CC Builders (Aust) Pty Ltd v Milestone Civil Pty Ltd

[2019] NSWSC 1251

Supreme Court

New South Wales

Medium Neutral Citation:	CC Builders (Aust) Pty Ltd v Milestone Civil Pty Ltd [2019] NSWSC 1251
Hearing dates:	30 July 2019
Date of orders:	13 September 2019
Decision date:	06 September 2019
Jurisdiction:	Equity - Technology and Construction List
Before:	Rein J
Decision:	1. The Adjudicator’s decision in relation to the Second EOT claim quashed (subject to conditions) due to denial of procedural fairness and jurisdictional error in failing to have regard to the Plaintiff’s submissions. 2. In relation to the Carry Over claim, no error demonstrated and no error of a jurisdictional kind identified. 3. The Plaintiff to accept liability for half of the Adjudicator’s fees.
Catchwords:	BUILDING AND CONSTRUCTION – Building and Construction Industry Security of Payment Act 1999 (NSW) – Whether adjudicator’s determination should be quashed where the adjudicator refused to consider the plaintiff’s submissions in respect of an extension of time claim on the basis that the plaintiff had not advanced the claim in its payment schedule when in fact it had done so, and the adjudicator referred, in part, to that claim being part of the payment schedule elsewhere in his determination – Whether adjudicator made an error in respect of a carry over claim and, if so, whether it was a jurisdictional error. BUILDING AND CONSTRUCTION – Building and Construction Industry Security of Payment Act 1999 (NSW) – Adjudicator’s fees – Where the adjudicator had determined that the plaintiff should pay all of the adjudicator’s fees, but the adjudicator’s determination is set aside due to jurisdictional error involving part of the determination, and the Court uses its discretion to impose a condition on the successful plaintiff that it will accept liability for half of the adjudicator’s fees.
Legislation Cited:	Building and Construction Industry Security of Payment Act 1999 (NSW) Supreme Court Act 1970 (NSW)
Cases Cited:	All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd [2017] NSWCA 289 Brodyn Pty Ltd (t/a Time Cost & Quality) v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421 Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190; (2010) 78 NSWLR 393 Downer Construction (Australia) Pty Ltd v Energy Australia [2007] NSWCA 49; (2007) 69 NSWLR 72 Emergency Services Superannuation Board v Davenport [2004] NSWSC 697 Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd [2017] NSWCA 53; (2017) 94 NSWLR 606 Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129; (2006) 22 BCL 285 Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2018] NSWCA 339 Iskra v MMIR Pty Ltd [2019] NSWCA 126 James v Surf Road Nominees Pty Ltd [No 2] [2005] NSWCA 296 John Holland Pty Ltd v Roads and Traffic Authority of New South Wales [2007] NSWCA 19 Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd [2005] NSWCA 142 Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 Parkview Constructions Pty Ltd v Total Lifestyle Windows Pty Ltd t/a Total Concept Group [2017] NSWSC 194 Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157 Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151; (2017) 95 NSWLR 82 Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4; (2018) 92 ALJR 248 Rhomberg Rail Australia Pty Ltd v Concrete Evidence Pty Ltd [2019] NSWSC 755 RJ Neller Building Pty Ltd v Ainsworth [2008] QCA 397; [2009] 1 Qd R 390 Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379; (2016) 95 NSWLR 157 Southern Cross Electrical Engineering Ltd v Steve Magill Earthmoving Pty Ltd [2018] NSWSC 1027 Timwin Construction v Façade Innovations [2005] NSWSC 548; (2005) 21 BCL 383 Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2007] NSWSC 941 Waters v P C Henderson (Aust) Pty Ltd (unreported CA (NSW), Kirby P, Mahoney and Priestley JJA, 6 July 1994) Watpac Construction (NSW) Pty Ltd v Austin Corp Pty Ltd [2010] NSWSC 347 YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2019] NSWCA 110
Texts Cited:	John Dorter and John Sharkey, Building and Construction Contracts in Australia (Thomson Reuters, loose-leaf, 2019)
Category:	Principal judgment
Parties:	CC Builders (Aust) Pty Ltd (Plaintiff) Milestone Civil Pty Ltd (First Defendant) Robert Sundercombe (Second Defendant)
Representation:	Counsel: Ms S. Foda (Plaintiff) Mr D. Hume (Defendant)   Solicitor: Gibson Howlin Lawyers (Plaintiff) Harrington Lawyers Pty Ltd (First Defendant)
File Number(s):	2019/201129
Publication restriction:	Nil

Judgment

1. These proceedings, commenced by Summons and by Technology and Construction List Statement, concern the Second Defendant’s determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the “Act”) on 30 May 2019 (revised on 3 June 2019).

