BCFK Holdings Pty Ltd v Rork Projects Pty Ltd

Case •

[2022] NSWSC 1706

•

14 December 2022

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: BCFK Holdings Pty Ltd v Rork Projects Pty Ltd [2022] NSWSC 1706
Hearing dates: 14 and 24 November 2022; further written submissions received 29 and 30 November, 1 December 2022
Date of orders: 14 December 2022
Decision date: 14 December 2022
Jurisdiction:Equity - Technology and Construction List
Before: Stevenson J
Decision:

Adjudication determination quashed

Catchwords:

BUILDING AND CONSTRUCTION – service of payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) – where payment claim delivered to office of superintendent – where delivery to superintendent not effective service – where payment claim subsequently came to notice of respondent – where respondent served payment schedule asserting service of payment claim not effective – whether the provisions of the Act enlivened – whether respondent should be taken then to have been served – where claimant then served second payment claim – where adjudication proceeded on basis of that second payment claim

BUILDING AND CONSTRUCTION – adjudication – whether adjudicator had jurisdiction – whether s 13(1C) of the Building and Construction Industry Security of Payment Act engaged – proper construction of s 13(1C) of the Act – whether s 13(1C) of the Act permits service of only one payment claim after termination of a construction contract – whether adjudicator failed to exercise jurisdiction – reasons given by adjudicator

MISLEADING OR DECEPTIVE CONDUCT – whether s 18 of the Australian Consumer Law engaged – whether by service of its payment schedule plaintiff represented that payment claim not validly served – whether defendant relied on any such representation to make its decision not to proceed to adjudication based on that payment claim

Legislation Cited:

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

Building and Construction Industry Security of Payment Amendment Act 2018 (NSW)

Competition and Consumer Act 2010 (Cth) – Schedule 2, Australian Consumer Law

Corporations Act 2001 (Cth)

Cases Cited:

Clyde Bergemann v Varley Power [2011] NSWSC 1039

Cockram Construction Ltd v Fulton Hogan Construction Pty Ltd (2018) 97 NSWLR 773; [2018] NSWCA 107

CPB Contractors Pty Limited v Heyday5 Pty Limited [2020] NSWSC 1625

Falgat Constructions Pty Limited v Equity Australia Corporation Pty Limited [2006] NSWCA 259

Henville v Walker (2001) 206 CLR 459; [2001] HCA 52

Iskra v MMIR Pty Limited [2019] NSWCA 126

Pacific General Securities Ltd & Anor v Soliman & Sons Pty Ltd & Ors (2006) 62 NSWLR 421; (2006) 196 FLR 388; [2006] NSWSC 13

Piety Constructions Pty Ltd v Hville FCP Pty Ltd [2022] NSWSC 1318

QC Communications NSW Pty Ltd v CivComm Pty Ltd [2016] NSWSC 1095

Re Ricochet Pty Ltd; Ian Barron and Morwest Investments Pty Ltd as Trustee of the Morwest Trading Trust v Equity Trustee Executor and Agency Company Limited; Austore Limited and Azelia Pty Ltd (1993) FCR 229; [1993] FCA 99

Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd (2016) 260 CLR 340; [2016] HCA 52

Texts Cited:

P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters)

New South Wales Legislative Council, Parliamentary Debates (Hansard), 24 October 2018

Category:Principal judgment
Parties: BCFK Holdings Pty Ltd (Plaintiff)
Rork Projects Pty Ltd (First Defendant)
Navid King (Second Defendant)
Adjudicate Today Pty Ltd (Third Defendant)
Representation:

Counsel:
D S Weinberger (Plaintiff)
F Corsaro SC (First Defendant)

Solicitors:
Pikes & Verekers Lawyers (Plaintiff)
Brown Ward King (First Defendant)
Richard Green Construction Lawyers (Second and Third Defendants)
File Number(s): 2022/309491

JUDGMENT

  1. In this case a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”) was purportedly served on the plaintiff, but not effectively served so as to enliven the provisions of the Act. It subsequently came to the attention of and was read by the sole director of the plaintiff. The question is, should the payment claim be taken to have then been validly served.

  2. So far as my research, and that of counsel, reveals, the question has not been hitherto considered.

  3. In Piety Constructions Pty Ltd v Hville FCP Pty Ltd [1] I held that an effectively served payment claim under the Act should be taken to have been served when it actually came to the notice of and was read by the recipient, notwithstanding a “deemed service” provision in the relevant building contract.

    1. [2022] NSWSC 1318.

  4. The question here is different, but similar considerations apply. In my opinion, for the reasons that follow, the answer to the question is “yes”.

The facts

  1. On 10 May 2021, BCFK Holdings Pty Ltd (“the Principal”) and Rork Projects Pty Ltd (“the Builder”) entered into a construction contract (“the Contract”) within the meaning of the Act. The Contract related to a childcare centre in Balmain.

  2. For the purposes of the Adjudication Application only, and thus for these proceedings, the parties agree that the Contract was lawfully terminated by the Builder on 12 May 2022.

