Urban Traders v Paul Michael

Urban Traders v Paul Michael - [2009] NSWSC 1072 - NSWSC 2009 case summary — Zoe

[16]

6 The proprietors did not pay the adjudicated amount. On 25 August 2008, the builder served on the proprietors notice of its intention to suspend work (see s 24(1)(b) of the Act). On 29 August 2008, the proprietors still not having paid the adjudicated amount, the builder suspended the works (see s 27(1) of the Act). 7 On 26 September 2008, the builder obtained an adjudication certificate for the adjudicated amount. That certificate has been filed in the District Court of New South Wales. The builder has recovered judgment for the adjudicated amount together with interest: somewhat in excess of $380,000.00. The judgment debt has not been paid. 8 Negotiations between the parties thereafter led nowhere, although on 19 November 2008, the builder, at the request of the proprietors, submitted a lump sum price for a revised scope of works. That revised price was not accepted. On 24 November 2008, the proprietors served notice on the builder purporting to take the remaining works under the contract out of the hands of the builder. They relied on cl 39.4 of the contract. Quite how they could have done so, in circumstances where the builder had exercised a statutory right to suspend work under the contract, is not clear. 9 The proprietors have now retaken possession of the site. The builder has treated this, against the background that I have briefly recited, as a repudiation. The reality is that, one way or another, the contract has come to an end. 10 In the meantime, the builder served further payment claims. One, known as payment 19, was served on about 18 July 2008. To some extent, that payment claim repeats claims that had been the subject of payment claim 18. Of course, the adjudicator had not given his determination on payment claim 18 by 18 July 2008. 11 There is a dispute as to whether the proprietors provided a payment schedule within time (or at all) in response to payment claim 19. If they did not then the statutory consequence is that they are liable to pay the claimed amount, $1,980,759.00 (inclusive of GST) (see s 14(4) of the Act). 12 On 29 January 2009 - i.e., well after the adjudicator had given his determination, and whilst the builder's suspension of works was in force - the builder served a further payment claim, known as payment claim 20. The claimed amount was $1,389,796.00. To some extent again, there is an overlap between the amount claimed by payment claim 20 and the amounts claimed by payment claims 18 and 19. 13 The proprietors provided a payment schedule to payment claim 20. The scheduled amount was nil. The builder did not seek adjudication of the dispute in relation to that payment claim. 14 On 28 August 2009, the builder served yet another payment claim, known as payment claim 21. The claimed amount was $9,258,726.00. Again, there is to some extent an overlap between the claimed amount and payment claims 18, 19 or 20 (and, in some cases I think, all of them). It will be necessary to return, in more detail, to the extent of the overlap. 15 The proprietors provided a payment schedule, again with a scheduled amount of nil. The builder wishes to refer the dispute thereby constituted to adjudication. The proprietors say that this should not happen. They rely on eight arguments. The issues 16 The reasons why, it is said, payment claim 21 is an abuse of process are set out in para 15 of the proprietors' Amended Technology and Construction List Statement: 15. The service of Claim 21 was, and the referral of Claim 21 for adjudication would be an abuse of process or otherwise should be restrained as invalid for reason that: 15.1 Claim 21 claims for the same work carried out in relation to, and being the subject of Claim 18, Claim 19 and/or Claim 20; 15.2 Claim 21 seeks improperly to re-agitate issues in respect of which the defendant was unsuccessful under the Determination or is subject to an issue estoppel or res judicata thereby; 15.3 the defendant claims for losses and expenses said to arise from a suspension of works under section 27(2A) of the Act, but such a claim is not a claim for the value of construction work carried out under section 9; 15.4 the defendant claims for lost overhead and profit, but this is not a claim for a progress payment within the meaning of section 8 of the Act; 15.5 the defendant claims for interest in relation to payment claim 19, but such a claim is not a claim for a progress payment within the meaning of section 8 of the Act; 15.6 the defendant's claim for interest in relation to payment claim 19 is subject to merger by section 15 of the Act or by judgment; 15.7 the claim for repricing of works is not a claim for construction work within the meaning of section 9 of the Act, and does not arise under any agreement with the plaintiffs; 15.8 an adjudicator lacks jurisdiction to determine the above claims accordingly. 17 Dr A J Greinke of counsel, who appeared for the proprietors, identified the essential issues as follows: (1) payment claim 21 was, and an adjudication application founded upon it would be, an abuse of process to the extent that it sought to reargue particular items that had been dealt with by the adjudicator in the context of payment claim 18;

