Rogers Construction Group Pty Ltd v Mirage Interiors & Construction Pty Ltd

Supreme Court of NSW|2024-10-21|Before: Stevenson J

Solicitors: Hicksons (Plaintiff) Henry William Lawyers (First Defendant) Lauderdale Construction Lawyers (Second and Third Defendant) File Number(s): 2024/349179

JUDGMENT

The plaintiff, Rogers Construction Group Pty Ltd (the "Builder"), challenges an adjudication determination in the sum of $108,451.13, [1] under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the "Act") in favour of the first defendant, Mirage Interiors & Construction Pty Ltd ("Mirage"), on the basis that the Adjudicator decided the Adjudication Determination on a basis not advocated by either party and which neither party, particularly the Builder, could reasonably have contemplated.
An adjudicator under the Act must accord the parties procedural fairness when exercising his or her powers of adjudication. [2]
However, by reason of the structure and scheme of the Act, the "content of the requisite procedural fairness is reduced" and will only result in invalidity of an adjudication determination if there is a "significant departure from what would ordinarily be the requirements of procedural fairness for a person exercising a statutory power, and where the departure could be characterised as leading to substantial practical injustice in all the circumstances". [3]
There will rarely be a basis for quashing an adjudication determination for want of procedural fairness. [4]

The Original Contract

The underlying contract was originally made in or about December 2023. The Builder engaged Mirage to effect services involving the supply and installation of walls, ceilings and partitions at the Busby Fire Station. I will call this the "Original Contract".
There is a dispute between the parties as to the precise basis of the Original Contract. It is common ground, however, that it was a lump sum contract. [5]

Mirage's case as set out in its Adjudication Application

Mirage contended that there were two agreements between it and the Builder.
The first was the Original Contract Mirage contended that the Original Contract was constituted by a quotation given by Mirage to the Builder on or about 21 November 2023 to do the work for $248,715.34 (the "Quotation").
The second was an oral contract that Mirage contended was entered into on 16 February 2019 as a result of a conversation between Mr Aaron Franklin on behalf of Mirage and Mr Mitchell Rogers on behalf of the Builder (the "Oral Contract").
In its Adjudication Application, Mirage contended the Oral Contract "is the agreement on which the dispute in the adjudication arises".
Mirage's Adjudication Application included a witness statement from Mr Franklin in which he said: "After providing the costs for the Partition Variations to [the Builder], Mr Rogers telephoned me and said words to the [effect] that 'We are going to go back to the other gyprocker'. Shortly after receiving this phone call from Mr Rogers, I received another phone call from Mr Rogers and he said words to the effect that 'The other gyprockers can't do it. I have to get this job done. Let's do this open book.' I was happy to be able to continue working on the Project with [the Builder] and agreed to continue on an open book basis… An Open Book Basis is a cost plus agreement which from my experience, is regularly used within the construction industry. This is because a cost plus agreement allows a contractor or subcontractor to be paid the actual cost of the labour and materials in addition to an agreed percentage of the costs for profit. Because of my conversation with Mr Rogers in which we agreed that all works for the Project moving forward would be on an Open Book Basis, I did not insist on a variation in accordance with the Contract …" (Emphasis added.)
The passage I have emphasised makes clear that Mr Franklin's and thus Mirage's contention was that all "works for the project moving forward" would thenceforth be done on an "open book" or "cost plus" basis; whether or not that work was within the scope of the Original Contract.
Thus, in the Adjudication Application, Mirage contended that "from 19 February 2024, [it] proceeded with the building works on the Open Book Basis" and that: "[Mirage] performed the Works [done from 19 February 2024] at the request of the [Builder] and in accordance with the Open Book Basis … The simple fact is, [Mirage] would not have done other works if it was not requested to do them and doing so would not result in it being paid."
It is true, as Mr Pearson, who appeared for the Builder, submitted, that Mirage did not contend that the Oral Contract was a variation of the Original Contract.
However, and contrary to Mr Pearson's further submissions, Mirage did contend that the work done under the Oral Contract was work that may have been within the scope of work under the Original Contract. Hence its contention that it "proceeded with the building works on the Open Book Basis", this being based on Mr Franklin's contention that "we agreed that all works for the Project moving forward would be on an Open Book Basis".