  3. On 12 July 2022 the Builder delivered a payment claim (which, for reasons that will become apparent, I will call “the First Payment Claim”) under the Act to Spectrum Property and Projects Pty Ltd, the superintendent of the project (“the Superintendent”). The Superintendent was not authorised under the Contract to accept service of documents relevant to the Contract. [2] It is common ground that the delivery of the First Payment Claim to the Superintendent was not itself effective service.

    2. See s 31(1)(e) of the Act.

  4. Shortly after the Builder delivered the First Payment Claim to the Superintendent, the Superintendent notified the sole director of the Principal, Ms Pam Meale, of the delivery.

  5. On 16 July 2022 Ms Meale requested the Superintendent to “provide me access to the documentation so I can urgently review what has been provided and make comment”.

  6. On 18 July 2022 the Superintendent forwarded to Ms Meale a link to the First Payment Claim.

  7. Evidently, Ms Meale opened the link at or about that time and read the First Payment Claim.

  8. Thus, on 26 July 2022, she caused a payment schedule (which, again for reasons which will become apparent, I will call “the First Payment Schedule”) to be served on the Builder which stated:

“The payment claim is not a valid payment claim made under the Act

1.   On 12 July 2022, [the Builder] served on the Superintendent appointed under the Contract, by hand, the payment claim.

2. Section 13(1) of the Act requires that a payment claim, made under the Act, be made ‘on the person who, under the construction contract concerned, is or may be liable to make the payment’. The payment claim was not served on [the Principal], who is the person liable to make the payment under the Contract. The role of the superintend[ent] is provided for in clause 20 of the Contract. It does not extend to receiving payment claims or providing a payment schedule. The superintendent has no role under the Act. It only performs a contractual function.

3. Accordingly, the payment claim served by [the Builder] on 12 July 2022 did not enliven the operation of the Act.” (Emphasis in original.)

  1. In the First Payment Schedule, the Principal also made detailed submissions concerning the question of whether or not the First Payment Claim was a “final” payment claim for the purposes of the Contract, [3] whether the Contract had been validly terminated, [4] whether the Principal had repudiated the Contract and whether the Principal was thus entitled to suspend payment under the Contract.

    3. It is common ground that, under the Contract, the Builder was not entitled to serve a "final" payment claim because the defects liability period had not commenced.

    4. A question not in dispute for the purpose of these proceedings.

  2. Clause 7 of the Contract provided that notice was deemed to have been received on the date of its “actual receipt”. However, cl 7 was concerned only with documents delivered by mail, email or fax and was not engaged here, as the First Payment Claim was delivered personally to the Superintendent on 12 July 2022.

  3. In the circumstances I discuss further below, the Builder, on advice from its solicitor, decided not to proceed to adjudication relying on the First Payment Claim.

  4. Instead, on 20 August 2022, it served a further payment claim (“the Second Payment Claim”) on the Principal. There is no dispute that the Second Payment Claim was validly served. The Principal served a payment schedule in response (“the Second Payment Schedule”).

  5. The matter then proceeded to adjudication and, on 5 October 2022, the Adjudicator made an Adjudication Determination in favour of the Builder in the sum of $685,915.54.

Was the First Payment Claim validly served so as to enliven the Act?

  1. Despite making the opposite assertion in the First Payment Schedule, the Principal now contends that, notwithstanding the fact that delivery of the First Payment Claim to the Superintendent was not effective service for the purposes of the Act, service should be taken to have been effected on 18 July 2022 when, it is to be inferred, Ms Meale, as the sole director of the Principal, accessed the link sent to her by the Superintendent and thereby came to be on notice of the contents of the First Payment Claim.

  2. This does amount to a volte-face by the Principal. But that does not, itself, mean that the position it now propounds is not correct. It may have other consequences to which I will return.

  3. In Falgat Constructions Pty Limited v Equity Australia Corporation Pty Limited [5] the Court of Appeal considered when a payment schedule was served under the Act. The question was whether service had occurred in accordance with s 109X of the Corporations Act 2001 (Cth).

    5. [2006] NSWCA 259.

  4. The Court held:

“… it is not strictly necessary to express a view as to fine questions of construction under the [Corporations] Act. However, it is in my opinion appropriate to express views about this, because of the importance of clarity on this matter.

… it is clear that if a document has actually been received and come to the attention of a person to be served or provided with the document, or of a person with authority to deal with such a document on behalf of a person or corporation to be served or provided with the document, it does not matter whether or not any facultative regime has been complied with … In such a case, there has been service, provision and receipt.” [6] (Citations omitted.)

6. At [57]-[58] (Hodgson JA, with whom Handley JA and Hunt AJA agreed).

  1. These remarks were made in the context of the dispute in Falgat Constructions as to when the payment schedule had been served. In Piety Constructions I cited the Court of Appeal’s observations in Falgat Constructions in a like context, the question in Piety Constructions being when the payment claim had been served, there being no dispute about the mode of service that was adopted.

  2. But I read the Court of Appeal’s observations in Falgat Constructions as having wider application.

  3. They were certainly treated that way by Ball J in QC Communications NSW Pty Ltd v CivComm Pty Ltd [7] where his Honour said, citing the Court of Appeal’s observations in Falgat Constructions:

“A document will be served in accordance with the requirements of [the Act] if it actually comes to the attention of the person to be served. It is not necessary that it be served in accordance with s 31.”[8]

7. [2016] NSWSC 1095.

