Solicitors:
Colin Biggers & Paisley Pty Ltd (Plaintiff)
Doyles Construction Lawyers (First Defendant)
King Lawyers Australia (Second Defendant)
File Number(s): 2016/233579
[2]
Judgment (ex tempore - revised 5 august 2016)
HIS HONOUR: The plaintiff (the contractor) and the first defendant (the subcontractor) made a contract under which the subcontractor agreed to carry out what were in effect fit-out works in connection with the construction of an apartment complex in Newcastle. There is no doubt that the subcontract between them was a construction contract for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act).
In the usual way, the contractor and the subcontractor fell into dispute over payment claims. One such dispute, in relation to a payment claim dated 7 June 2016 for $966,000 (in what follows, I round to the nearest $1,000, and warn the reader that some amounts are, and others are not, inclusive of GST) was referred to the second defendant (the adjudicator) for determination. The adjudicator made a determination on 26 July 2016 in which he concluded that the subcontractor was entitled to be paid $573,000.
The contractor says that the determination is void. It relies on three reasons. First, it says, the adjudicator did not perform his statutory function of assessing the amount of construction work that had been performed and then valuing that work.
Secondly, and in the alternative, the contractor says that the determination was unreasonable, having regard to the reasons (or, it says, lack of them) given by the adjudicator for, in effect, preferring the subcontractor's valuation of the work done.
Thirdly, the contractor says, the determination is void because there was no reference date to support the subcontractor's payment claim, and that the availability of a reference date is a precondition of validity. The third argument can be put to one side (although Mr Doyle, who appeared for the subcontractor, addressed it). The contractor acknowledges that the point is not presently available to it, having regard to the decision of the Court of Appeal in Lewence Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd [2015] NSWCA 288, which I am bound to follow.
The question for today is not whether the contractor has made out its claim for final relief but, rather, whether it has established a serious question to be tried that it is entitled to such relief, and (if it meets that test) whether the balance of convenience supports the grant of interlocutory relief restraining enforcement of the determination until there is a final hearing.
The payment claim in question was, as I have said, for about $966,000. Of that amount, $795,000 was claimed for work under the contract, and $106,000 was claimed for variations (it will be seen that the figures do not add up to the total of the claim, and I repeat what I have said as to GST). The contractor's attack focussed on the way in which the adjudicator valued the claim for work under the contract, in concluding that the subcontractor had made good its case on that point.
The adjudicator's reasons, after setting out the history of the matter, first dealt with the question of jurisdiction. That occupies paras 11 to 29 of the reasons. Nothing turns on that for present purposes.
The adjudicator then turned, at para 30, to the value of the work completed under the contract. He noted the way that the parties had broken down the contract sum, by reference to which they framed their debate as to the extent of work completed and its value. The adjudicator then said at para 32 that the claimant (that is, the subcontractor) sought to justify its claim by reference to a statutory declaration of its representative Mr Gavrilos, and a series of photographs. The adjudicator said at para 33 that he did not find any of this material helpful in coming to a determination as to the value of construction work completed to the date of the claim. He made it plain that this comment applied both to the statutory declaration and to the photographs.
A matter that seems to me to be of key importance appears from para 33.2 of the reasons. The adjudicator said that the material to which I have referred did not assist him:
"... in coming to any value for the construction work referred to in [the subcontractor's] table. For example, to justify a claim of $338,312 ... I am referred to a series of photos ... this material far from establishes that this substantial amount of work has been completed."
The adjudicator concluded the paragraph by pointing out once more that in his view "this material is far from convincing".
I have referred to the particular claim for $338,000 because it is plain from what the adjudicator said at para 33.2 that the material put before him did not satisfy him "that this substantial amount of work has been completed". It will be seen that the amount in question claimed for this item is about 48% of the total amount of the claim.
The adjudicator then referred at para 34 to what he said was "more persuasive material". That material appeared to be both adverse criticisms of the contractor's valuation of the work, and a number of invoices for work and labour given to the subcontractor by its own suppliers (who I suppose could be regarded as sub-subcontractors). The adjudicator said that although the first defendant had not totalled those invoices, "an examination of them indicates that well over $500,000 ... has been incurred by the claimant in both labour and material costs".
The adjudicator returned to a consideration of the invoices at para 38. He referred to the fact that "some of [them] have been replicated", by which I take it he meant "duplicated". Nonetheless, he took from them that the subcontractor "has carried out a significant amount of labour and supplied a significant amount of materials for the construction work". In the adjudicator's view, that material "represents some independent evidence, albeit imperfect ... in support of the [subcontractor's] position". The adjudicator did note, however, that this independent and imperfect evidence "most likely [includes] costs relating to variations to the works". That qualification is important, because in this paragraph of his reasons (indeed, in this whole section of his reasons) the adjudicator was dealing only with the claim for work under the contract. He turned to the claim for variations at a later point in his reasons.
The adjudicator then said, again at para 38 of his reasons, that:
"The [contractor] has not considered this material [the supplier invoices] in its adjudication response. I am also mindful of the [contractor's] assessment of the current program by comparison with the third [as I understand it, a previous construction program]. In conclusion, I prefer the claimant's position and therefore determine it is entitled to this part of its claim, being $794,624.30."
The adjudicator then turned to the claim for variations. Mr Doyle referred me to his reasons on that for the purpose of supporting two submissions. One was that the adjudicator had dealt with the material in a reasoned and careful way. The other was that, as the adjudicator made clear at para 42.1, he regarded a statutory declaration of the contractor's project manager, Mr Hall, as being, in "significant parts ... implausible". Quite what that has to do with the issue as to the adjudicator's valuation of the claim for work under the contract, I do not understand.
