YTO Construction Pty Ltd v Innovative Civil Pty Ltd

Court of Appeal (NSW)|2019-04-12|Before: Macfarlan JA, White JA, Phillip J, Rein J

Background facts

YTO claims that it entered into a subcontract with Innovative with a commencement date of 18 July 2017 for various classes of works comprised of piling, anchoring, shotcreting, "capping beam" and detailed excavation. The contract price was $1,281,000. The total price (inclusive of GST) was provided for separately in respect of each class of works. The price for "Bulk and Detailed Excavation" was $790,000. The contract provided that "no variation applies" in respect of each class of work. A description of the work included: "1. Remove and dispose of all excess material from the site once excavated."
On 11 January 2018, Innovative served on YTO a payment claim to which was attached a schedule for work completed up to 25 December 2017. There was no dispute that the payment claim was served pursuant to s 13 of the Security of Payment Act. It claimed an amount of $1,649,832.51 inclusive of GST. It included variation claims. Variation 5 related to excavation work. The claimed amount was in part comprised of a claim in respect of "GSW Material load, cart, tip fees". The payment claim identified that it was based upon 70 loads carted away from the Ashfield site, and claimed a rate of $7,000 per load, totalling an amount of $490,000. It included the following description: "GSW Material has been found as per agreement between YTO and innovative - YTO supposed to supplied the clean site with site clearance certificate which didn't happened and during a excavation work Innovative piling has found the more possible GSW/ENM/ other than VENM materials which needs to be removed from site during Innovative's excavation work. Which costed additional money to Innovative and never made an allowce [sic] by Innovative to in any part of an agreement. Innovative seeking additional cost for removing materials other than VENM."

    9 Innovative has claimed 70 loads its Progress Claim No. 5 - December 2017; however, on a review it was identified, there were only 66 loads were carted out. The supporting documents already provided to YTO along with the Progress Claim No. 5 included the dockets from secondary subcontractor ELKORDI for 66 loads.
    234. The details of each claimable item are:
    235. Innovative has claimed 70 loads its Progress Claim No. 5 - December 2017; however, on a review it was identified, there were only 66 loads were carted out. The supporting documents already provided to YTO along with the Progress Claim No. 5 included the dockets from secondary subcontractor ELKORDI for 66 loads.
    236. The following photos shows the evidence of unsuitable material being carted away.
    [Five photographs were provided.]
    9.1 GSW Material - load, cart, tip fees
    237. The unsuitable material exported offsite which was not part of the contract is being claimed.
    238. Innovative is not claiming for loading and carting of the material.
    239. Innovative has claimed 70 loads its Progress Claim No. 5 - December 2017; however, on a review it was identified, there were only 66 loads were carted out. The supporting documents already provided to YTO along with the Progress Claim No. 5 included the dockets from secondary subcontractor ELKORDI for 66 loads."

Contrary to the statement at footnote 9 and paragraph 239, the supporting documents that allegedly included the dockets from Elkordi for 66 loads were not provided to YTO along with the Progress Claim No. 5.
Accompanying the adjudication application were 11 dockets from Elkordi Earthworx Pty Ltd ("Elkordi") (Innovative's haulage contractor) said to show the delivery of 38 loads of materials between 28 August 2017 and 12 September 2017. The dockets did not include a description of the materials carried, that is, whether they were VENM or GSW.
Innovative also provided a schedule, apparently prepared by it, headed "GSW Material" in which it listed the number of loads of GSW material by date and truck and trailer registration numbers. It purportedly identified 38 such loads between 28 August 2017 and 12 September 2017, and a further four loads on 28 September 2017.
Innovative's schedule also included items of delivery on 4 and 7 October 2017 totalling 28 loads. In support of that claim Innovative included in its adjudication application a redacted tax invoice (No. 0243) from Elkordi that, as redacted, purportedly recorded delivery of seven loads by each of two trucks and trailers on 4 October 2017 and seven loads by two trucks and trailers on 7 October 2017. The invoice was redacted to remove the unit price and total amounts charged by Elkordi for this haulage. The invoice did not identify the nature of the material transported.
Thus, Innovative's schedule referred to 70 loads of GSW material but it stated in its adjudication application that only 66 loads were carted out. Elkordi's invoices referred to below made no reference to four loads on 28 September 2017.
Mr Patel deposed that in the adjudication application, he had made a claim for the disposal of 66 truckloads of GSW. He deposed: "23 ... In coming to the figure of 66 truckloads, I had regard to the following documents: a. truck dockets showing the removal of 38 loads of GSW; b. Invoice no 243 issued by Elkordi. Copies of these documents are exhibited at HP-1 Tab 3 at pages 16 to 28. 24 When I was preparing Adjudication Application 1, I misread Invoice No 243. I read it as referring to truckloads, with the result that it referred to 28 truckloads. However, in preparing this affidavit, I have formed the view that it refers to hours worked."
In her determination the adjudicator accepted the claim in Variation 5 in relation to excavation work. The adjudicator stated: "Variation 5 - Excavation Work Liability 150. The Claimant claims a total amount of $521,950.00 for Variation 5 in the Payment Claim, but reduces the claim to $493,950 in the Adjudication Application21. More particularly, the claim is said to be made because: 'GSW material (sic) has been found as per agreement between YTO and innovative - YTO supposed to supplied the clean site with site clearance certificate which didn't happened and during an excavation work Innovative piling has found the more possible GSW/ENM/ other than VENM materials which needs to be removed from site during Innovativexcavation work. Which costed (sic) additional money to Innovative and never made an allowce (sic) by Innovative to in any part of an agreement. Innovative seeking additional cost for removing materials other than VENM'22 151. The Payment Claim is supported by by [sic] Aldainy Earthworx and Elkordi dockets and a collection schedule, photographic evidence, and a marked up bulk excavation sketch23. 152. The reason for rejecting the variation claim in the Payment Schedule was restricted to* 'No Variation permitted by Sub-Contract' and the general reliance on Clause 3, 5 and 17 of Subcontract. No other assessment or contractual analysis of the Bulk Excavation Scope of Work was indicated in the Payment Schedule. In the Adjudication Response, the Respondent merely reiterated its general contractual argument based on Clauses 3, 5 and 17, and added nothing further, or any substantive evidence to bolster its position. 153. In paras. 225 to 231 of the Adjudication Application, the Claimant sets out the factual background of the claim. Pertinently, the Claimant contends amongst other things: a. Final Quote dated 13 July 2017 Rev 6 (the Final Quote) details 'Removal of GSW material (approx. 1550 cu. M) and removal of existing footing by client. Client will have to give us report once GSW material removed from site'; b. It was the Respondent's responsibility to provide a clean site, however on commencement the Claimant discovered unsuitable material; c. The Respondent instructed it to make a stockpile in the middle of the site so that GSW material could be measured prior to export offsite; d. The Respondent utilized some of that material in lower layers of backfill in northern side of site and instructed the Claimant to separate brick and concrete from stockpile; e. Claimant moved material through bogies to northern side; f. Respondent instructed the Claimant to export the remaining material offsite; g. The Claimant removed 66 loads offsite using its subcontractor, Elkordi; h. There is no dispute between the parties that the material was unsuitable24. 154. I find the Claimant has taken on the task of setting out a detailed explanation as to why it was required to carry out the variation work, and has explained in some detail its interpretation of the Scope of Works under the Subcontract, and the revised Scope of Work actually constructed. The Claimant says it was instructed to perform the works by the Respondent. ... 160. I find the claimant is entitled to claim for work carried out under Variation 5 in its progress claim under the Act. 161. Valuation 162. As contended by the claimant26, I find there are no express provisions that govern the valuation of variations to the Scope of Work. 163. The Claimant provided a summary of cost breakdown and detailed cost breakup and supporting information in the Payment Claim. This included the details of quantification and rates applied for each line item comprising the claim. The Claimant also provided to the Respondent detailed substantiation in the Payment Claim, including photographic evidence of the works in progress. 164. The Respondent did not provide any alternative assessment for the variation in the Payment Schedule or Adjudication Response. 165. In the Adjudication Application the Claimant explained in some detail each item claimed for with photographic evidence. On the balance of the information provided, I accept the Claimant's quantification, proposed rates and valuation. 166. I value Variation 5 as follows: a. CSW Material Cart Away $466,800.00 b. Boggie Supply $13,650.00 c. Excavator Supply $7,500.00 d. Contaminated/Rubbish Material removed from site $3,000.00 e. Preparation of ramp $3,000.00

    21 The Claimant claimed 70 loads in the Payment Claim, but identified there was only 66 loads carted out in the Adjudication Application (refer para 235).
    22 Extract from Payment Claim Schedule.
    23 Tab 9, Adjudication Application.
    24 Footnote, page 57, Adjudication Application.
    25 Tab 5, Adjudication Application.
    26 Para. 37, Adjudication Application."