8. At [27].

  1. As numerous authorities in this Court have made clear, the Act is intended to provide a speedy way to resolve, on an interim basis, disputes concerning construction contracts.

  2. The Act is also clearly intended to operate in a realistic fashion and, so far as possible, despite the plethora of cases that have arisen under the Act, in a manner that avoids arid technical disputes.

  3. As I said in Piety Constructions,[9] a recipient of a document required to be served under the Act who actually opens and peruses a copy provided electronically ought not be encouraged to contend, as the Principal initially did here, that although it was factually provided, it was not legally provided.

    9. At [35].

  4. A party that actually receives a payment claim should not be entitled to assert that service did not ever happen because of a shortcoming, perhaps technical, in the manner in which the claimant purported to effect service.

  5. In my opinion, an assertion in a payment schedule that service has not been validly effected should be taken to be an acknowledgement that, notwithstanding the initially ineffective service, the payment claim has, ultimately, come to the attention of the authorised recipient; who would then stand as being validly served.

  6. It is true that this may mean that a claimant that has ineffectively purported to serve a payment claim may not know when time starts to run for the respondent to serve a payment schedule and thus may not know at what time they may take action under s 15(2) of the Act to recover the unpaid portion of the claimed amount or go to adjudication. However, any such circumstance will be a consequence of the claimant’s own error so far as concerns service and, if they were to move prematurely to adjudication, it would be of no effect.

  7. In any event, the respondent’s obligations under the Act are engaged once the payment claim has come to the attention of the authorised recipient. Sensible communication between the parties will, and should be encouraged to, resolve any such issues and to ensure that the claimant is made aware of the respondent’s contention as to when service was effective.

  8. For those reasons, my conclusion is that, notwithstanding the position it took at the time, the Principal was correct to contend before me that the First Payment Claim was served on it on or about [10] 18 July 2022, when Ms Meale accessed it.

    10. A sufficient finding for the purposes of these proceedings.

Misleading or deceptive conduct?

  1. In those circumstances, the Builder alleges that by service of the First Payment Schedule, and by its silence in not informing the Builder that the First Payment Claim had been validly served “and that it considered that the First Payment Claim did enliven the operation of the Act”, the Principal represented that “the First Payment Claim had not been validly served and could not enliven the processes of the Act” (described as the “Payment Claim Representation”).

  2. There are thus two elements of the alleged Payment Claim Representation:

  1. the First Payment Claim had not been validly served; and

  2. the purported service of the First Payment Claim could not, or “did not” as is asserted in the First Payment Schedule, enliven the processes of the Act.

  1. The Builder alleges that the Payment Claim Representation was made in trade or commerce and was misleading or deceptive because:

  1. the Principal considered that the First Payment Claim was properly served on or about 18 July 2022;

  2. the Principal did not inform the Builder that the First Payment Claim had been validly served on it;

  3. the Principal considered that the First Payment Claim did enliven the operation of the Act and that the Builder was entitled to make an adjudication application; and

  4. the Principal knowingly or recklessly made the Payment Claim Representation with a view to misleading, inducing and/or preventing the Builder from making an adjudication application in relation to the First Payment Claim.

  1. Finally, the Builder alleged that it relied on the Payment Claim Representation and was induced thereby to act to its detriment by refraining to make an adjudication application based on the First Payment Claim.

  2. In those circumstances, the Builder alleged that the Principal was estopped or precluded from advancing the contention that the First Payment Claim had been validly served or alternatively, that the Builder was entitled to an order under s 237 of the Australian Consumer Law [11] to prevent the Principal from now advancing the contention that the First Payment Claim had been validly served.

    11. Competition and Consumer Act 2010 (Cth) – Sch 2, Australian Consumer Law.

  3. Before me, the Builder did not press the contention that an estoppel had arisen but maintained its contention that the Principal had engaged in misleading or deceptive conduct.

  4. As to whether the Payment Claim Representation was made, although the First Payment Schedule asserted in paragraph 1 that the First Payment Claim “was not served” on the Principal, the very fact of the service of the First Payment Schedule revealed that it had been received by the Principal and thus had been validly served. Indeed, in paragraph 2 of the Payment Schedule, the Principal referred to the payment claim “served by” the Builder, albeit in the context of an assertion that the operation of the Act had not been enlivened.

  5. As Mr Damian Ward, the solicitor for the Builder, deposed:

“It was obvious that the payment claim had come to Ms Meale’s attention because a payment schedule would not have been issued if this was not the case.”

  1. However, as mentioned, the First Payment Schedule also asserted that the First Payment Claim did “not enliven the operation of the Act”. That was an assertion as to the legal effect of the steps taken by the Builder to deliver the First Payment Claim.

  2. There is no evidence before me as to whether, at the time that the Principal served the First Payment Schedule, it then “considered” that the First Payment Claim had been “properly served” on 18 July 2022 nor that the Principal then “considered” that the First Payment Claim did “enliven the operation of the Act”. I think it more likely that this is a view to which the Principal has come since publication of my reasons in Piety Constructions.