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(8) whether the proprietors' conduct debarred them from obtaining the relief sought. (This, of course, was an issue raised by the builder, not by the proprietors.) Abuse of process and issue estoppel in the context of the Act 18 Before I turn to the issues, I will refer to the authorities on which the parties relied, and set out my understanding of the principles to be derived from them. 19 The doctrines of estoppel by res judicata and issue estoppel are founded on the principle that controversies, once resolved by a court or tribunal of competent jurisdiction, should not be reopened except in limited circumstances: D'Orta Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 at 17 [34]. Estoppels may arise from the decisions of judicial tribunals, domestic tribunals (including arbitrators and others given authority, by consent of the parties or otherwise, to hear and determine disputes) and in some cases administrative tribunals. See Spencer Bower, Turner and Handley, Res Judicata (third edition, 1996) at 25; and, as to administrative tribunals, the judgments of Barwick CJ and Gibbs J (with whom, on this point, Menzies and Stephen JJ agreed) in The Administration of the Territory of Papua and New Guinea v Daera Guba (1973) 130 CLR 353 at, respectively, 403 - 404 and 453 - 454. 20 In Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69, the Court of Appeal considered a situation where a builder, having obtained adjudication on four invoices and been dissatisfied with the outcome, made a further adjudication application based on those four invoices and two others. The proprietor did not serve a payment schedule. The builder sought summary judgment in the District Court. The primary judge declined to give summary judgment because to do so "is barred because of principles akin to res judicata at least or constitutes an abuse of process" (see her Honour's reasons quoted by Macfarlan JA at [31]). The Court of Appeal upheld her Honour's decision. 21 Macfarlan JA, with whom Handley AJA agreed, held that on the proper construction of the Act, an adjudicator's determination possessed a sufficient degree of finality to raise an issue estoppel precluding subsequent reagitation (in another adjudication) of the same issue: see, in particular, at [68] to [70]. However, as Macfarlan JA pointed out at [68], an adjudicator's determination does not attract the principles of res judicata, because "the analogy between an adjudicator's determination and a completed cause of action is an incomplete one". Thus, as his Honour said (again at [68]), "[i]t is best that the applicable principles be recognised to be those of issue estoppel". 22 The conclusion, that the determinations of adjudicators attract the principles of issue estoppel, was based upon considerations of finality. This is apparent from the review of those principles undertaken by Macfarlan JA: see (under the general law) at [42] to [50] and (under the Act) at [51] to [62]. That review led his Honour to the conclusion that the legislature intended to render the determinations of adjudicators "relevantly conclusive": i.e., conclusive as to entitlements to progress payments. As his Honour said at [60], where a dispute is resolved by determination, the intention of the Act is that the "determination… be final and binding between the parties as to the issues determined, except to the extent that the Act allows the determination to be revisited". 23 Further, Macfarlan JA said that to permit reagitation, in a subsequent adjudication, of issues decided in an earlier adjudication might amount to abuse of process: see, in addition to the paragraphs that I have referred to, his Honour's reasons at [71]. I return to this at [28] below. 24 Allsop P agreed that reagitation, in a subsequent adjudication, of issues decided in an earlier adjudication might be an abuse of process: see his Honour's reasons at [2], [13] and [16]. His Honour would have reserved consideration of the applicability "of principles of estoppel to prevent any apparently abusive operation of the Act not specifically covered by" its relevant provisions: see, again, at [16]. 25 In Perform (NSW) Pty Ltd v Mev-Aus Pty Ltd [2009] NSWSC 416, Rein J held at [41] that the ground of the decision of the majority (Macfarlan JA and Handley AJA) in Dualcorp was based on estoppel. 26 In The University of Sydney v Cadence Australia Pty Limited [2009] NSWSC 635, Hammerschlag J was faced with a submission that the majority holding in Dualcorp on issue estoppel was obiter. His Honour said at [46] that he had "significant doubt" that it was. I agree, as I agree with the analysis of Rein J on this point. In my view, Macfarlan JA and Handley AJA decided the matter on the basis that there was an issue estoppel even though an adjudicator's determination could not give rise to res judicata. I think, reading the judgment of Macfarlan JA, it is clear that his Honour decided the matter on the basis of issue estoppel, and that what his Honour said about abuse of process was obiter. 27 In any event, this is in my view academic, because even if the majority view on issue estoppel were obiter, I agree with Hammerschlag J in Cadence at [47] that it is for someone other than a first instance judge to say that their Honours' view is plainly wrong, and should not be followed. 28 Rein J concluded in Perform that there was an issue estoppel, and that there was also an abuse of process, because the builder in that case had sought to reagitate, in a subsequent adjudication, claims decided by an earlier adjudication. In those circumstances, his Honour said, the Court could and should intervene to prevent the later adjudication from proceeding. His Honour gave five reasons for that at [47]. I paraphrase those reasons as follows:

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(5) a determination under the Act is not final, but a means of enforcing interim payment; an unsuccessful party (claimant or respondent) retains all of its rights and remedies at law. 29 Thus, his Honour said at [50], "[w]here steps have been taken in breach of and/or against the intent of a statutory scheme… it is part of this Court's function to step in and prevent that occurring." 30 Hammerschlag J was faced with the same issue in Cadence. His Honour said that the considerations enunciated by Rein J in Perform favoured the grant of injunctive relief to prevent the proceedings continuing where there was abuse of process. 31 As I have noted, the decision in Dualcorp concerned four only of the six claims that were put before the second adjudicator. The primary judge entered summary judgment in respect of the two claims that were not repetitious. The Court of Appeal upheld her Honour in this. As Macfarlan JA said at [73], "the primary judge was correct to refuse summary judgment in respect of the amounts which were the subject of the four invoices referred to in the [first] adjudicator's determination". Further, his Honour said at [74] "the primary judge was correct in the course she took". 32 In Perform, it appears from Rein J's reasons at [22] that there was a complete correspondence between the first and second claims, in the sense that the second claim raised nothing that had not been raised in the first. 33 There was no such exact correspondence in Cadence. However, Hammerschlag J said at [5], "even though [the second claim] is not exactly the same as the earlier claim, a substantial and unseverable part of it has already been adjudicated". His Honour's reasons at [13], [17], [19] and [20] show why this is so. Accordingly, his Honour held that the adjudication should not go forward. It does not follow that his Honour would have made the same order if the repetitious claims were not "substantial and unseverable". 34 The concept of abuse of process requires some further consideration. Gleeson CJ, Gummow, Hayne and Crennan JJ said in Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256 at 265 [9]: "What amounts to abuse of court process is insusceptible of a formulation comprising closed categories. Development continues." 35 The width of the concept is explained in the following paragraphs of their Honours' reasons. As they said at [14] and following, one category of abuse of process is the use of a court's procedures in a way that is frivolous, vexatious or oppressive; although it may be noted, as Gaudron J said in Ridgeway v The Queen (1995) 184 CLR 19 at 74, "there is no very precise notion of what is vexatious". 36 In Walton v Gardiner (1993) 177 CLR 378, Mason CJ, Deane and Dawson JJ said at 393 that the institution or maintenance of proceedings in a court would constitute an abuse of process "if they can be clearly seen to be foredoomed to fail" or "if, notwithstanding that the circumstances do not give rise to an estoppel, their continuance would be unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which has already been disposed of by earlier proceedings". Although their Honours gave no examples of proceedings "foredoomed to fail", proceedings bound to fail by application of the doctrine of issue estoppel would fall into this category. 37 Further, as Rein J noted in Perform at [48], it is also clear from the decision in Walton that this Court has power to restrain proceedings not only in the Court itself but also in other tribunals where those proceedings are an abuse of process. That follows from s 23 of the Supreme Court Act 1970, which gives this Court "all jurisdiction which may be necessary for the administration of justice in New South Wales". Although in Walton the majority talked of the supervisory jurisdiction of the Court of Appeal under that section, by s 40 of the Supreme Court Act the court may be constituted (and in proceedings in any division and in business arising out of proceedings in a division is constituted) by a single judge. 38 In the context of the Act (i.e., when asking whether there has been an abuse of the processes established by the Act), the essence of abuse of process is what Allsop P in Dualcorp described as: (1) the "repetitious use of the adjudication process to require an adjudicator or successive adjudicators to execute the same statutory task in respect of the same claim on successive occasions" (at [2]);