YTO commenced proceedings on 28 March 2018. In an affidavit made on that day a Mr Jian Guo Yuan deposed that he had from time to time requested that Mr Bhatt (a director of Innovative) provide him with documents in support of the GSW claim which demonstrated that the material was in fact GSW. He deposed that no such information or documentation had been provided.
YTO also read an affidavit of Mr Ahmad El Kordi, the sole director of Elkordi. Mr El Kordi annexed to his affidavit copies of invoices numbers 0242 and 0243 given to Innovative. Invoice 0243 was the unredacted invoice, the redacted copy of which was attached to the adjudication application. Critically, the unredacted invoice showed that under each "unit price" there was the figure of $145.
Invoice 0242 (dated 15 September 2015) covered deliveries from 28 August 2017 to 12 September 2017. This included deliveries which were the subject of Innovative's adjudication application. It covered each of the 11 delivery dockets provided to the adjudicator in partial support of the claim in the adjudication application that there had been a total of 66 loads of GSW removed from the site.
Invoice 0242 stated that four deliveries on 28 August 2017 by a vehicle bearing registration number CK9 1JV had been charged to Innovative at a unit price of $500. The amount charged was $2,000, being $500 per load. The entry on this line of Invoice 0242 correlates to the first of the 11 delivery dockets, numbered 9570, provided to the adjudicator in support of the claim in the adjudication application that there had been 66 loads of GSW removed from the site.
The second such docket was dated 30 August 2017 and numbered 9571. It related to the same registered truck and trailer, and correlates to an entry on Invoice 0242 in respect of a claim for five "units" at a unit price of $145 per hour.
The third docket provided to the adjudicator (numbered 9577) for the same truck and trailer showed a delivery of three loads on 7 September 2017. The charge for these loads, according to Invoice 0242, was $3,750, being $1,250 per load. Other loads were shown on the invoice also priced at $1,250 per load.
The eleven dockets were said by Mr Patel to evidence a total of 38 of the 66 claimed "loads". The remaining 28 were said to be evidenced by Invoice 0243. When cross-referenced to Invoice 0242, and assuming that each docket refers to loads of material carted away, it appears that only 35 rather than 38 "loads" are supported by accompanying dockets.
It also appears from Invoice 0242 that of these 35 loads, four were charged to Innovative at a unit price of $500 per load, suggesting that they were VENM and not GSW (para [27] above). A further five "loads" were charged at a unit price of $145, suggesting that they were not loads at all but were actually hours referable to a standard callout charge. The remaining 26 loads that were the subject of the dockets provided to the adjudicator were charged to Innovative at a unit price of $1,250 per load, suggesting that they were billed to Innovative by Elkordi on the basis that these 26 loads were GSW.
In cross-examination, Mr Patel admitted that he knew that a commercial rate for removing VENM was around $500 a load.
Mr Bhatt deposed that Innovative's agreed rate for VENM was $500.
Mr El Kordi gave no evidence in his affidavit as to whether he personally inspected the loads removed from the site. He gave brief oral evidence. He was asked in what circumstances the company charged an hourly rate rather than a load rate. The question was objected to, but allowed. Mr El Kordi said that an hourly rate was charged where trucks turned up to the site, but there was not enough material for the trucks that had been requested and in those circumstances there was a charge for a minimum of four hours plus one hour of travel, which was called a "standard callout" being a minimum charge. He was not cross-examined.
Mr El Kordi was not asked about the characteristics of the waste which Elkordi carried for Innovative. There was no evidence as to whether Mr El Kordi was on site and could have given evidence as to the nature of the waste carried.
An accountant employed by Innovative, Ms De Guzman, reviewed Elkordi's invoices, including Invoices 0242 and 0243. The total amount of Invoice 0242 was $92,295.50. The total amount of Invoice 0243 was $5,666. On 16 January 2018, that is, about three weeks before the adjudication application was made, Ms De Guzman sent an email to Mr El Kordi that was copied to Mr Bhatt and to Mr Patel, amongst others, to which she attached all the relevant invoices. She stated that in respect of Invoice 0242 an amount of $36,217.50 was "Rejected/Not Approved". In respect of Invoice 0243 she said that an amount of $3,811.50 was "Rejected/Not Approved". She told Mr El Kordi that: "Also attached are copies of invoices with noted disputes. Please note that we cannot process payment for those without dockets provided, and hence we cannot pay until we get the dockets, hence please send the dockets for those."
Ms De Guzman also attached a spreadsheet for Invoice 0242.
The spreadsheet prepared by Ms Guzman recorded that according to her, of the loads referable to the 11 dockets, only nine loads (being those referable to dockets numbered 10310 (6/9/17), 09576 (6/9/17) and 9580 (12/9/17) were for the removal of GSW. The loads the subject of the other dockets were described by her as VENM. She wrote "Docket Stating VENM materials", although the dockets reproduced in the Appeal Book provide no specification as to whether the materials carted were VENM or GSW.
Invoice 0242 also identified 29 loads that were not the subject of the dockets provided to the adjudicator and were not referred to on Innovative's accompanying schedule. They were charged by Elkordi as non-VENM material at $1,250 per load. In her spreadsheet Ms De Guzman accepted that 20 such loads were non-VENM material for which she allowed a charge of $1,200 per load. In total she accepted that 29 loads claimed by Elkordi to have been GSW material were GSW material. These were allowed at a rate of $1,200 per load.
In summary, of the loads that were the subject of dockets provided to the adjudicator and referred to in Innovative's accompanying schedule, Elkordi claimed that 26 were GSW. Of these Ms De Guzman allowed nine. Of the total number of loads the subject of Invoice 0242 (including the above), Elkordi claimed it removed 55 loads of GSW. Ms De Guzman allowed 29.
In its submissions before the primary judge YTO placed significant emphasis on Ms De Guzman's spreadsheet because it was prepared before the lodgment of Innovative's adjudication application. Mr Bhatt deposed that he assisted Ms De Guzman with the preparation of the spreadsheet. He deposed that he intended the spreadsheet to constitute a payment schedule for the purposes of the Security of Payment Act in response to a summary sheet that had been provided by Mr El Kordi which he believed to be a payment claim under the Act. He intended to put Elkordi to proof of its claims, except where the amount was very small and it was easier to pay it out rather than to have a dispute with Elkordi. He deposed that where Ms De Guzman had stated in the spreadsheet that the material carried was "VENM" the spreadsheet was not recording a conclusion that he had reached that Elkordi had hauled the VENM that day.
It was common ground that Invoice 0243 contained charges by Elkordi of seven hours' waiting time for two trucks with trailers on two days. Elkordi charged $145 per hour. The primary judge did not say whether he accepted or rejected Mr Patel's evidence that when preparing the adjudication application he misread the invoice and read it as referring to truckloads (presumably of GSW).