  3. However that may be, the critical question is whether the Builder has shown that it has taken any step or suffered any damage “because of”[12] the Payment Claim Representation.

    12. Ibid, s 237.

  4. In this regard, as I have set out, the Builder alleges that it relied on the Payment Claim Representation by refraining from making an adjudication application based on the First Payment Claim. I accept the Builder’s submission that it is not necessary for it to establish that but for the alleged Payment Claim Representation it would have proceeded to adjudication. It would be sufficient for the Builder to show that the alleged Payment Claim Representation made a “non trivial contribution” or “materially contributed” to its decision not to proceed to adjudication on the basis of the First Payment Claim. [13]

    13. Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [61] (Gaudron J) and [106] (McHugh J); Re Ricochet Pty Ltd; Ian Barron and Morwest Investments Pty Ltd as Trustee of the Morwest Trading Trust v Equity Trustee Executor and Agency Company Limited; Austore Limited and Azelia Pty Ltd (1993) FCR 229; [1993] FCA 99 at [28] (Lockhart, Gummow and French JJ).

  5. On 8 August 2022 Mr Ward sent an email to Mr Brian O’Rourke, a director of the Builder, and Mr Malcolm Hoye, a construction manager employed by the Builder, as follows:

“Working through the issues on the weekend and further this morning in relation to finalising the claim it has struck me we need to make a tactical choice about it.

The payment schedule contains 4 essential allegations. They are:

1. the payment claim has not been made under the Act because it was not served on the [Principal] but rather the Superintendent;

2.   the payment claim is styled final payment claim and there is no entitlement to make such a claim;

3.   the contract is not terminated;

4.   there has been no repudiated conduct by the [Principal].

As we know, the security of payment adjudication process can be legally loose. That is, decisions might be made by an adjudicator which are adverse to [the Builder] even if they are not well based as matters of law or fact.

I note our prior experience in the adjudication application in this matter with regard to the allegation an invalid payment schedule had been issued in relation to payment claim 10 and the finding by the adjudicator that service of a schedule by the Principal and not the Superintendent was valid. I am keen to avoid similar technical points causing the adjudication application to possibly fail.

The allegation that the payment claim has not been made under the Act because it was not served on the [Principal] might succeed. It is possible that an adjudicator will find that the adjudication application fails because it [has] not been served directly on [the Principal], not because it does not contain merit or substance. This would mean that cost would be expended in making the application for the adjudicator to come to a determination on a technical point.

Further, what constitutes a final payment claim under the contract is specific under clause 37. Whilst it may be a final payment claim from [the Builder’s] perspective, it is not a final payment claim under clause 37 because that requires practical completion being reached and the defects liability period expiring. These things obviously have not and will not happen. Again, it is possible that an adjudicator will find that it is not a final payment claim therefore for a technical reason rather than its merits [find] against [the Builder].

In my view the issues in relation to the termination of the contract and the repudiatory conduct of the [Principal] are not matters for the adjudicator. The adjudicator is solely to determine whether construction work has been performed under the contract. Whether the contract has been validly terminated is a matter for a court and not the adjudication procedure.

My concern is that [the Builder] loses an adjudication application for technical reasons rather than on the merits.

In order to avoid this adverse situation, I suggest that a further payment claim be made on the 20th of this month serving it on the [Principal] and not styling it a final payment claim so as to remove 2 of the reasons for a schedule [as] issued by the Principal in the past.

The principle detriment of this is that the [Principal] has relied solely on technical arguments to date. It has not reviewed the substance of the payment claim to determine whether the work claimed was undertaken. It cannot do so under the current payment claim 11 because it has chosen in its schedule to take technical arguments only. It might therefore reassess this position and review and analyse specifically the claims for work done in any further schedule. This could open another area of dispute. This will then mean there will be a fight about whether the work alleged in the payment claim has been done. I note your instructions in this regard that there is no potential dispute about this as the payment claim has been prepared precisely and comprehensively.

Perhaps we can talk later this morning about tactical steps. Whilst time will be lost by making a further application, I think the position of [the Builder] will be strengthened and the position of [the Principal] undermined subject to the qualification above that it does not seek to undertake an attack on the substance of the new payment claim (being a repetition of payment claim 11).”

  1. The decision made by the Builder not to seek an adjudication arising from the First Payment Claim was made in a conversation between Mr Ward, Mr O’Rourke and Mr Hoye later on 8 August 2022.

  2. Mr Ward gave evidence that this conversation went as follows:

“[Mr Ward]:   I understand. [The Principal is] saying there is no valid service and therefore there is no valid payment claim. If they are right, and it seems they are given that the payment claim was only served on the Superintendent, it is likely an adjudicator will find that the payment claim was invalidly served and will deny the claim. Once an adjudicator denies the claim on my understanding of the law there is no way for you to go back for another claim on the same grounds. On the assumption that the claim is invalid because it was not served on [the Principal], the safest course will be to make a payment claim next month on the reference date under the contract and serve it as widely as you possibly can on everyone connected with the job. This will hopefully avoid this issue arising again.

The alternative is to file an adjudication application and deal with it in the determination process. This would be high risk.