The Builder's case as set out in its Adjudication Response

The Builder disputed that the Original Contract was comprised by the Quotation. Rather, it contended that the Original Contract was comprised in a "Formal Instrument of Agreement" (the "Instrument") which was not signed by the parties but which, the Builder contended, had been agreed to as the basis for the Original Contract by an exchange of emails and text messages. The instrument provided for lump sum of $219,104.85.
The Builder denied the existence of an Oral Contract. Mr Mitchell contended that the conversation deposed to by Mr Franklin did not occur.
It is clear from the Builder's contentions in the Adjudication Response that it understood that Mirage's position was that the Oral Contract was for work including work within the scope of the Original Contract.
Thus, the Builder recited its understanding of Mirage's position as follows: "In relation to [the Oral Contract], [Mirage] asserts that this is entirely a verbal agreement under which the [Builder] agreed to pay [Mirage] on an uncapped costs-plus basis simply for [Mirage] to complete its works (notwithstanding that [Mirage] had already quoted for and been paid for the same works under [the Original Contract])." (Emphasis added.)
The words I have emphasised show that the Builder understood that Mirage was seeking, under the Oral Contract, to recover payment for work for which it had already been paid for and which was thus within the scope of the Original Contract.

The Determination

The Adjudicator correctly summarised Mirage's position as being that there had been an Original Contract comprised by the Quotation but that: "An oral agreement was also made on or about 16 February 2024, which is the subject of the [A]djudication [A]pplication. The parties entered into the separate oral agreement upon realisation that the quote needed to be varied."
The Adjudicator then set out the works that were the subject of Mirage's Payment Claim and recorded Mirage's contention to be: "[Mirage] performed the Works at the request of the [Builder] under the [Oral Contract] as set out below. [Mirage] would not have done the work had it not been requested."
The Adjudicator then correctly recorded the Builder's position as being that the relevant agreement was to be found in the terms of the Instrument and "that no second agreement was ever formed or discussed. Indeed, under no circumstances was the concept of a cost plus arrangement agreed to, or even discussed".
The Adjudicator did not make a finding as to whether the Original Contract was comprised by the Quotation, or by the Instrument.
He did not need to do so because he accepted Mirage's position that the parties had made the Oral Contract.
Thus, the Adjudicator found that: " … the parties did agree to carry out the work under the contract under the OBB [6] as outlined by Mr Franklin."
This constituted an acceptance by the Adjudicator of Mr Franklin's evidence that, arising from his conversation with Mr Rogers, the parties agreed "that all works for the Project moving forward would be on an Open Book Basis". The obvious corollary was that all such work was to be on that basis, whether or not that work had originally been within the scope of the Original Contract.
The Adjudicator recognised that Mirage was making a claim for payment "under an agreement or arrangement that is distinct and separate to the 'construction contract' identified in the Adjudication Application".
However, the Adjudicator continued: "I do not see how this contention supports the [Builder's] position that [Mirage] is not entitled to claim payment for work. To my mind performing work under an 'agreement or arrangement' fits within the definition of 'construction contract' under section 4 of the Act. Accordingly, I am satisfied that the work that was performed by [Mirage] prima facie entitles [Mirage] to claim for progress payments." (Emphasis in original.)
The Adjudicator was here rejecting the Builder's case that the work for which Mirage was claiming was work which fell only within the scope of the Original Contract.
As Mr Gandar, who appeared for Mirage submitted: "The criticism [made by the Builder of the Adjudicator's findings] rests entirely on the basis that [Mirage's] position and the adjudicator's finding was that there was no overlapping scope of work between the oral agreement and the written agreement, but that was not [Mirage's] position and that was not the adjudicator's finding."
I agree.

Overlap of the scope of works under the Original Contract and under the Oral Contract

The Builder's argument is that the Adjudicator made no finding about the scope of works under the Original Contract and proceeded on the basis that the scope of works under the Oral Contract was, relevantly, the same as under the Original Contract.
This is what Mirage contended and what the Adjudicator found, namely, as I have said, that the agreement was that all work done from 19 February 2024 was to be on a cost plus basis and under the Oral Contract.
Mr Pearson submitted that, had the Builder understood that this was Mirage's position, and that it would be the basis upon which the Adjudicator proposed to make the Determination, it would have adduced evidence of amounts paid under the Original Contract that it contended ought to be credited against claims made under the Oral Contract.
But the Builder's Adjudication Response shows that it was alive to the "scope overlap" point.
Thus, on a number of occasions, it responded to Mirage's claim by stating: "Except for the lump sum subcontract sum under the Agreement, [Mirage] has no entitlement to be paid for this work as claimed in the Payment Claim or otherwise."
Thus, in effect, the Builder was contending that as Mirage had been paid the lump sum under the Original Contract, it had been paid for the work the subject of its Payment Claim. Implicit in that contention is the Builder's understanding that Mirage was contending the scope of work under the Oral Contract was, relevantly, the same as that under the Original Contract.
The Builder was thus alive to the contention and made a submission about it.
There has been no denial of procedural fairness.