The pleaded claim of fraud

In the Technology and Construction List statement filed in support of the summons on 28 March 2018, YTO did not plead fraud. It pleaded that although the adjudicator had allowed Innovative $490,000 [1] (excluding GST) of its claim for the cost of removing alleged GSW, the material removed was not GSW, but was VENM. In an Amended Technology and Construction List Statement filed on 16 April 2018, YTO alleged that the adjudicator's determination had been obtained by fraud. The pleading of fraud was amended in a Further Amended Technology and Construction List Statement filed on 22 May 2018 that was the subject of extensive argument before Ball J on 4 June 2018. The result was that a Second Further Amended Technology and Construction List Statement was filed on 8 June 2018. The allegation of fraud was pleaded as follows: "The Determination was obtained by fraud 21. In its adjudication application, the first defendant: (a) falsely represented in respect of Variation V to the plaintiff and to the second defendant that each of the 66 loads of the excavated waste removed from the site, as identified by the first defendant at page 294 of Court Book, was GSW material in circumstances where the first defendant had itself concluded that 21 loads were VENM and 1 load was rejected as not payable at all, as follows:fact, and to the first defendant's knowledge, that waste was VENM; 28 August 2017 4 loads Originally claimed as VENM 30 August 2017 1 loads Claim rejected 7 September 2017 6 loads Claim reduced to $500 per load, being the agreed price for VENM 8 September 2017 9 loads Claim reduced to $500 per load 11 September 2017 2 loads Claim reduced to $500 per load.

Particulars i. The representation was express. ii. On 7 February 2018 the first defendant made the representation in its application (numbered ABCDRS NSW 163) for adjudication of its Payment Claim 5 with the ABCDRS. iii. The defendant knew the material was not GSW because: A. in its initial quotation numbered IQ 17067, the first defendant stated that 'Bulk and Detailed Excavation limited to VENM only' and that 'Removal of GSW material (approx. 1550 cu.m) ... by client. Client will have to give us report once GSW material removed from the site'; and B. the first defendant contracted with its sub-contractor, Elkordi Earthworks Pty Limited (Elkordi), on the basis that the material was VENM. iv. The first defendant's knowledge conclusion is contained in its amendments to the Elkordi invoice dated 15 September 2017 and its communication of that conclusion to Elkordi no later than 16 January 2018 and is also to be inferred from: A. the fact of its deliberate alteration of the Elkordi invoice in the manner pleaded in paragraph 21(c); B. its failure, despite repeated requests (as set out at paragraphs 28 and 29 of the affidavit of Jian Guo Yuan dated 28 March 2018), to provide documentation to support its claim that he material removed was GSW; and C. the fact that the material removed from site was deposited at facilities that were not licensed to receive GSW, a matter that was known to the first defendant carrying on business as an excavator in NSW. (b) falsely claimed $7000 per load as the additional costs it had incurred for the removal of 66 loads of GSW material in circumstances where the actual cost to the first defendant for the removal of the excavated material was not $7000 per load, but was much less than that amount; Particulars i. The claim was express. ii. The claim was made in Progress Claim 5 at item V. iii. The claim was made by the first defendant in its Adjudication Application, and determined by the second defendant, on the basis that the first defendant sought payment of the 'additional cost for removing materials other than VENM': Determination at [150]. (c) altered an invoice of its subcontractor Elkordi Earthworks P/L (being invoice number INV-0243) to with the intention of concealing information contained in the original invoice, including the fact that the rate per load charged to the first defendant was $145; and Particulars i. The invoice was altered to conceal from the plaintiff and the second defendant (or to 'blank out') all of the information contained in the original invoice under the headings 'Unit Price', 'GST' and 'Amount AUD' and the words 'Tip Fees 04/10/17 Carting to Fairfield Council Tip'. ii. The plaintiff has admitted in paragraph 45 of the affidavit of Ashish Bhatt dated 5 April 2018 that the plaintiff deliberately and knowingly 'blanked out' those parts of the invoices. iii. Had those items not been 'blanked out', it would have been revealed to the plaintiff and to the second defendant that the first defendant was seeking to recover $7000 per load in circumstances where the first defendant had in fact been charged $145 a load by its subcontractor in its invoice numbered INV-0243. (d) provided that altered invoice to the plaintiff and the second defendant in its adjudication application."

Paragraph 21(a) referred to 66 loads of excavated waste material "as identified by the first defendant at page 294 of Court Book". The page referred to was the schedule headed "GSW material" referred to at [19] and [20] above.