Mr Robertson of counsel, who appeared for the contractor, submitted that his client had a clearly arguable case that the adjudicator, in approaching the valuation of work under the contract in the way he had done, had failed to carry out his essential statutory function. He referred to the decision of Brereton J in Pacific General Securities Ltd v Soliman & Sons Pty Ltd [2006] NSWSC 13.
Brereton J said at [86] of Pacific General that the absence of relevant material from a respondent to a payment claim does not entitle the adjudicator to award the amount claimed without addressing the merits of that claim. That task, his Honour said, "as a minimum will involve determining whether the construction work identified in the payment claim has been carried out, and what is its value". A little later in the same paragraph, his Honour referred to a basic and essential element of adjudication being "as a minimum determination of whether the construction work the subject of the claim has been performed, and of its value". His Honour said that, absent that task, there would be no adjudication.
Although Brereton J spoke in terms of a basic and essential requirement, because when that case was decided, the task of assessing validity was determined by reference to the decision of the Court of Appeal in Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421, nothing turns on that. True it is that invalidity is now assessed by reference to failure to meet jurisdictional preconditions. It is, however, clear that the basic and essential requirements referred to in Brodyn can now be understood as requirements that must be satisfied before jurisdiction is established. That point is made in the decision of the Court of Appeal in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393: see for example at [148].
Vickery J, in the Supreme Court of Victoria, came to a similar view in SSC Plenty Road Pty Ltd v Construction Engineering (Aust) Pty Ltd [2015] VSC 631. At [76], Vickery J adopted, and indeed took the very words used by, Brereton J in Pacific General at [86]. His Honour reviewed other authorities, and set out at [101] what in his view was the task that an adjudicator was required to do to fulfil his or her statutory duty. One of those tasks was to value the construction work or related goods and services (either in accordance with the contract, or otherwise in the way prescribed by the Security of Payment Act).
As I said in Suprima Bakeries Pty Ltd v Australian Weighing Equipment Pty Ltd [2016] NSWSC 998 at [40], the relationship between the Security of Payment Act of this State and the Victorian equivalent (the Building and Construction Industry Security of Payment Act 2002 (Vic)) is such that the observations of Vickery J in SSC Plenty are directly applicable to the process of adjudication in this State.
The question is not whether final relief ought be granted. It is, as I have said, whether the contractor has made out that there is a serious question to be tried as to the availability of that relief or, as it is sometimes put, a prima facie case for the grant of such relief.
In my view, the contractor has made out that aspect of its case, on the interlocutory standard. I say that because essentially there is nothing in the adjudicator's reasons to which I have been referred that shows any independent rational assessment by him of the two matters in contest: the quantum of work completed and the value of that work.
I have noted already that the adjudicator found the primary material on which the subcontractor relied to be of no assistance. It is correct, as Mr Doyle submitted, that the adjudicator did find the supplier's invoices to be of assistance. However, even on his assessment of them, they amounted to no more than about $500,000, and that would include both duplication and, "most likely", costs relating to variations. On that basis, it is impossible to see how those invoices alone could justify the conclusion that the subcontractor had made good its claim to $795,000.
In addition, as I have noted, some 48% of the total amount of the claim related to work that the adjudicator found was not established by the photographs that were said to substantiate it. He did not explain how (if at all) the suppliers' invoices made good the deficiencies in the probative value of the photographs.
In essence, I think, it appears that what the adjudicator did was say no more than that he preferred the subcontractor's evidence, and thus decided that it was entitled to the full amount of this aspect of its claim.
If that is what the adjudicator did, then it seems to me to be arguable that he abdicated the two crucial aspects of his statutory duty. First, he did not make any reasoned affirmative finding as to the amount of work that had been done. Secondly, he did not make any reasoned affirmative finding as to the value of that work. A statement of preference for the approach, or the position of one party rather than the other, does not in my view amount to a reasoned performance of the statutory function.
On that analysis, it seems to me, the contractor has shown that it does indeed have a prima facie case, or that there is a serious question to be tried, as to the validity of the determination, for the first of the reasons that it submits. In those circumstances, and bearing in mind that these are ex tempore reasons given in the course of a duty list, there seems no point in discussing the alternative formulation.
I should note that Mr Doyle submitted that, were I to come to the conclusion that the determination was void, I should remit it to the adjudicator. There are two things to be said about that. The first is that this is an interlocutory hearing, not a final hearing. The second is that the decision on which Mr Doyle relied, that of Emmett AJA in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2016] NSWSC 770, whilst it does propose an order for remittal to the adjudicator for reconsideration, does not offer any reasons as to why that course is available.
I turn to the questions of balance of convenience. They are addressed in the affidavit evidence. In essence, the contractor's position is that it carries out Government work both in this State and in the Australian Capital Territory, and private work in addition. It says that if a judgment is entered against it, it is likely to have an adverse effect on its ability to tender for that work and on the volume of that work, and in addition, to have a general adverse reputational impact.
That evidence was not challenged. Mr Doyle did not address the question of balance of convenience. In the circumstances where the contractor has offered the usual undertaking as to damages, and is prepared to pay into Court today the disputed amount, and in circumstances where undoubtedly a swift hearing can be given, I think that the balance of convenience favours the grant of interlocutory injunctive relief.
I note that the plaintiff, by counsel, gives to the Court the undertakings set out in paragraph 1 of the short minutes of order initialled by me and dated today's date. I make an order in accordance with that paragraph. I direct that this order be entered forthwith. I refer the parties to the List Judge today to complete the timetable proposed in the short minutes of order and for the allocation of a hearing date. I request the parties to inform his Honour that, in my view, it is appropriate for a hearing date to be granted as a matter of urgency.
[3]
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Decision last updated: 12 August 2016