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(3) there was no such reagitation in the case of the items of work under the contract for which a claim was made in payment claim 21. 46 For clarity, I note that payment claims 18 and 21 did not extend to all 57 categories of work (no doubt because work was incomplete when the contract was suspended, and when it came to an end). Nor did they include claims for all 67 variations. 47 Dr Greinke did not dispute the accuracy of Mr Goldstein's summary of the evidence, nor did he take me in detail to the exhibits in a way that would enable me to review the summary for myself. I propose to treat Mr Goldstein's summary as accurate. 48 The amount for reagitated variations, $685,217.00, may be compared with a total claim of $8,417,023.00. (Those figures, and the other figures that I set out in this paragraph, all exclude GST.) In other words, the claims advanced by payment claim 21 that have not been advanced by earlier payment claims total $7,731,806.00. If (to acknowledge for the moment Dr Greinke's other arguments) one subtracts the amounts claimed for loss of profit and cost of repricing, this last figure becomes $4,311,070.00. 49 The total of the reagitated variations thus is about 8% of the total amount of the claim, or about 16% of the claim adjusted by subtracting the claims for loss of profit and cost of repricing. 50 The reagitated claims fall into two broad principal categories. The first category comprises claims where the adjudicator allowed an amount for the work carried out, but rejected (for reasons that he gave) an associated claim for delay costs. There are, I think, some ten claims (variations known as V1 to V4 and V10 and V15) in this category. 51 The second category comprises claims rejected entirely on the basis that there were no supporting documents, and (in most cases) no explanation of the basis of the claim. There are some 23 claims in this category (V5 and V16 to V37). In some cases, the adjudicator also rejected the delay cost component, apparently as a separate ground (V16 to V37). 52 There appears to be one claim that was rejected for a different ground (V38). I do not think that anything turns on this. 53 All those rejected claims made their way back into payment claim 21. For those where part had been allowed and the delay cost component had been rejected by the adjudicator, only the delay cost component (renamed "Time Based Cost") was claimed. For those rejected in their entirety, the entire amount was claimed, although in most cases the claim was broken up into "Value of Work Completed" and "Time Based Costs". 54 Thus, as I have said, it is plain, in respect of the claims to which I have referred, that the builder seeks by payment claim 21 to reagitate the claims rejected by the adjudicator in relation to payment claim 18. 55 The builder, through its sole director Mr Charles Michael, has offered a somewhat amorphous promise: that it "will not, in any subsequent adjudication application, reagitate any issue that have [sic] been determined by [the adjudicator], specifically relating to variations 1-38". The competing submissions 56 Dr Greinke submitted that, to the extent of the overlap, the case fell completely within the principles developed in Dualcorp, Perform and Cadence. Thus, he submitted, the adjudication should not proceed.

