Watpac Constructions v Austin Group

LEGISLATION CITED : Building and Construction Industry Security of Payment Act 1999 (NSW)

Brodyn Pty Limited v Davenport (2004) 61 NSWLR 41 Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129 John Holland Pty Ltd v Roads & Traffic Authority of New South Wales (2007) 23 BCL 205 CASES CITED : Reiby Street Apartments Pty Limited v Winterton Constructions Pty Limited [2006] NSWSC 375 Robson Civil Projects Pty Limited v Walter Mining Pty Limited [2009] NSWSC 1071 Trysans Pty Ltd v Club Constructions (NSW) Pty Limited [2007] NSWSC 1298 Transgrid v Siemens Ltd (2004) 61 NSWLR 521 Urban Traders v Paul Michael [2009] NSWSC 1072

PARTIES : Watpac Construction (NSW) Pty Limited (Plaintiff) Austin Corp Pty Limited (Defendant)

COUNSEL : N J Kidd (Plaintiff) F C Corsaro SC (Defendant)

SOLICITORS : Maddocks Lawyers (Plaintiff) Crisp Legal (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST

2010/41832 WATPAC CONSTRUCTIONS (NSW) PTY LIMITED v AUSTIN CORP PTY LIMITED (No.2) JUDGMENT (On form of orders and costs)

1 HIS HONOUR: The question for decision today is: what orders should be made to give effect to my reasons for judgment delivered on 19 March 2010 ([2010] NSWSC 168)? That question arises against the following background. Background 2 The plaintiff (Watpac) and the first defendant (Austin) were parties to a subcontract whereby Austin undertook to perform air conditioning and mechanical services work for Watpac. It was common ground that this subcontract was a construction contract for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act). 3 Austin served a number of payment claims under the Act. They included the "December" payment claim that was ultimately the subject of the "February" adjudication determination made by the second defendant (the second adjudicator). It was that determination which gave rise to the disputes dealt with in my earlier reasons for judgment. 4 I concluded that the repetition, in the December payment claim, of a claim for variations 1 to 8 made in an earlier payment claim, and rejected in a prior adjudication determination, was barred by the principle of issue estoppel (see at [117]) and was an abuse of the Act's processes (see at [140]). 5 I concluded also that the second adjudicator had denied Watpac natural justice, because he had decided an aspect of the dispute on a basis for which neither party had contended and in respect of which he had not invited submissions (see at [160]). I concluded further that this denial was material, (see at [162], [168], and [174]). 6 Against that background, I summarised my conclusions, and their consequences, as follows (at [176], [177]): [176] It follows from what I have said as to issue estoppel and abuse of process that Austin should not have been permitted to reagitate its claim for variations 1 to 8. Since the matter went to adjudication, the appropriate relief, in relation to this aspect of the matter, would be to restrain Austin from enforcing its rights under the February determination to the extent of the amount allowed for those variations: $844,375.00.