Primary judge's reasons

The hearing proceeded before the primary judge over three days in July 2018. The primary judge gave judgment on 10 August 2018 (YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2018] NSWSC 1354).
There was no dispute before the primary judge, nor on appeal, that an adjudication determination procured by fraud would be liable to be quashed for jurisdictional error (Craig v State of South Australia (1995) 184 CLR 163 at 175-176; [1995] HCA 58; SZFDE v Minister for Immigration and Citizenship (2007) 232 CLR 189 at 197; [2007] HCA 35; Sugar Australia Pty Ltd v Southern Ocean Pty Ltd [2013] VSC 535 at [116]).
The dispositive reasoning of the primary judge in relation to the claim of fraud pleaded in paragraph 21(a) of the Second Further Amended Technology and Construction List Statement was as follows: "17 I paraphrase, in truncated form, the allegations in the List Statement to assist in consideration of them: (1) That Innovative falsely represented that each of the 66 loads of excavated waste claimed was GSW when Innovative had itself concluded that 21 loads were VENM and one claim was rejected. ... 18 YTO described, at paragraph 36 of the Plaintiff's closing submissions ('PCS'), the three respects in which Innovative misled the Adjudicator as follows: '(a) It claimed that it had removed 66 loads at a time when it knew or had concluded substantial number of the 66 loads were not GSW at all but rather VENM; (b) It altered invoice 0243 from Elkordi Earthworx to conceal the information that would have revealed to the Adjudicator that 28 of the 66 loads were not loads at all or at least were not loads of GSW; and (c) It represented to the Adjudicator that it had incurred the additional cost of carting GSW that it asserted in its payment claim.' ... 20 A comparison between the Defendant's [scil. Plaintiff's] closing submissions (['PCS']), paragraph 36(a), and paragraph 21(a) of the List Statement reveals a shift from the assertion that Innovative falsely represented that each of the 66 loads were GSW, when it had itself concluded that 21 loads were VENM (and it had rejected a claim for a load on 30 August 2017) to Innovative, having claimed that it had removed 66 loads at a time when it 'knew or had concluded' that a substantial number of the 66 loads were not GSW, but rather VENM. 21 The shift may have some subtlety, but, most significantly, the assertion that Innovative falsely represented that each of the 66 loads of excavated waste removed was GSW has been excised and the word 'knowledge', removed by an amendment to paragraph 21(c) of the List Statement, has crept back in. In my view, an allegation of 'falsely representing' cannot be airbrushed out of YTO's case and an allegation of knowledge which has been deleted from the List Statement after due consideration cannot be added back in. This has particular significance here because Mr El Kordi was called as a witness in YTO's case and he gave no evidence that the waste which he carried and for which he had claimed from Innovative as GSW was not GSW. The onus is on YTO to prove that Innovative's representation that each of the 66 loads claimed to have been removed by Innovative was false. Not only has it not done so, but by calling Mr El Kordi and not having him give evidence on the topic leads to the conclusion that his evidence would not have assisted YTO's case in accordance with Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd and Anor (1991) 22 NSWLR 389 at 419 per Handley JA, followed in Savage and Ors v Lunn and Ors [1998] NSWCA 203 per Handley JA, Sheller JA and Sheppard AJA. As Mr Christie pointed out, the PCS assert that 'it is not necessary to conduct an assessment of the physical qualities of the material' in order to determine if the representation was false which highlights that what YTO is advancing in the PCS, at paragraph 49-53, is not the case articulated, but a different one. 22 In my view, it is not open to YTO to advance the case contained in paragraph 36(a) of the PCS and it cannot establish the claim asserted in paragraph 21(a) of the List Statement if it has not first established that the representation that each of the loads hauled was GSW was false."
It must be implied in relation to his Honour's conclusion at Judgment [22] that the primary judge considered that either YTO had not established that the representation was false, or that in its closing submissions it had not sought to establish that the representation was false, or both.
These reasons are the subject of the first ground of appeal. YTO contends: "1 The trial judge erred in concluding at paragraph [22] that: (a) the appellant had departed from its pleaded case; and (b) it was necessary for the appellant to establish that each of the loads was not VENM in circumstances where the evidence established that the respondent had itself reached that conclusion."
It is not disputed that although the Technology and Construction List Statement is not strictly a pleading, it was nonetheless incumbent on YTO to articulate precisely the fraud alleged and to prove strictly the fraud alleged (Quarter Enterprises Pty Ltd v Allardyce Lumber Company Ltd (2014) 85 NSWLR 404; [2014] NSWCA 3 at [124]-[125]).
YTO pleaded that Innovative "falsely represented ... that each of the 66 loads of the excavated waste removed from the site ... was GSW material".
There was no issue that the representation was made. The first matter that YTO had to establish was that the representation was false. The second was that YTO knew it was false. To establish that the representation was false, YTO did not need to establish that none of the 66 loads of excavated waste removed from the site was GSW material. To establish the falsity of the representation it would be sufficient for it to establish that one or more of the 66 loads was not GSW material.
That was not the position taken by Innovative in its Technology and Construction List Response. Innovative pleaded that the excavated material removed from site included GSW material and was not just VENM. It is not clear whether the primary judge adopted the same position as Innovative. But I infer that that is how the primary judge approached the question. His Honour concluded that YTO had not proved "that Innovative's representation that each of the 66 loads claimed to have been removed by Innovative was false" without addressing the evidence upon which YTO relied to prove the falsity of that representation. YTO's evidence did not establish that none of the 66 loads contained GSW material. If the primary judge thought it was incumbent on YTO to establish that none of the loads was GSW Material, it is understandable that his Honour dismissed YTO's claim peremptorily as he did at [21] ("not only has it not done so") without addressing the evidence adduced by YTO that many of the claimed loads were not of GSW material. But the representation made by Innovative to the adjudicator was that each of the 66 loads (that is, all of the 66 loads) contained GSW material and that representation would be falsified (in the sense of being shown not to be true) if it were established that one or more of those loads did not contain GSW material. I infer that the reason the primary judge did not address the evidence on this issue was because he misapprehended what would be required to falsify the representation.
I also infer from paragraph [20], the first sentence of paragraph [21], and paragraph [22] of the primary judge's reasons that his Honour considered that in its closing submissions YTO abandoned its claim that Innovative had falsely represented that each of the 66 loads of excavated waste removed was GSW. His Honour expressly said so at judgment [21] (the allegation of "falsely representing" was airbrushed out of YTO's case) and concluded (at Judgment [22]) that the allegation in paragraph 21(a) of the List Statement could not be established unless YTO first established that the representation was false.
In its closing submissions before the primary judge Innovative appeared to accept that the documents from which it prepared its claim that 66 loads of GSW material had been removed did not support that contention. Nonetheless, it contended that more than 66 loads of GSW were carted out. It did not do so on the basis of the documents submitted to the adjudicator. The primary judge did not attempt to resolve this issue. Rather, his Honour took the view that: "... the assertion that Innovative falsely represented that each of the 66 loads of excavated waste removed was GSW has been excised and ... [the] allegation of 'falsely representing' cannot be airbrushed out of YTO's case ..." (Judgment [21])
In coming to this conclusion the primary judge referred to paragraph 36 of YTO's written closing submissions and accepted the submission of counsel for Innovative that because the plaintiff's closing submissions asserted that it was not necessary to conduct an assessment of the physical qualities of the material to determine whether the representation was false, that highlighted that the case YTO was advancing in its closing submissions was not the case articulated, but a different one (Judgment [21]).
