is not a valid reason for withholding payment". The Adjudicator went on to deal with a number of addresses covered by invoice number 9 where QC Communications had taken issue with the claim. He disallowed the claim in respect of five addresses. None of those addresses were addresses where there was a discrepancy between the work claimed by CivComm and the work claimed by its subcontractors.
In my opinion, the fraud was sufficiently significant and widespread that it had a substantial effect on the Adjudicator's determination. As a result, the determination should be set aside.
[5]
Orders
The orders of the court are:
1. The adjudication determination made on 18 December 2015 by Mr Philip Martin in favour of the defendant be set aside.
2. The defendant pay the plaintiff's costs of the proceeding.
[6]
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: 12 August 2016