If an adjudicator sees service on the director as being important and it is something which we have not done, [the Builder] is likely [to] lose.

[Mr O’Rourke]: Would we be up for the cost of the adjudication if an adjudicator said that the claim was not validly made or didn’t have any meaning under the Act?

[Mr Ward]:   It is likely. Generally the loser pays the cost of the adjudication. This would mean you would be running an adjudication in circumstances where we think it is likely you will lose. It will cause delay, cost in putting it together and lodging it and if I am right that an adjudicator is likely to find against you, the cost of the adjudication also.

[Mr O’Rourke]:   We don’t want any of that.

[Mr Hoye]:   So that means we go again, and I need to serve it on Pam [Meale], the registered office of the company, their business office and the Superintendent? Anyone else?

[Mr Ward]: If [the Principal is] taking service points then you need to ensure that it is delivered everywhere and anywhere that you know the director of the company will get it. Mostly people don’t take points like this, but this company is. Under the contract and the Act, I don’t think the last claim has been validly served. There is a problem because the address in the contract is a PO Box and there might be an issue if it is only sent to a PO Box and it is not collected or it does not actually come to the attention of the director. She obviously knows about the last payment claim because she put on a schedule. It is a technical point about what actually constitutes service under the Act. It would be better if they dealt with the substance of the claim and did not take this point, but we have to deal with it. The same problem can’t come up again and that is why serving as widely as is possible is the best way ahead. Even though it’s a technical issue, it is important as a matter of process. It is tricky for the next claim because you don’t want to be met with an argument that sending the documents only to a PO Box is not valid service.

[Mr Hoye]:   Okay.

[Mr O’Rourke]:   Mal [Hoye], we should do what Damian [Ward] says. No point in wasting time and cost on an adjudication where we might lose on this issue.” (Emphasis added.)

  1. Mr Hoye gave this account of the conversation:

“[Mr Hoye]:   Based on your review of the payment schedule received, what are our options?

[Mr Ward]: The payment schedule contains several assertions. These are technical arguments that if taken to adjudication may fail. These being whether the claim can be deemed a payment claim under the Act because it was not served on the [Principal] and secondly the wording of final payment claim used. It may be a final payment claim from [the Builder’s] point of view but not a final payment claim under the contract.

The issues relating to the termination of contract are not matters for the adjudicator. Whether the contract has been validly terminated is a matter for a court and not the adjudication process.

In order to avoid technical points which may cause an adjudication application to possibly fail it is suggested that a payment claim be made in August serving it on the [Principal] and removing any reference to a final claim.

[Mr O’Rourke]:   If this is the case then we will not progress an adjudication application and submit a payment claim in August.” (Emphasis added.)

  1. Mr Hoye concluded:

“10.   Because Mr Ward said that the Payment Schedule challenged the validity of service and another payment claim should be prepared and served on [the Principal] to cure the defect, I did not cause [the Builder] to proceed to make an adjudication of the First Payment Claim and proceeded to arrange for a subsequent payment claim to be properly served on 22 August 2022.

11.   Had there not been an issue raised by [the Principal] as to the service of the First Payment Claim, I would not have sought legal advice on the issue raised by [the Principal] and proceeded to prepare and lodge an adjudication application for the First Payment Claim.”

  1. Mr Hoye confirmed during cross-examination that he was the person responsible for the decision to serve the Second Payment Claim. Although he stated that he would not have sought Mr Ward’s advice but for the issues raised in the First Payment Schedule, he was clear that his decision not to cause the Builder to proceed to adjudication on the basis of the First Payment Claim was “because” of the advice given by Mr Ward that the Builder should serve what became the Second Payment Claim.

  2. As to the basis on which Mr Ward came to give that advice, Mr Ward said in his affidavit:

“… I formed the view that this did not constitute valid service under section 13(1) of the Act, and it was possible, if not likely, that an adjudicator would find that the payment claim was not validly served and therefore had no force as a payment claim. In my view this would have incurred wasted time and costs and would have been a redundant exercise.”

  1. In his oral evidence, Mr Ward gave this evidence in answer to a question from me:

“Q. So you formed your own view, did you, about whether the Act had been enlivened by the delivery of the First Payment Claim to the Superintendent?

A.   After it was raised in the Schedule I considered it for the purposes of advising the client.”

  1. Mr Ward later gave this evidence:

“Q.   So I think you’ve agreed with me that on 8 August you told your client they need[ed] to make a tactical choice?

A.   Yes, I have, yes.

Q.   And that tactical choice [was] proceeding to adjudication on the first payment claim or serving the second payment claim?

A.   Correct.

Q.   Or what became the second payment claim, correct?

A.   Correct.

Q.   That advice included advice to the effect that the adjudicator may accept the service point which was taken on the first payment schedule?

A.   Correct.

Q.   Or may reject it?

A.   I didn’t countenance rejecting it. My concern was that it would be accepted by the adjudicator and--

Q.   Your advice was that it may be that it is possible, or may be accepted but it may not?

A.   Possible at a minimum. I thought it was a greater risk.

Q.   I’m asking you what you advised your client not what you thought. You advised your client that it was possible that the adjudicator may find that the first payment claim was not validly served?