That characterisation of YTO's closing submissions cannot be sustained. Paragraph 36(a) of those closing submissions quoted by the primary judge at Judgment [18] commences with the words "Innovative [misled] the adjudicator in three respects: ...". The paragraph addresses the evidence of knowledge of falsity of the representation that 66 loads of GSW had been removed. Other paragraphs of the submissions showed that YTO not only alleged that Innovative knew that the representation that 66 loads of GSW had been removed was false; but that the representation was, in fact, false. Thus paragraph 37 asserted that the GSW spreadsheet (being the spreadsheet prepared by Ms De Guzman and approved by Mr Bhatt) "makes it clear that there was never any basis for the 66 or 70 loads of GSW." YTO's written submissions included the following: "58. There can be no real suggestion that Innovative had an honest belief in the truth of the statement that it had removed and disposed of 66 loads of material that was outside its scope of work. (a) First, there was simply no factual basis for that belief. There is no document that identifies the loads that make up the claim as GSW. Of the three documents that were used, the truck dockets are silent, the GSW spreadsheet is a secondary document and invoice 0243 demonstrates the contrary. (b) There is absolutely no evidence that the material was beyond scope. The documents included in Du Gruzman's assessment are the only ones that cast any light on what Innovative thought was: (i) the nature of the material; (ii) the quantities removed; (iii) the rates for the various components; and (iv) the overall cost. 59. Although Innovative now asserts, unconvincingly, that the assessment was just for payment purposes, there are no other documents that it could have used to base its claim: 60. The only plausible explanation is that: (a) Innovative had already on two earlier occasions submitted variation claims and again served its payment claim asserting that it had incurred additional cost of removing 66 or 70 loads of GSW. (b) It had [no] documentary evidence for its claim. (c) Innovative needed to justify the truck numbers. (d) It could not use invoice 0242 because of the assessment it had undertaken. (e) It did not have the dockets to support 66 loads. (f) It had an invoice for 28 hours but if the invoice were included it would have revealed the truth about the quantity of 28. (g) So it used the truck dockets that it had, although they did not prove what the material was, and redacted invoice 0243 to conceal that information. (h) They then transferred that information onto the spreadsheet at Exhibit B page 62."
Those submissions expressly assert that Innovative had no basis for contending "... that the material was beyond scope", that is, that the material was GSW.
Innovative seized upon paragraph 52 of YTO's written submissions before the primary judge. YTO had submitted: "50. The parties proceeded on the conventional basis that VENM in the ordinary sense is within scope so it was incumbent on Innovative to claim that the material was something else that it was not required by its contract to remove. 51. The parties also proceeded on the conventional basis that GSW in the ordinary sense is beyond scope. That was the way the Payment Claim was expressed. Innovative asserted that it was meant to be given a clean site but it found that contract to that requirement it had to remove material that was other than VENM. 52. To determine if the representation was false it is not necessary to conduct an assessment of the physical qualities of the material. The test is whether the material was within or beyond scope such that it gave Innovative an entitlement to the additional cost of transporting and disposing of it. Having regard to the assessment by Innovative in its email of 16 January 2018 Innovative must be taken to have concluded that Alkordi Earthworkx did not at that time have an entitlement to be paid for the 66 loads of GSW that correspond to the loads in the Adjudication Application."
As noted above, at paragraph [21] of his Honour's reasons the primary judge accepted Innovative's submission that because YTO asserted that "it is not necessary to conduct an assessment of the physical qualities of the material" in order to determine if the representation was false, this highlighted that YTO was advancing in its final submissions a case that had not been articulated in its pleading.
That is not so. What YTO there submitted was that it was not necessary to assess the physical qualities of the 66 loads in order to determine whether they were all for the removal of GSW. YTO's case was that that could be established from the documents and did not require evidence of a physical assessment of the materials removed. No such assessment would be possible unless it were conducted at the time the materials were removed, or it was possible later to identify what material at the tip had been deposited by Elkordi from the Ashfield site. This submission was not a departure from its pleading.
On appeal, Innovative also relied on oral submissions made by senior counsel for YTO below, where in response to a question from the primary judge, counsel did propound an answer that was outside the case pleaded. The exchange between counsel for YTO and the primary judge was as follows: "ROBERTS: ... That really comes back to the explanation of this 16 January document. I keep harping on that, but that's really the critical document in this case, because that's the document that we say evidenced what they had concluded contrary to what they said to the adjudicator. For the reasons I've already said, your Honour would - HIS HONOUR: Just on that point, I understood from Mr Christie's submission on this point he says you didn't call any evidence to show that what was carted away from Mr EI Kordi was not GSW. In other words, a claim was put up to the adjudicator saying GSW, you say that it wasn't GSW because that you rely on an inference drawn from what was done vis-a-vis EI Kordi but you don't actually ask Mr EI Kordi to give evidence saying well actually what I was carrying was not VENM it was GSW, you don't get that from him and it's just not touched. ROBERTS: No. We don't need to in my respectful submission. HIS HONOUR: Why not? ROBERTS: Because the physical characteristics of the material aren't relevant. This is a claim for a variation, so what Mr Patel and Mr Bhatt do is say I've been required to carry, via my subcontractor, material that's outside my scope and we call it GSW but that's just a label in my submission, but it's beyond scope material and the fraud is asserting to us and to the adjudicator that we were required to pay for the additional cost of removing GSW because it's a variation claim in circumstances where we had concluded and told our downstream person who did the work you're not getting paid for GSW, you're getting paid for VENM, because it's not GSW. That's the fraud. It's not we've gone and had the material tested and as it turns out it's not GSW, it's VENM. That's not this case. This case is you told the adjudicator it was GSW when you knew because that's what you said to the downstream contractor that you're not getting a variation claim for that work because it's not outside the scope. That's why I say it's got to be considered in the context of what the defendant was trying to achieve by characterising the material as GSW. It's characterising it in that way to put it outside the contract to entitle it to additional funds. HIS HONOUR: But doesn't that mean that you leave open the possibility that it's possible that what was carried was GSW? Let's say it was. ROBERTS: Let's assume that that's right. If there's no evidence that - let me go back. Let's assume that a truck went out that everyone thought was VENM but as it turned out later it had GSW in it, but because everyone assumed it was VENM, nobody had to pay any extra money for it, there was no variation claim because no one incurred additional costs, it just went out. That wouldn't give rise to a variation claim, and if someone said in those circumstances upstream to the adjudicator we had to carry out GSW but we didn't actually have to carry out GSW because we determined it was VENM downstream and didn't occur any additional costs, that would be a fraud, and that's the same sort of nature. The actual material isn't relevant, it's what they conclude in order to determine whether or not there's a variation claim. HIS HONOUR: Well that's right but that might come back to that question of whether by saying cost, $7,000, was really saying that's what we've had to pay our subcontractor."
This argument was outside the scope of the pleaded case. For it to have been maintainable YTO would need to have pleaded that Innovative represented in its payment claim and adjudication application that it incurred additional costs in respect of all of the 66 loads for which the variation claim was made and that representation was false to its knowledge.
That may well have been a claim available to YTO but it was not what was pleaded. That does not mean that YTO abandoned its pleaded case. The additional argument was raised on the assumption that it was possible that all loads were GSW material. There was no concession that the contrary had not been proved. Neither the primary judge, nor Innovative on appeal, identified any point at which the pleaded case was abandoned.
The primary judge (Judgment [21]) referred to the fact that Mr El Kordi who gave evidence in YTO's case, gave no evidence that the waste that Elkordi carried and for which he claimed from Innovative as GSW was not GSW.
It might be a reasonable inference that the waste carried by Elkordi for which it claimed remuneration as GSW was GSW, even though that claim was disputed by Innovative. That is a matter on which a finding of fact would have to be made. But Elkordi did not claim that it carried 66 loads of waste that were GSW. In its Invoice 0242 it claimed that it carried a total of 55 loads of GSW material and of these loads only 26 were the subject of the dockets and accompanying schedule provided to the adjudicator. Otherwise, by Invoices 0242 and 0243 it claimed either for removal of waste consistently with the waste being VENM or it claimed waiting time.
Nor was there any evidence that Mr El Kordi attended at the site and was in a position to observe the nature of the waste that was carted.
For these reasons I conclude that the primary judge erred in not addressing the claim as pleaded by YTO in para 21(a) of the List Statement and the evidence adduced by both parties in relation to that claim. I would uphold the first ground of appeal.