Whether the Oral Contract constituted a variation of the Original Contract

A further finding made by the Adjudicator was as follows: "I am satisfied that the parties proceeded under the [Oral Contract] as contended by [Mirage] in [Mr Franklin's statement], the upshot being this work was a variation to the [Original Contract]. The [Builder] refers to Appendix C [of the Instrument] and asserts in the payment schedule and the adjudication response that this is within the scope of [the] Original Contract. However, as indicated [in Mr Franklin's statement], after concluding negotiations with another gyprocker, it appears the [Builder] offered [Mirage] work under the [Oral Contract] via telephone. I consider this meets the requirements of a variation to the Original Contract, or, in the very least meets the requirements of an 'arrangement' within the definition of construction contract in Section 4 of the Act." (Emphasis added.)
The Adjudicator thus appears to have included, perhaps as an alternative finding, that the Oral Contract constituted a variation of the Original Contract.
Neither party contended that the Oral Contract was a variation of the Original Contract. Mirage's position was, in effect. that the Oral Contract superseded the Original Contract. The Builder denied that there had been an Oral Contract.
However, the Builder was not denied procedural fairness by reason of this.
Indeed, in its Adjudication Response, it had anticipated such an argument.
In the Adjudication Response, the Builder noted that, in its Payment Claim, Mirage had referred to "Variations". The Builder continued: "[Mirage] notes within the Adjudication Application that the Payment Claim labels the works conducted by [Mirage] as 'Variations', but that this is merely a descriptive word utilised by [Mirage] to describe the works completed. The [Builder] assumes that [Mirage] therefore does not claim these works as variations under the Agreement. To avoid doubt, the [Builder] denies that [Mirage] is entitled to be paid for any variations that have not been claimed or approved in accordance with the terms of the Agreement."
Thus, as Mr Gandar submitted, the Builder cannot complain of being deprived of an opportunity to make submissions concerning the question of whether there had been a variation of the Original Contract because it did, in fact, make submissions on that issue.
In any event, as Mr Gandar further submitted, and as I have set out, the Adjudicator also found in favour of Mirage on the alternative basis that the relevant works were performed under the Oral Contract as a separate contract.
Thus, the question of whether there were "overlapping" scopes of work between the Oral Contract and the Original Contract, however constituted, did not arise. The Adjudicator must have, expressly or implicitly, considered any obligation under the Original Contract to have been superseded by the subsequent Oral Contract pursuant to which the works were performed.

The "$2,000" point

There was an arithmetical error in the Payment Claim because all figures in the Payment Claim were exclusive of GST except for a credit for a partial progress payment of $2,000 which was expressed to be inclusive of GST.
The result was that the amount of the Payment Claim was $2,000 short of the GST-inclusive figure.
The Builder recognised this error in its Payment Schedule, as did Mirage in its Adjudication Application, and the Adjudicator when he gave the Determination.
In my opinion, Mr Gandar was correct to submit that: "[I]n truth the Adjudicator did not determine any claim which goes beyond the Payment Claim. The Adjudicator considered and determined the claim for payment for each of the items of work claimed in the Payment Claim and nothing else. In so doing, the Adjudicator came to a conclusion about the scope of the Payment Claim, in relation to the amount claimed, in a way which corrected a minor arithmetical error. That does not involve jurisdictional error."

Conclusion

The challenge to the Adjudication Determination fails.
The parties should bring in short minutes to give effect to these reasons.

Endnotes

Inclusive of GST.
Demex Pty Ltd v McNab Building Services Pty Ltd [2023] NSWCA 261 at [9] (Kirk JA, Mitchelmore and Adamson JJA agreeing).
Ibid at [32].
See, for example, A-Civil Aust Pty Ltd v Ceerose Pty Ltd [2024] NSWCA 7 at [1] (Leeming JA).
See [9] and [17] below.
Open Book Basis: the initialism "OBB" appeared in Mr Franklin's statement. 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: 25 October 2024

At a glance

Court

Decision date

Before

Source

Judgment (11 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (2)