A.   Yes.

Q.   Is that correct or not?

A.   Yes.”

  1. A further factor that affected the advice Mr Ward gave the Builder was that the First Payment Claim was described as a “Final Payment Claim” whereas, under the Contract, no “final” payment claim could be served until the expiry of the defects liability period. [14] There was no dispute that the defects liability period had not commenced when the First Payment Claim was served.

    14. Clause 37.4.

  2. In these circumstances, I am not persuaded that whatever representation was made by the Principal in the First Payment Schedule played any material role in the decision taken by the Builder not to proceed to adjudication on the basis of the First Payment Claim but to, rather, serve what became the Second Payment Claim and to proceed to adjudication on the basis of that document. The Builder relied on Mr Ward’s advice that a “tactical choice” needed to be made, and on Mr Ward’s advice that in turn was based upon his own independent consideration of the question of the effectiveness of the service of the First Payment Claim. It also relied on Mr Ward’s further advice that the fact that the First Payment Claim was described as being a “final” payment claim might provide a “technical reason” for an adjudicator to make a decision adverse to the Builder. The detail of the advice given by Mr Ward to the Builder in his lengthy and comprehensive 8 August 2022 email together with the terms of Mr Ward’s subsequent conversation with Mr O’Rourke and Mr Hoye show that it was on Mr Ward’s advice, and not the assertions in the First Payment Claim, that the Builder relied when deciding on the course to be adopted.

  3. For those reasons, I am not persuaded that any misleading or deceptive conduct on the part of the Principal caused the Builder to act to its detriment.

Section 13(1C) of the Act

  1. Section 13(1C) of the Act provides:

“In the case of a construction contract that has been terminated, a payment claim may be served on and from the date of termination.”

  1. The question that divided the parties was whether, on its proper construction, this subsection means that once a construction contract has been terminated, a party seeking a payment may serve only one payment claim thereafter.

  2. The relevance of such a conclusion here would be, as I have found that the First Payment Claim was effectively served, that service of the Second Payment Claim was not effective to enliven the operation of the Act.

  3. Section 13(1C) was introduced into the Act pursuant to the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) (“the 2018 Act”), evidently to overcome the problem created by the absence of a reference date post-termination in the sense discussed by the High Court in Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd. [15]

    15. (2016) 260 CLR 340; [2016] HCA 52.

  4. The 2018 Act amended s 13(5) of the Act.

  5. Previously, s 13(5) of the Act provided:

“A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract.”

  1. By the amendment effected by the 2018 Act, s 13(5) now provides:

“Except as otherwise provided for in the construction contract, a claimant may only serve one payment claim in any particular named month for construction work carried out or undertaken to be carried out (or for related goods and services supplied or undertaken to be supplied) in that month.”

  1. As the Builder pointed out, s 13(5) provides that, except as otherwise provided for in the contract, a claimant “may only serve one payment claim” in any particular month, whereas in s 13(1C) it is simply stated that, when a construction contract has been terminated, “a payment claim” may be served on and from the date of termination.

  2. That is, although the legislature refers in s 13(5) to a claimant being permitted “only” to serve “one payment claim” in the circumstances there posited, s 13(1C) provides that, on termination, “a” payment claim may be served on and from termination.

  3. There is a presumption that different words used within an Act have different meaning although the strength of such must depend on the context. [16]

    16. P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters) at [5.180].

  4. The context here suggests that the Parliament intended the two subsections to operate in the same way, despite the different language used.

  5. Subsections 13(1C) and (5) are directed to different circumstances. Subsection 13(1C) concerns the case of a contract that has been terminated. Subsection 13(5) concerns a contract that is on foot. The evident and understandable object of s 13(5) is to prevent a claimant from making more than one payment claim in any one month, and thus seeks to achieve a result similar to the former “reference date” provisions.

  6. The Parliament’s intention in relation to s 13(1C) was made clear in the Second Reading Speech relating to the 2018 Act. The Minister said:

“The final reform associated with progress payment entitlements is new subsection 13(1C). This subsection aims to establish an entitlement to make a payment claim for a progress payment in circumstances where a contract has been terminated. The payment claim may be served on and from the date of termination. This reform closes a loophole identified by the High Court’s decision in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd.” [17] (Emphasis added; citation omitted.)

17. New South Wales Legislative Council, Parliamentary Debates (Hansard), 24 October 2018 at 62.

  1. The Minister’s reference to the proposed s 13(1C) establishing an entitlement to make “a” payment claim and his reference, in the next sentence, to “the” payment claim makes clear that it was the Parliament’s intention that, after a construction contract has been terminated, only one payment claim may be served.

The Second Payment Claim was of no effect

  1. As I have concluded that the First Payment Claim was served on the Principal on or about 18 July 2022, and as I have concluded that the effect of s 13(1C) of the Act is that only one payment claim may be served after the termination of the construction contract, it follows that it was not open to the Builder to serve the Second Payment Claim, and that service of the document was thus not effective to enliven the provisions of the Act.

  2. It follows that the Adjudicator had no jurisdiction to adjudicate on the matter and that his decision must for that reason be quashed.