Paragraph 21(b) of the List Statement

The primary judge dealt with the claim in paragraph 21(b) of the List Statement as follows: "23 In relation to the second claim in the List Statement (i.e. 21(b)), I think what is now advanced by YTO is also different to what is found in the List Statement because the words 'falsely claimed $7,000 as the additional costs' have been deleted and 'falsely' does not appear in the PCS, at paragraph 36(c). Once again, I do not think it is open to YTO to advance a different case to that articulated in the List Statement. The starting point of the claim which YTO must establish on the case contained in the List Statement is that Innovative falsely represented that the $7,000 claimed was the cost to it per truckload. I will set out the evidence to which YTO referred in the List Statement for its contention that Innovative was claiming that it had cost it $7,000 per truckload to remove GSW: (1) The claim contained the following statement by Innovative (retaining grammatical errors): 'GSW material has been found as per agreement between YTO and Innovative - YTO supposed to supplied the clean site with site clearance certificate which didn't happened and during an excavation work, Innovative piling has found the more possible GSW/VENM other than VENM materials which needs to be removed from site during Innovative excavation work which costed additional money to Innovative and never made an allowance by Innovative to in any part of an agreement. Innovative seeking additional costs for removing materials other than VENM.' see CB, p 153. (2) The Adjudicator noted at paragraph 150 of the Determination that Innovative sought payment of the additional cost for removing materials other than VENM: see Exhibit A, page 153. ... 27 Whilst I think it is strongly arguable that the words set out at [as quoted at [11] above], standing alone, convey the impression that Innovative was asserting that its claim was based on what it had spent, or would have to spend, to remove GSW, I do not think it is clear that Innovative was claiming that the $7,000 was the cost to it of so doing. It is, at the very least, open to treat the words used, coupled with the reference to 'rate' in the context of a claim for variation as meaning that [Innovative] was seeking the amount of $7,000 as the cost for the variation to YTO, not the cost to Innovative. Otherwise, as Mr Christie contends, Innovative would be claiming as a variation only the amount it had paid to its subcontractor which would be most unusual. Further, Innovative did not present invoices and receipts with amounts included to demonstrate that it had paid $7,000 per truckload. The Adjudicator awarded the $466,800 claimed for the GSW removal by Innovative as the 'value', not the 'cost': see Exhibit A, p 154. This is reinforced by Mr Bhatt's evidence that he himself had said that $7,000 per truckload was the amount that he had decided Innovative should charge YTO, i.e. not the cost to Innovative: see Exhibit A, p 323, paragraph 73. He was not challenged on that evidence and it does not seem inherently implausible because, again, Innovative would not, on a variation, be likely to charge only the amount that it had paid to a subcontractor. 28 I am, therefore, not satisfied that YTO has established that the representation as asserted in the List Statement at paragraph 21(b) was made out."
With respect to the primary judge, it is not correct to say that in its written submissions YTO departed from its pleading at para 21(b). It is true that in paragraph 36(c) of its written submission it omitted the word "falsely". But it is clear from the balance of its submissions that it did allege that the representation it pleaded was false. In paragraph 42 of its closing written submissions YTO said: "42. Additionally, it is clear from the contemporaneous documents that $7,000 per load was a grossly inflated figure that could in no way be described as representing the 'additional cost' to Innovative of removing non-VENM material."
The primary judge noted the submission of Mr Christie SC who appeared for Innovative that not all of the necessary elements of a claim in fraud had been pleaded (Judgment [25]). That submission was correct. Even though YTO had not departed from its pleaded case, YTO's case in paragraph 21(b) was inadequately pleaded. YTO did not plead that Innovative knew that the representation pleaded in paragraph 21(b) was false or was reckless as to its truth or falsity (Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486; [2012] HCA 39 at [26]).
Whilst the primary judge considered that it was strongly arguable that the payment claim (quoted at [11] above) standing alone conveyed the impression that Innovative was asserting that its claim was based upon what it had spent or would have to spend to remove GSW, his Honour ultimately was not persuaded that that was the sense in which the claim was understood by the adjudicator, nor the sense in which Innovative intended the representation to be understood (at Judgment [27]). That finding was well open to his Honour. The payment claim and adjudication application claimed a rate of $7,000 per load as a cost sought to be charged to YTO. It was accepted that it was industry practice for a subcontractor to add a reasonable profit margin in claiming as variations the cost of additional work. Hence, it was an unlikely construction of Innovative's payment claim and adjudication application that it had incurred a cost of $7,000 per load for the removal of GSW Material. Nor does it appear from the adjudicator's determination that that is how she understood Innovative's claim.
The primary judge evidently accepted Mr Bhatt's evidence that he understood $7,000 per load to be the commercial rate for removal of GSW, and his Honour observed that this evidence was not challenged. Where fraud is in issue the question is whether the representor honestly believed the representation to be true in the sense in which the representor understood it, or in the sense in which the representor knew the representee might understand it. The question is not whether the representor honestly believed the representation to be true in a sense that a court, considering the matter objectively, would assign to it (John McGrath Motors (Canberra) Pty Ltd v Applebee (1964) 110 CLR 656 at 659-660; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 576-577).
Paragraph 21(b) of the List Statement pleaded that Innovative's representation was that $7,000 per load was the additional costs Innovative had incurred for the removal of the GSW material. The primary judge did not err in concluding that that was not the representation conveyed and, in any event, was not the representation that Innovative intended to convey.
YTO did not plead that the effect of the statements made by Innovative in its payment claim and adjudication application, in the context of industry practice and the parties' dealings, was that the rate of $7,000 per load that Innovative sought to charge YTO, bore a reasonable relationship to the additional cost Innovative incurred in removing GSW Material. Nor did it plead that Innovative knew that the representation it did plead was false, or was recklessly indifferent to its truth.
For these reasons YTO's challenge to the primary judge's rejection of its pleaded claim in paragraph 21(b) of the List Statement has not been made good.
YTO's notice of appeal also challenged the primary judge's rejection of the claim of fraud pleaded in paragraph 21(c) of the List Statement. The primary judge rejected that claim because YTO pleaded that Innovative redacted the invoice with the intention of concealing the fact that the rate per load charged by Elkordi was $145, whereas the unredacted invoice did not charge a rate per load, but a callout fee when no fill was loaded onto a truck (Judgment [31]). The ground of appeal challenging that finding was not pressed.