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67 I set out in detail the claim for suspension costs and lost profit: 3. Suspension costs: Paul Michael incurred losses and expenses as a result of the Principals' failure to pay and the resulting suspension. Those losses and expenses included: a. The initial demobilisation following the suspension; b. Employment costs, preliminaries and project related overheads during the suspension period; and c. Final demobilisation costs once Paul Michael was excluded from the Site. Paul Michael is entitled to be reimbursed for its losses and expenses on three alternate bases: Firstly, the acts of taking work out of Paul Michael's hands, and the failure to pay either the adjudicated amount or the deemed certified amount, constituted acts, defaults or omissions of the Superintendent and/or the Principals that gave rise to circumstances in which the Superintendent, acting reasonably and in good faith, should have directed Paul Michael to suspend the carrying out of the whole of the works under the Contract thereby entitling Paul Michael to payment in accordance with the contractual provisions. Alternatively, the costs of suspension are costs which are the result of the Principals purporting to take the remaining scope of work out of Paul Michael's hands. But for that action, Paul Michael would have been entitled to recover the costs of suspension under the progress payment provisions of the contract on a month by month basis. Once the Principals took the remaining work out of Paul Michael's hands, depriving Paul Michael of the opportunity to recover its suspension costs, its losses and expenses associated with the maintaining the [sic] site during the suspension crystallised. Paul Michael is entitled to and claims recompense for those losses and expenses. In the third alternative, the Principals' failure to pay, take over of the works and eventual eviction of Paul Michael from the Site, constituted a direction to vary the works. The costs claimed under this head of claim are contained in Table C and D. 4. Lost profit: Paul Michael is entitled to be reimbursed the losses and expenses it has incurred as a result of the Principals taking over or removing the remaining work under the Contract while Paul Michael was exercising its right to suspend under the Act. The removal of the work from Paul Michael's scope caused Paul Michael to lose the contribution to overhead and profit incorporated in the pricing of the unfinished portions of the work, which at the time Paul Michael was excluded from its Site, had a value of approximately $26.3m, less the amount paid to date of $7.3m. Paul Michael has calculated the lost contribution to profit and overhead (OHP) on three alternate bases, as described in Table E . Paul Michael's entitlement to its lost overhead and profit arose when the remaining works were taken from its hands. That date was 24 November 2008. The date for payment of that amount was 10 business days after the entitlement rose. Paul Michael is entitled to interest at a rate of 10% until 5 March 2009 and thereafter at a rate of 9% calculated from 8 December 2009 to the date on which the amount is paid. The amount claimed at the date of this claim is shown in Table E.

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Eighth issue: conduct 110 The conduct relied upon was the proprietors' failure to pay, or to give security for, the judgment referred to at [7] above. Mr Goldstein submitted that this amounted in effect to "unclean hands", so as to debar the proprietors from obtaining equitable relief. Dr Greinke submitted that it did not. 111 In Dewhirst v Edwards [1983] 1 NSWLR 34, Powell J pointed out at 51 that if the defence of clean hands were to operate, the impropriety complained of must "have an immediate and necessary relation to the equity sued upon". Although His Honour's observations were obiter (as is apparent from the commencing words of the sentence from which I have taken the words quoted), the principle is established clearly by the authorities to which his Honour referred. 112 The principle was considered by Young J in FAI Insurances Ltd v Pioneer Concrete Services Ltd (1987) 15 NSWLR 552 at 557ff. His Honour said at 561 (after a detailed survey of the authorities, including the decision of Powell J in Dewhirst) that "the more one examines the rule in its application in the cases, the more one can see that it is only if the right being sought to be vindicated by the plaintiff in a court of equity, is one which if protected, would mean the plaintiff was taking advantage of his own wrong, that the court will… debar him from relief…". 113 In this case, there is no real relationship - let alone an "immediate and necessary" one - between the relief sought and the conduct in question. Nor can it be said that the proprietors' action, in seeking to be protected from what I have concluded is to a limited extent an abuse of process, constitutes an attempt by them to take advantage of their own wrong. 114 Thus, whilst accepting that the relief sought is in part equitable (insofar as it includes a prayer for an injunction), I do not think that the proprietors, if otherwise entitled (as I conclude they are), to that relief should not receive it through application of the doctrine of clean hands.

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