The Adjudicator’s reasons

  1. In those circumstances, it is not necessary for me to consider the parties’ submissions concerning the reasons given by the Adjudicator. However, in deference to the careful submissions made by the parties about this matter I will do so.

  2. In the Second Payment Claim, the Builder claimed $822,884.38 for contract works and variations:

  1. The Second Payment Schedule scheduled the amount payable as “$nil” and stated that:

“For the purposes of this payment schedule, the [Principal] is prepared to accept that the Contract was validly terminated whilst reserving its rights to contend otherwise in any court proceeding.”

  1. The Second Payment Schedule continued:

“On the assumption that the Contract has been terminated, [the Builder] seeks to subvert the terms of the Contract by claiming payment for things for which it would not otherwise be entitled to claim. For instance, [the Builder] is claiming an amount of $199,324.80 plus GST for the manufacture and delivery to site of the structural steel for construction. However, pursuant to clause 37.3 of the Contract, ‘the Principal shall not be liable to pay for unfixed plant and materials unless they are listed in Item 34’. The only items listed at Item 34 of the Contract are ‘lift, mechanical & electrical services plant & equipment, loose furniture & equipment’.” (Emphasis in original.)

  1. The Principal made no further submissions in the Payment Schedule about the Builder’s claim for contract works and variations.

  2. In the Adjudication Application, the Builder made submissions about the structural steel issue and continued:

“(43)   The [Principal] raises no objection to any specific item in payment claim 12 other than with regard to the structural steel works issue addressed in paragraph 3 of the schedule.

(44)   On this basis, all other claims in claim 12 are accepted by the [Principal] accepted as being validly made and therefore due and owing.

(45)   Whilst the payment schedule indicates there is no payment to be made by the [Principal], this position depends on the [Principal] establishing that the contract has not been properly terminated. Again, the concession and admission removes this as an issue for determination.

(46)   As a consequence of the matters set out above, [the Builder] respectfully suggests that the adjudicator must find at minimum an amount of $623,559.58 plus GST is to be paid by the [Principal] to it on the basis that the only component of the payment claim that is disputed is the structural steel amount.

(47)   Accordingly, the amount disputed for the structural steel element of payment claim 12 is $199,324.80 plus GST. This leaves a balance of $623,559.58 plus GST. Any finding in these terms depends on an acceptance by the adjudicator of the position taken by the [Principal] on the contractual construction issues further address[ed] below.” (Emphasis in original.)

  1. Later in the Adjudication Application, the Builder said:

“(128)   The [Principal] only challenges an amount of $199,324.80 plus GST for the provision of structural steel as unfixed plant and equipment for which no charge can be made. There are no other specific charges in payment claim 12 that are disputed.

(129)   This means the [Principal] effectively allows an amount of $623.559.58 plus GST. Based on an acceptance of the concession and admission, this is the minimum amount that should be allowed by the adjudicator as being effectively admitted by the [Principal].

(130)   [The Builder] however says that this does not fairly reflect the true position and says that the whole amount is due and owing.

(131)   The total costs [the Builder] now claims for work under contract and for contract variations is $905,172.82 including GST.”

  1. In the Adjudication Response, the Principal made further submissions in respect of the structural steel issue,[18] but did not cavil with the submissions set out above.

    18. The Principal also made submissions in relation to the s 13(1C) issue and other matters not relevant to criticism made by the Principal of the Adjudicator’s reasons.

  2. In the Adjudication Determination, the Adjudicator made a number of observations concerning the s 13(1C) issue, with which it is not necessary for me to deal.

  3. The Adjudicator dealt with the structural steel issue on the basis favourable to the Principal and about which the Principal makes no complaint.

  4. The Adjudicator dealt with the contract works and variation issues as follows.

  5. As to the Builder’s claim for contract works, the Adjudicator said:

“61.   In the payment claim, the [Builder] has provided:

a)   a breakdown for the total amount of $1,770,601.06 claimed for the contract works; and

b)   various documents to support its entitlement to the amounts claimed.

62.   The payment claim is 1324 pages in total.

63.   In the payment schedule, the [Principal] has not specifically identified and assessed each item of contract work as outlined in the payment claim. The [Principal] has only disputed ‘an amount of $199,324.80 plus GST for the manufacture and delivery to site of the structural steel for construction’.

64.   I have noted the following submissions made by the [Builder]:

‘(128) The [Principal] only challenges an amount of $199,324.80 plus GST for the provision of structural steel as unfixed plant and equipment for which no charge can be made. There are no other specific charges in payment claim 12 that are disputed.

(129) This means the [Principal] effectively allows an amount of $623,559.58 plus GST. Based on an acceptance of the concession and admission, this is the minimum amount that should be allowed by the adjudicator as being effectively admitted by the [Principal].’

65.   I have dealt with the structural steel issue below. For the reasons discussed below, I have not allowed the amount claimed for structural steel.

66.   In relation to the balance of the contract works, based on the submissions and evidence before me, I am satisfied that:

a)   the [Builder] has completed the relevant works to the extent claimed in the payment claim; and

b)   the [Builder] has correctly assessed the value of the works completed.”