[177] It may follow from what I have said as to denial of natural justice that the February determination is void. A void determination creates no rights. The impact of that conclusion on Austin is far more significant than the amount of the backcharges in question. If the February determination is wholly void, Austin has no entitlement whatsoever under it. 7 Since the parties had not addressed in detail on the consequences of denial of natural justice in the particular way that I found had occurred, I stood the matter over, with directions for written submissions, for the making of final orders. Watpac's submissions and proposed orders 8 Mr Kidd of Counsel, who appeared for Watpac, submitted that it followed from my conclusion that there had been a substantial (and material) denial of natural justice that the February determination was void. He submitted that there was no concept of partial invalidity. Thus, he submitted, the Court should declare that the determination was void, should restrain enforcement of the February determination, and should grant appropriate consequential relief. Austin's submissions and proposed orders 9 Mr Corsaro of Senior Counsel, who appeared for Austin, submitted that the denial of natural justice that I had found affected only a discrete and severable portion of the February determination. He submitted that limited injunctive relief would be appropriate to cure that denial of natural justice, and that the declarations and injunctions sought would be inconsistent with the public policy underlying the scheme of the Act. 10 Mr Corsaro accordingly proposed orders of the kind to which I have referred, limited to restraining enforcement of so much of the February determination, as was affected by the denial of natural justice, and so much of it as I had found was tainted by considerations of issue estoppel and abuse of process. He submitted that the Court should permit enforcement of the balance of the February determination, and proposed what he submitted was appropriate consequential relief. Consequences of issue estoppel and abuse of process 11 Mr Kidd had submitted at the hearing that the repetition of a claim that was barred by issue estoppel, or that amounted to an abuse of the processes of the Act, invalidated the relevant payment claim. For the reasons that I gave at [71] to [89] of my earlier reasons, I did not accept that this was so, at least where (as in this case) the later payment claim raised fresh claims as well as re-agitating, without good reason, earlier and rejected claims. 12 It follows from what I said that an adjudication determination based on a payment claim that includes impermissibly re-agitated claims is not thereby void. At most, the consequence of a finding of issue estoppel or abuse of process (not extending to the whole of the later payment claim) is that the claimant might be restrained from enforcing its rights under a subsequent determination to the extent to which that subsequent determination allows, in whole or in part, the impermissibly re-agitated claim. 13 That is, in effect, the basis on which I granted relief by way of injunction in Urban Traders v Paul Michael [2009] NSWSC 1072, although the facts of that case were far removed from the facts of this. 14 Were it necessary to do so, I would give effect to my conclusions as to issue estoppel and abuse of process by granting injunctive relief to restrain enforcement pro tanto of the February determination. Consequences of denial of natural justice 15 The submissions require consideration of the decision of the Court of Appeal in Brodyn Pty Limited v Davenport (2004) 61 NSWLR 41, and of some other decisions to which I shall refer. It is convenient to start with Brodyn. The decision in Brodyn 16 Brodyn concerned a payment claim for about $214,000. There were a number of suggested defences to that payment claim. One suggested defence related to backcharges, or setoffs, of about $90,000. It was submitted for Brodyn that the adjudicator in that case had denied Brodyn natural justice because he had failed to consider Brodyn's "defence" based on set-off (see Hodgson JA, with whom Mason P and Giles JA agreed, at 444 [67]). 17 Hodgson JA accepted (see at 446 [74]) that the adjudicator had not had regard to the proposition that there were defects requiring expenditure of about $90,000 to rectify. However, his Honour said at 446 [75], "this omission in the adjudicator's reasons appears to flow, not from his not having regard to Brodyn's submissions, but from either misinterpreting them or misapplying the law". On that basis, his Honour concluded, there was no denial of natural justice "and certainly not… one which would render the determination void". 18 When his Honour's reasons are read in full, it is, I think, relatively clear that, as a matter of legal theory, his Honour's views as to the consequences of a denial of natural justice were obiter dicta. But even if that be so, I do not think that it is open to me to disregard them. On the contrary, given that Brodyn was in essence a test case and that what his Honour said commanded the support of Mason P and Giles JA, I think that I am bound to apply his Honour's views, (to the extent that they are relevant) in this case. Lest it should be thought that by putting the matter this way I have some reservation as to what his Honour said, as to the consequences of denial of natural justice, I should state that, in my view, what his Honour said is correct, and follows necessarily from the considerations as to which his Honour referred. 19 Hodgson JA dealt with the consequences of denial of natural justice relatively briefly at 441 - 442 [55] and, in more detail at 442 - 443 [57]. 20 His Honour said, in substance, that the Act evidenced a legislative requirement that there should be afforded, to parties to an adjudication, a measure of natural justice consistent with the scheme of the Act, and that a substantial denial of that measure of natural justice would render a determination void and not merely voidable. 21 In light of the weight placed on those paragraphs of his Honour's reasons, I set them out in full: [55] In my opinion, the reasons given above for excluding judicial review on the basis of non-jurisdictional error of law justify the conclusion that the legislature did not intend that exact compliance with all the more detailed requirements was essential to the existence of a determination: cf Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 390-391. What was intended to be essential was compliance with the basic requirements (and those set out above may not be exhaustive), a bona fide attempt by the adjudicator to exercise the relevant power relating to the subject matter of the legislation and reasonably capable of reference to this power (cf R v Hickman; Ex parte Fox and Clinton (1945) 70 CLR 598), and no substantial denial of the measure of natural justice that the Act requires to be given. If the basic requirements are not complied with, or if a purported determination is not such a bona fide attempt, or if there is a substantial denial of this measure of natural justice, then in my opinion a purported determination will be void and not merely voidable, because there will then not, in my opinion, be satisfaction of requirements that the legislature has indicated as essential to the existence of a determination. If a question is raised before an adjudicator as to whether more detailed requirements have been exactly complied with, a failure to address that question could indicate that there was not a bona fide attempt to exercise the power; but if the question is addressed, then the determination will not be made void simply because of an erroneous decision that they were complied with or as to the consequences of non-compliance.