Consequential orders

The result is that there should be a rehearing, further hearing or re-determination of YTO's claim pleaded in paragraph 21(a) of its List Statement. Whether the proceeding is referred for a rehearing before a different judge, further hearing before the primary judge, or merely redetermination without further hearing before the primary judge, will depend first on whether the primary judge is available for further hearing or re-determination and, secondly, if so, whether the Chief Judge of the Equity Division considers that having regard to the listing demands of the Division that the proceeding should be referred to the primary judge.
If the primary judge is available, there is no reason that the proceeding should not be referred back to his Honour. If it is, it will be a matter for the primary judge to decide whether to entertain any application for further hearing (including any application to amend pleadings or particulars) or whether to redetermine YTO's claim pleaded in paragraph 21(a) of its List Statement in accordance with these reasons, that is, that the claim should not be dismissed merely because YTO did not prove or seek to prove that none of the 66 loads in question was GSW material, nor on the ground that YTO abandoned its claim that Innovative's representation that each of the 66 loads was GSW material was false.
YTO submitted that if its claim were remitted for rehearing, further hearing or redetermination, Innovative should be ordered to repay all of the adjudicated amount that it had been paid into Court and which had been released to Innovative following the primary judge's decision, viz. $1,557,809.08, YTO submitted that if, on rehearing or further hearing or redetermination, it established that the adjudicator's determination had been procured by fraud, albeit only in respect of one part of Innovative's claim, the whole determination should be set aside. It submitted that "fraud unravels all".
That well-known aphorism should not be stretched beyond its intended scope. It is not the case that if A sues B on two causes of action and B successfully defends the first cause of action on the ground of A's fraudulent representation, that A cannot succeed on a second distinct cause of action.
If YTO establishes that the adjudicator's determination in respect of its claim for Variation 5 was procured fraudulently, that would only affect that part of the determination that was fraudulently procured.
YTO's allegation of fraud affects only the $462,000 paid to Innovative in respect of the 66 loads said to be carted away. Of these 66 loads, YTO identified, in paragraph 21(a) of its List Statement, 22 loads that it said were fraudulently represented to be loads of GSW material (see [43] above).
In its submissions before the primary judge YTO also submitted that what had been claimed as an additional 28 loads of GSW Material, which was admittedly wrongly so described, had been also fraudulently misrepresented by reason of the redaction of Invoice 0243. It will be a matter for either the primary judge or any other judge to whom the proceeding is allocated to decide whether YTO should be able to maintain these wider particulars of the pleading in paragraph 21(a).
Although the particulars to paragraph 21(a) of the List Statement identify only 22 "loads" said to have been falsely represented as loads of GSW material, it was common ground at trial that what had been claimed as a further 28 loads of GSW material could not be supported as such on the basis of the documentation provided to the adjudicator. As noted above, of the 38 loads referred to in Innovative's schedule provided to the adjudicator which were said to have been of GSW material and were removed between 28 August and 12 September 2017, and the further 28 "loads" on 4 and 7 October 2017, Ms De Guzman accepted that only nine loads were GSW material. If YTO obtains leave to amend its particulars there is a triable cause of action that up to 57 of the represented 66 "loads" identified in Innovative's schedule provided to the adjudicator were not loads of GSW material.
Before the primary judge Innovative relied on evidence other than documents provided to the adjudicator to seek to prove that at least 66 loads of GSW material had been removed. That evidence has not been assessed. Nor has the primary judge addressed the evidence relied on by YTO to establish that the representation made in Innovative's adjudication application as to the number of loads of GSW material removed was false, and, if it were, that Innovative knew that it was false. Reckless indifference was not pleaded.
Because it may be open to the primary judge, or any other judge to whom the proceeding may be referred, to permit YTO to amend its particulars as to the number of loads in respect of which the allegedly false representation pleaded in paragraph 21(a) of its List Statement was made, the parties should be put back into the position they were in before the primary judge's orders of 16 August 2018 (that directed payment to Innovative of all the moneys paid into court by YTO), to the extent that YTO has demonstrated that it has an arguable claim that part of the adjudicator's determination was procured by the fraud alleged in paragraph 21(a) of its List Statement.
YTO's pleaded claim is that Innovative falsely represented that each of the 66 loads identified in Innovative's schedule provided to the adjudicator was GSW material. Innovative does not now seek to support the accuracy of the schedule provided to the adjudicator, but says that it was nonetheless true that it carried at least 66 loads of GSW material. It seems to be common ground between Elkordi and Innovative that Elkordi removed at least 29 such loads.
But it is a triable issue, not resolved by the primary judge, as to whether Innovative's claim, if made good, would be an answer to YTO's pleaded claim based on the more particular representation of what were the 66 loads identified to the adjudicator as being GSW material. If Innovative had a claim in respect of other loads that it did not advance in its adjudication application, it is arguable that it could not maintain that claim as an answer to YTO's claim to set aside that part of the adjudication determination that was based on the representation made in the adjudication application that YTO contends was fraudulent.
For these reasons, although it is common ground between Elkordi and Innovative that at least 29 loads of GSW material were removed, and although we were not referred by YTO to any evidence that would cast doubt on that fact, it is not appropriate to condition relief on the basis that Innovative would be entitled to retain at least $203,000 of the relevant part of the adjudicated amount of $462,000.
On the other hand, of the 66 alleged loads identified in Innovative's schedule provided to the adjudicator, there is no evidence to which we were referred to rebut the inference to be drawn from Elkordi's Invoice 0242 and Ms De Guzman's spreadsheet that at least nine loads removed were GSW material. Prima facie, and without in any way seeking to bind the judge to whom the proceeding is to be referred, Innovative would be entitled to retain at least $63,000 (plus GST) if YTO's claim pleaded in para 21(a) otherwise succeeds.
However, the parties should be restored to their position as it otherwise was before the primary judge's decision and orders. Innovative must repay $399,000 plus GST to await the final determination of YTO's claim, together with any interest on that amount that may have accrued and been paid to Innovative by YTO.
For these reasons I propose the following orders. 1. Appeal allowed in part. 2. Set aside the orders of the primary judge to the extent his Honour dismissed the appellant's claim in para 21(a) of the appellant's Further Amended Technology and Construction List Statement and ordered the appellant to pay the respondent's costs. 3. Remit the proceeding to the Equity Division for further hearing or redetermination by the primary judge, as the primary judge may determine, or rehearing by another judge of that Division, as the Chief Judge of the Equity Division may determine. 4. Note that whether, and if so to what extent, either party may be permitted to amend its pleadings or particulars, or adduce further evidence, or make further submissions, will be in the discretion of the primary judge or any other judge of the Equity Division to whom the proceeding is referred. 5. Order that the respondent pay into Court $399,000 plus GST and interest that had accrued on that sum that formed part of the moneys paid into Court by the appellant pursuant to the adjudicator's determination and the judgment entered thereon on 6 March 2018 and paid out to the respondent pursuant to orders made on 16 August 2018, to await the final determination of the appellant's claim to set aside the adjudication determination for fraud. 6. Order that the respondent pay the appellant's costs of the appeal. 7. Order that the costs of the proceedings before the primary judge be in the discretion of the judge to whom the proceedings are referred.
EMMETT AJA: The question in this appeal is whether a determination (the Determination) made by Ms Jennifer Wyatt (the Adjudicator) under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act) was obtained by fraud and should be set aside. The Determination was made by the Adjudicator on 22 February 2018 following an adjudication application (the Adjudication Application) lodged by the respondent, Innovative Civil Pty Ltd (Innovative), on 7 February 2018. The Adjudication Application was lodged following the service by the appellant, YTO Construction Pty Ltd (YTO), of a payment schedule on 23 January 2018 (the Payment Schedule) in response to Innovative's payment claim of 25 December 2017, served on 11 January 2018 (the Payment Claim).
YTO was the principal contractor for building works at Ashfield, Sydney (the Site). On 7 July 2017, YTO and Innovative entered into a subcontract for civil works on the Site for a total contract sum of $1,280,000. Part of the work to be performed by Innovative was the removal of soil and waste from the Site. To that end, Innovative entered into subcontracts with several haulage contractors, one of whom was Elkordi Earthworx Pty Ltd (Elkordi). Elkordi carried out the removal of material from the Site and Innovative included in the Payment Claim amounts for that removal, which it asserted was for the removal of general solid waste (GSW). By the Determination, the Adjudicator allowed Innovative the sum of $466,800 in respect of its claim for the removal of GSW from the Site.
Following the Determination, YTO commenced proceedings in the Commercial List of the Equity Division in which it contended that the Determination was obtained by fraud and that the judgment entered in favour of Innovative against YTO pursuant to the Determination was also obtained by the fraudulent conduct of Innovative and should be set aside. On 10 August 2018, a judge of the Equity Division (the primary judge) published reasons for concluding that YTO had failed to establish that the Determination was obtained by fraud and that the Commercial List proceedings should be dismissed with costs. The primary judge made orders to that effect on 16 August 2018, when his Honour also ordered that an amount of $1,557,809.08 of the monies paid into Court by YTO be paid out to Innovative. By notice of appeal filed on 15 October 2018, YTO appeals from the orders made by his Honour.
The primary judge's reasons for dismissing YTO's claims were based substantially on questions of pleading and the manner of conduct of the proceedings by YTO. It is therefore desirable to say something more about the claims made by YTO in its Second Further Amended Technology and Construction List Statement of 8 June 2018 (the List Statement).
The relevant parts of the List Statement may be restated as follows:
On 6 November 2017, YTO received a purported variation claim from Innovative for the sum of $132,000 for the costs of removing material that was purportedly GSW from the site, calculated at 66 loads at a rate of $2,000 per load. …
On 11 January 2018, YTO received from Innovative a progress claim dated 25 December 2017 in the sum of $1,649,832.51 for work alleged to have been completed up to 25 December 2017 (Payment Claim 5).
In Payment Claim 5, Innovative claimed $490,000, excluding GST, as the cost of removing material that it alleged was GSW, being 70 loads at a rate of $7,000.
On 7 February 2018, Innovative lodged the Adjudication Application.
On 22 February 2018, the Adjudication Application was determined in favour of Innovative in the sum of $1,535,377.51 together with fees of $17,876.10.
In the Determination, the Adjudicator allowed Innovative the sum of $490,000 of its claim for the costs of removing allegedly GSW from the site. 15 In fact the material removed by Innovative after 2 August 2017 was not GSW and Innovative was not entitled to the costs claimed. …
In the Adjudication Application, Innovative: (a) falsely represented to YTO and to the Adjudicator that each of the 66 loads of the excavated material removed from the site was GSW in circumstances where Innovative had itself concluded that 21 loads were not GSW and one load was rejected as not payable at all and Innovative knew the material was not GSW. (b) falsely claimed $7,000 per load as the additional costs Innovative had incurred for the removal of 66 loads of GSW material in circumstances where the actual cost to Innovative for the removal of the excavated material was much less than that amount per load; (c) altered an invoice of Elkordi with the intention of concealing information contained in the original invoice, including the fact that the rate per load charged to Innovative was $145.
Before the primary judge, YTO accepted that it was required to particularise the alleged fraud and that it had the onus of establishing the fraud as particularised. The primary judge proceeded on the basis that YTO was required to articulate its case of fraud strictly and to stay within the confines of its articulated claims in the conduct of its case.
In paragraph 36 of its closing submissions, YTO identified three respects in which Innovative was alleged to have misled the Adjudicator as follows:

(a) it claimed that it had removed 66 loads at a time when it knew or had concluded a substantial number of the 66 loads did not consist of GSW;
(b) it altered the invoice from Elkordi to conceal the information that would have revealed to the Adjudicator that 28 of the 66 loads were not loads of GSW; and
(c) it represented to the Adjudicator that it had incurred the additional cost of carting GSW asserted in its payment claim.