  1. In relation to the variations, the Adjudicator stated:

“80.   In the payment claim, the [Builder] has provided:

a)   a breakdown for the total amount of $465,295.27 claimed for the variation works; and

b)   various documents to support its entitlement to the amounts claimed.

81.   In the payment schedule, the [Principal] has not disputed any of the amounts claimed for variation work.

82.   In those circumstances, based on the submissions and evidence before me, I am satisfied that:

a)   the [Builder] has completed the relevant works to the extent claimed in the payment claim; and

b)   the [Builder] has correctly assessed the value of the works completed.

83.   Therefore, I assess the value of the variation works completed to be $465,295.27.”

  1. In determining an adjudication application, an adjudicator must consider the matters specified in s 22(2) of the Act, including the provisions of the Act, the provisions of the contract, the payment claim and payment schedule, and all submissions and relevant documentation provided by the parties.

  2. By s 22(3)(b) of the Act, the adjudicator must “include the reasons for the determination”.

  3. The authorities establish that the reasons given by an adjudicator must:

  1. show that the adjudicator has engaged actively with the dispute; [19]

  2. address the merits of the dispute, including determining whether the construction work was carried out and its value; [20]

  3. engage in a process of evaluation sufficient to warrant the description of the task required by s 22(2) and must have regard to the matters specified for consideration in the context of assessing the value of the work carried out by the builder; [21]

  4. not simply allow a claim by a builder in default of any valid submission against it by the principal; [22] and

  5. reveal an evident and intelligible justification for the conclusion reached. [23]

    19. Clyde Bergemann v Varley Power [2011] NSWSC 1039 at [67] (McDougall J).

    20. Pacific General Securities Ltd & Anor v Soliman & Sons Pty Ltd & Ors (2006) 62 NSWLR 421; (2006) 196 FLR 388; [2006] NSWSC 13 at [86] (Brereton J, as his Honour then was).

    21. Iskra v MMIR Pty Limited [2019] NSWCA 126 at [44] (Gleeson JA, with whom Bathurst CJ and Payne JA agreed).

    22. Ibid at [46].

    23. CPB Contractors Pty Limited v Heyday5 Pty Limited [2020] NSWSC 1625 at [36] (Hammerschlag J, as his Honour then was).

  1. If an adjudicator does not act consistently with these authorities, the adjudicator may reveal that he or she has not exercised his or her statutory function under the Act and thereby committed jurisdictional error.

  2. Allowance must be made for the constrained time within which an adjudicator must exercise their statutory function, particularly where a large amount of material must be digested. In this case, as the adjudicator noted, the Second Payment Claim comprised some 1,300 pages.

  3. Thus, it has also been said that, when considering an adjudicator’s reasons, the Court should not adopt an overly fine “toothcomb approach” or view the language of the decision-maker through a “prism of legal concepts”. [24]

    24. Cockram Construction Ltd v Fulton Hogan Construction Pty Ltd (2018) 97 NSWLR 773; [2018] NSWCA 107 at [17] (Basten JA).

  4. Here, in relation to both contract works and the variations, the Adjudicator recorded that the Builder had provided “various documents to support its entitlement to the amounts claimed”.

  5. In relation to the contract works claim, as I have said, the Adjudicator noted the volume of material provided.

  6. The Adjudicator noted the Builder’s correct submission that in both its Payment Schedule and Adjudication Response, the Principal had, relevantly, only disputed the Builder’s structural steel claim.

  7. That did not mean that the Adjudicator could uncritically accept the balance of the claims made by the Builder. However, this is not a circumstance where the Adjudicator, without reasons, preferred one party’s view to another. I do not see this as a case where the Adjudicator simply allowed the Builder’s claim “in full default of any valid submission against it”. [25] Rather, the Adjudicator, correctly in my view, and as the Builder contended, read the Principal’s Payment Schedule and Adjudication Response as a “concession and admission” that, otherwise than in relation to structural steel, the Builder was entitled to the amounts it claimed. In fact, the bulk of the Principal’s contentions in both the Payment Schedule and Adjudication Response were directed to the circumstances of termination of the Contract (in circumstances where the Principal had accepted in terms that, for the purposes of its Payment Schedule, it accepted that the Contract had been validly terminated), and to the question of whether the First Payment Claim had been validly served and whether s 13(1C) of the Act had the effect that the Second Payment Claim, and thus the Adjudication Application, were of no effect.

    25. Iskra v MMIR (n 21) at [46].

  8. In those circumstances, and accepting the brevity with which the Adjudicator expressed his conclusions, I am not persuaded that he failed to perform his statutory function.

  9. However, the point is moot because the adjudicator had no jurisdiction to deal with the matter in any event.

Conclusion

  1. The Principal’s challenge to the Adjudication Determination succeeds.

  2. The parties should confer and agree on the orders necessary to give effect to these reasons.

  3. As to costs, although the Principal has been successful, that success is born of its maintenance of an argument before me concerning service of the First Payment Claim which is the opposite of the claim it made when it served the First Payment Schedule. In those circumstances, I will hear submissions as to why, notwithstanding its success, it should not pay the Builder’s costs of the proceedings. The parties should agree on a timetable for written submissions on the topic.

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Endnotes

Decision last updated: 14 December 2022

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