[57] The circumstance that the legislation requires notice to the respondent and an opportunity to the respondent to make submissions (ss 17(1) and (2), 20, 21(1), 22(2)(d)) confirms that natural justice is to be afforded to the extent contemplated by these provisions; and in my opinion, such is the importance generally of natural justice that one can infer a legislative intention that this is essential to validity, so that if there is a failure by the adjudicator to receive and consider submissions, occasioned by breach of these provisions, the determination will be a nullity. On this basis, I agree with the result reached in Emag Constructions Pty Ltd v Highrise Concrete Contractors (Aust) Pty Ltd [2003] NSWSC 903. I note there is some controversy as to whether denial of natural justice generally results in voidness or voidability (see, for example, Ridge v Baldwin [1964] AC 40; Durayappah v Fernando [1967] 2 AC 337; Banks v Transport Regulation Board (Vic) (1968) 119 CLR 222 at 233; Calvin v Carr [1980] AC 574 at 589-590; Minister for Immigration and Multicultural Affairs v Bhardwaj (2002) 209 CLR 597 at 630-634); but in my opinion, in cases such as this where there is a disclosed legislative intention to make a particular measure of natural justice a pre-condition of validity, failure to afford that measure of natural justice does make the determination void.

22 Mr Corsaro submitted that, where Hodgson JA referred to a substantial denial of the measure of natural justice required by the Act to be given, his Honour did so in the context of his discussion of s 22. It followed, Mr Corsaro submitted, that the denial alleged in that case was with respect to the mandatory requirements of s 22, and that it was in that way that the question of "substantial denial" arose. 23 I do not think that this is correct. When Hodgson JA talked of the requirements for the existence of a valid adjudication determination, his Honour did so by reference to both the "basic and essential" statutory preconditions (see at 441 [52], [53]), and to the obligation (the content of which must take into account the statutory scheme) to afford natural justice. But regardless, where there is (as I have found) a substantial denial of natural justice, the question of present relevance is, what consequences follow? It was that question which Hodgson JA addressed in the paragraph to which I have referred. I do not think that his Honour's conclusion can be, as it were, read down, or sidelined, in the manner Mr Corsaro appeared to suggest. 24 In my view, it follows from what Hodgson JA said in Brodyn, in the paragraphs in question, that an adjudication determination is void - a nullity - if there is a want of one of the basic and essential preconditions of validity, or a substantial denial of the measure of natural justice required to be given. In this, I agree with White J, who came to the same conclusion in Reiby Street Apartments Pty Limited v Winterton Constructions Pty Limited [2006] NSWSC 375 at [75]. 25 I should note that at [179] of my earlier reasons, I said that the denial of natural justice that was the subject of debate (although not found to have occurred) in Brodyn "infected the whole of the claim". That was in substance correct, although put too briefly. The suggested denial in Brodyn did not extend to every element of the payment schedule or adjudication response. But, had there been a denial of natural justice as suggested, it is clear from the paragraphs of Brodyn that I have quoted that it would have "infected the whole of the claim" (or more accurately, the whole of the determination). Other cases referred to in submissions 26 Mr Kidd referred to the decision of the Court of Appeal in Transgrid v Siemens Ltd (2004) 61 NSWLR 521. In that case, the Court of Appeal essentially repeated what it had said in Brodyn. Again, Hodgson JA gave the judgment and Mason P and Giles JA agreed. At 539 [29] and following, his Honour repeated and affirmed what he had said in Brodyn. In particular, his Honour affirmed that non-satisfaction of an essential precondition for the existence of a valid determination would render the determination void. For the reasons that I have given, it is plain from what his Honour had said in Brodyn that he regarded natural justice (to the extent that the Act requires it to be given) as one of those essential conditions for the existence of a valid determination. 27 Mr Kidd referred also to the decision of the Court of Appeal in John Holland Pty Ltd v Roads & Traffic Authority of New South Wales (2007) 23 BCL 205. The particular significance of that decision is that it supports the proposition that there is no concept, in relation to determinations, of partial invalidity. Hodgson JA (with whom Beazley JA agreed) said this at 219 [55]. If it seems to me to follow from this that if a determination lacks some essential condition, either in the terms discussed by Hodgson JA in Brodyn at 441 [52], [53], or in the nature of denial of natural justice, then the consequences, of invalidity, follow. 28 I acknowledge that what was said in John Holland at 219 [55] dealt with a hypothetical failure to consider one of many submissions - a hypothetical breach of s 22(2)(d) of the Act. But since both failure to follow an essential statutory precondition of validity, and a substantial denial of natural justice result in invalidity of the determination, what Hodgson JA said must be applicable in either circumstance. In particular, it must be applicable even though the invalidity arises from denial of natural justice, rather than from the absence or failure of an essential statutory precondition. On either basis, there is lacking something essential to validity. On either basis, the resulting determination must be void. And what is void is the determination, not the particular part affected by the relevant invalidating circumstance. 29 To put it another way: if the Court were to strike down part only of the determination, it would be, in effect, rewriting it. That would usurp the function entrusted by the Act to adjudicators. In addition, it may not always be obvious to see how a denial of natural justice has affected the outcome: for example, where the omitted or irrelevant matter had the capacity to assess an adjudicator's overall view of the "credibility" or substance of a party's case. Brereton J made a similar point, although in a completely different context, in Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129 at [65], [118]. An appeal from his Honour's decision was dismissed ([2007] NSWCA 32). I do not regard the observations made by Giles JA at [29] as reflecting on the substance of what Brereton J had said in the paragraphs to which I have referred. 30 Mr Kidd referred to a number of first instance decisions which followed what was said by Hodgson JA in Brodyn on the consequences of substantial denial of natural justice. Those cases include the decision of White J in Reiby Street (to which I have referred already) and the decisions of Hammerschlag J in Trysans Pty Ltd v Club Constructions (NSW) Pty Limited [2007] NSWSC 1298, and Robson Civil Projects Pty Limited v Walter Mining Pty Limited [2009] NSWSC 1071. It is not necessary to refer to the substance of those cases. They confirm what I have already said as to the principles, in relation to the consequences of denial of natural justice, to be drawn from the judgment of Hodgson JA in Brodyn. Decision 31 In my view, essentially for the reasons indicated in discussing the authorities:

(1) an adjudication determination that involves a substantial denial of the measure of natural justice required to be given is void; and (2) it is wholly void, not just void to the extent (if it can be assessed) of the denial. Conclusion 32 I have found that there was a substantial denial of the obligation to provide the measure of natural justice required by the Act to be given. To the extent that (as his submissions in reply on the form of orders to be made could be seen to do) Mr Corsaro suggested otherwise, I do not agree. Nor do I propose to reopen that issue. 33 It follows from the authorities that the February determination is void. If that is so, then appropriate declaratory and injunctive relief should be granted as to the whole of the determination, and there is no need to deal separately with the consequences of my conclusions as to the claim in respect of variations 1 to 8. 34 There was no submission put that, if I were to come to the conclusion just recorded, relief should be withheld (wholly or in part) for some other discretionary reason. That, no doubt, reflected an understanding of what Hodgson JA had said in Transgrid at 542 [37] that, even having regard to the provisional nature of the statutory scheme, the fact that a determination which "failed" one or other of the Brodyn tests was void and not merely voidable suggested that relief would not ordinarily be refused on discretionary grounds. His Honour said: [37] However, I would comment that the legislature has treated the question of whether progress payments should be made as an important question, and this suggests that the fact that the payments are provisional only and the rights of the parties will be determined otherwise would not normally be a ground for withholding relief. Particularly this is so on the approach I have taken, where relief is available only if the determination is found to be void. 35 Hodgson JA was not dealing with traditional discretionary factors such as laches. However, there were no such factors present in this case. Although his Honour's statement was obiter dictum, I regard it as setting out accurately the basic principle. In short, acceptance of the public importance of the statutory scheme, and the policy underlying it, does not of itself compel the withholding of relief on discretionary grounds once it is concluded that an adjudication determination is void. Costs 36 On the conclusions to which I have come, there is no reason why costs should not follow the event. Mr Corsaro's submissions as to costs were predicated on the proposition that there had been partial success and partial failure. For the reasons just given, I do not agree. Orders 37 I make orders in accordance with paragraphs 1 to 4 of the short minutes of order initialled by me and dated today's date. 38 I stay order 4 for 28 days from today's date.

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