The primary judge considered that a comparison between those closing submissions and para 21(a) of the list statement revealed a shift from one assertion to another assertion. The first assertion was that Innovative falsely represented that each of the 66 loads was GSW when it had itself concluded that 21 loads were not GSW. The second assertion was that Innovative claimed that it had removed 66 loads at a time when it "knew or had concluded" that a substantial number of the 66 loads were not GSW. His Honour considered that it was most significant that the assertion that Innovative falsely represented that each of the 66 loads of excavated waste removed was GSW had been excised and the word "knowledge" was removed by an amendment to para 21(c) of the list statement, but that that assertion had "crept back in". His Honour expressed the view that an allegation of "falsely representing" could not "be airbrushed out of YTO's case" and an allegation of knowledge, which had been deleted from the List Statement after due consideration, could not "be added back in".
The primary judge attached particular significance to those circumstances because the principal of Elkordi was called as a witness in YTO's case but gave no evidence that the material that he carried was not GSW. His Honour observed that the onus was on YTO to prove that Innovative's representation, "that each of the 66 loads claimed to have been removed by Innovative", was false. His Honour concluded that YTO had not done so. His Honour drew the inference that, by calling Elkordi's principal and not adducing evidence from him on the topic, the principal's evidence would not have assisted YTO's case. [2] The primary judge expressed the view that it was not open to YTO to advance the case contained in para 36(a) of its closing submissions and that it could not establish the claim asserted in para 21(a) of the list statement if it had not first established that the representation "that each of the loads hauled was GSW" was false.
In relation to the claim made in para 21(b) of the List Statement, YTO relied upon a statement made by Innovative in the Payment Claim in the following terms (retaining grammatical errors): "GSW material has been found as per agreement between YTO and Innovative … Innovative … has found … GSW… which needs to be removed from site during Innovative excavation work which costed additional money to Innovative and never made an allowance by Innovative to in any part of an agreement. Innovative seeking an additional cost for removing the [GSW]". YTO contended, in essence, that Innovative represented that the amount of its claim was the amount charged to it by Elkordi, when the amount claimed by Innovative was far in excess of the amount actually charged to Innovative by Elkordi. The primary judge concluded that the claim was not made out.
The primary judge considered that it was strongly arguable that the words quoted above, standing alone, conveyed the impression that Innovative was asserting that its claim was based on what it had spent, or would have to spend, to remove GSW. Nevertheless, his Honour did not think that it was clear that Innovative was claiming that the $7,000 per load was the cost to it of so doing. His Honour considered that it was at least open to treat the words used, coupled with the reference to "rate", in the context of a claim for a variation, as meaning that Innovative was seeking the amount of $7,000 as the cost to YTO for the variation and not asserting that that was the cost to Innovative. His Honour considered that, if Innovative were asserting that $7,000 was the cost to it, it would be claiming as a variation only the amount that it paid to its subcontractor, without any profit margin or mark-up, which his Honour considered would be most unusual. His Honour observed that the Adjudicator awarded $466,800 claimed by Innovative for the removal of GSW as the "value" and not the "cost" of the removal. His Honour considered that it was unlikely that Innovative would charge only the amount that it had paid to a subcontractor, without any margin or mark-up.

Endnotes

Although the pleading alleges that the adjudicator awarded $490,000 in respect of this component of the claim, in actual fact only $462,000 was awarded. Nothing turns on this error.
See Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 419. 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: 15 May 2019

Solicitors: Phillip J Pollack, Lawyer (Appellant) CCS Legal (Respondent) File Number(s): 2018/279556 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division - Technology & Construction List Citation: [2018] NSWSC 1354 Date of Decision: 16 August 2018 Before: Rein J File Number(s): 2018/97840

[This headnote is not to be read as part of the decision] On 16 August 2018, a judge of the Equity Division dismissed an application by YTO Construction Pty Ltd ("YTO") to have set aside a judgment entered on an adjudication certificate issued following an adjudicator's determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) on the basis that it was procured by fraud ("the Adjudication"). The judgment awarded one of YTO's subcontractors, Innovative Civil Pty Ltd ("Innovative"), $1,564,384.22 in respect of various works - said to be variations - performed by Innovative or its subcontractors on YTO's construction site in Ashfield. Of the amount awarded to Innovative, $462,000 related to a claim that Innovative, by its subcontractor Elkordi Earthworx Pty Ltd ("Elkordi"), had removed from YTO's site 66 truckloads of General Solid Waste ("GSW") material. The amount awarded was based on a rate of $7000 per load. GSW was to be distinguished from Virgin Extracted Natural Material ("VENM"). YTO's allegation of fraud was relevantly in two parts. Paragraph 21(a) of its Second Further Amended Technology and Construction List Statement ("List Statement") alleged that Innovative claimed that it had removed 66 loads of GSW from the site when it had concluded that a number of these loads were not in fact GSW. It pleaded that Innovative knew that some of the truckloads were not GSW because it had refused to pay Elkordi on that basis. As between Elkordi and Innovative, a truckload of VENM commanded a haulage rate of $500 per load, while a truckload of GSW commanded a rate of $1250 or $1,200. Innovative was proposing to pay Elkordi only $500 - sometimes less - for many of the 66 loads claimed to be GSW. Innovative provided to the adjudicator a redacted copy of an invoice ("Invoice 0243") issued to it by Elkordi as evidence of the haulage of 28 loads of GSW. An unredacted copy of Invoice 0243 showed that the 28 "loads" evidenced by the invoice were not loads at all, and that the invoice related to hours spent by Elkordi waiting at the site. The primary judge dismissed so much of YTO's claim that was founded on this allegation of fraud on the basis that YTO, in order to prove the falsity of the representation, would need to prove that all 66 loads were not in fact GSW, and YTO had not done so. His Honour also found that because YTO asserted in its closing submissions that it was not necessary to conduct an assessment of the physical qualities of the material removed in any given truckload, it was advancing a case that had not been articulated in its pleading. The second allegation of fraud was that in paragraph 21(b) of the List Statement. YTO alleged that Innovative had represented that $7000 was the cost to it of removing the loads of GSW, when that was not the case. The primary judge found that YTO had again departed from its pleaded case because it had not sought in its closing submissions to argue that the representation was false. Further, the primary judge found that Innovative was not representing that the cost to it was $7000, but rather that $7000 was the cost, including mark-up (or "value"), to YTO. On appeal, the primary issue was whether the primary judge erred in deciding that YTO's case as pleaded was not sufficient to impugn the determination and that YTO's final submissions departed from its pleading. YTO argued that the primary judge erred in so finding, and that the primary judge ought to have addressed the claim advanced by it. The Court of Appeal (per White JA, Macfarlan JA (at [1]) and Emmett AJA (at [94]) agreeing), allowing the appeal in part, held: In relation to the first allegation of fraud in paragraph 21(a) - The primary judge erred in not addressing the evidence relating to the number of loads hauled and whether Innovative knew that its representation to the Adjudicator was false. The primary judge misapprehended what would be required to falsify the representation. YTO was not required to show that none of the 66 loads hauled was GSW. All that was needed to falsify the representation was for YTO to show that one or more of the 66 loads were not GSW (at [53] per White JA; [106] per Emmett AJA). YTO's submission that it was not necessary to assess the physical qualities of the material removed was not a departure from its pleaded case but rather a submission that its case could be established on the basis of documentary evidence alone (at [61] per White JA; [106] per Emmett AJA). Quarter Enterprises Pty Ltd v Allardyce Lumber Company Ltd (2014) 85 NSWLR 404; [2014] NSWCA 3, referred to. In relation to the second allegation of fraud in paragraph 21(b) - YTO did not depart from its pleading in its written submissions. It was clear from the balance of its submissions that the allegation advanced by YTO was that the representation was false (at [70] per White JA). However, the finding as to the representation conveyed by Innovative was well open to his Honour to make, and he was not in error in making it (at [72]-[74] per White JA; [107] per Emmett AJA). Further, where fraud is in issue, the question is whether the representor honestly believed the representation to be true in the sense in which he or she understood it, or knew the representee might understand it, and not in a way in which a court, considering the matter objectively, might understand it. The primary judge accepted Innovative's evidence that it understood $7000 per load to be the commercial rate for removal of GSW, and thus there could be no fraud (at [73] per White JA). In any event, YTO had not pleaded that Innovative knew or was aware of the falsity of the claim. The claim in 21(b) was rightly rejected (at [75] per White JA; [107] per Emmett AJA). John McGrath Motors (Canberra) Pty Ltd v Applebee (1964) 110 CLR 656; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, applied.

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