2. The Second Defendant is the Adjudicator (“the Adjudicator”) whose determination is the subject of attack by the Plaintiff, CC Builders (Aust) Pty Ltd (“CCB”). The Second Defendant has filed a submitting appearance, as is usual in these types of cases. Ms S. Foda of Counsel appears for CCB.

3. The Adjudicator determined that CCB owed an amount of $113,767.87 (inclusive of GST) to Milestone Civil Pty Ltd (“Milestone”), the First Defendant, for whom Mr D. Hume of Counsel appears. Following the adjudication, Milestone was able to obtain payment of that amount from the head contractor, which then presumably deducted the equivalent amount from money due to CCB. CCB seeks to recover the adjudication amount from Milestone in these proceedings by having the Adjudicator’s determination set aside. CCB also seeks to attack the Adjudicator’s decision in relation to his fees for the adjudication that he directed be paid wholly by CCB even though Milestone did not recover all of the money that it claimed from CCB.

4. Ms Foda identified the four areas of complaint in relation to the determination as:

1. A denial of natural justice and procedural fairness in that, it was submitted, the Adjudicator did not pay regard to or properly consider CCB’s payment schedule and/or the issue of delays alleged by CCB to have been caused by Milestone.

2. A jurisdictional error by the Adjudicator in allowing the sum of $18,561.25 as a variation in respect of pile bench rectification.

3. A jurisdictional error in relation to a claim for carry over work (“the Carry Over issue”) - an amount of $77,982.27 which was allowed by the Adjudicator.

4. The fees award to which I have early referred, being an amount of $10,000.

5. In relation to the fees award, s 29(3) of the Act is in the following terms:

“29 Adjudicator’s Fees

[…]

(3) The claimant and respondent are each liable to contribute to the payment of the adjudicator's fees and expenses in equal proportions or in such proportions as the adjudicator may determine.”

6. During the course of the hearing, Ms Foda conceded that the complaint in relation to the second of the four items above could not be sustained. She also informed me that the fees award issue would not be pressed if CCB was unsuccessful on the other items.

7. I received written submissions from both Ms Foda and Mr Hume, and oral submissions clarified aspects of the case.

8. As Mr Hume pointed out, in considering the complaints made concerning the Adjudicator regard needs to be had to the purposes of the Act (and of security of payment legislation in general), namely to provide: “a speedy and effective means of ensuring cash flow to builders from the parties with whom they contract” (RJ Neller Building Pty Ltd v Ainsworth [2008] QCA 397; [2009] 1 Qd R 390 at [39] per Keane JA, cited in Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd [2017] NSWCA 53; (2017) 94 NSWLR 606 at [10] per Basten JA with whom Beazley ACJ agreed at [2]; see, also, All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd [2017] NSWCA 289 at [9] per Leeming and Payne JJA with whom White JA agreed at [48]), and that “pay now, argue later” is an underlying principle: see Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151; (2017) 95 NSWLR 82 (“Probuild v DDI”) at [102] per McColl JA with whom Beazley ACJ and Macfarlan JA agreed at [1] and [146] respectively.

9. The Court of Appeal has described the effect of the scheme of the Act as “rough justice” (Probuild v DDI at [130] per McColl JA), but it needs to be borne in mind that the rights given by the Act are interim only and an adjudicator’s determinations have no force or effect on a final hearing: see ss 3 and 32 of the Act.

10. Other matters of general principle relied on by Mr Hume, which Ms Foda did not contest, are:

1. The reasons given by an adjudicator are to be construed generously: see Iskra v MMIR Pty Ltd [2019] NSWCA 126 at [49].

2. Adjudicators are very often not legally trained and their reasons should not be viewed through the prism of legal concepts nor analysed too closely.

3. The whole adjudication process is supposed to be speedy, putting pressure on the adjudicator and discouraging lengthy legal analysis: Southern Cross Electrical Engineering Ltd v Steve Magill Earthmoving Pty Ltd [2018] NSWSC 1027 at [33]-[35] per McDougall J.

The Denial of Natural Justice Claim

11. Section 22 of the Act provides:

“22 Adjudicator’s determination

(1) An adjudicator is to determine:

(a) the amount of the progress payment (if any) to be paid by the respondent to the claimant (the adjudicated amount), and

(b) the date on which any such amount became or becomes payable, and

(c) the rate of interest payable on any such amount.

(2) In determining an adjudication application, the adjudicator is to consider the following matters only:

(a) the provisions of this Act,

(b) the provisions of the construction contract from which the application arose,

(c) the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim,

(d) the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule,

(e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates.

(3) The adjudicator’s determination must:

(a) be in writing, and

(b) include the reasons for the determination (unless the claimant and the respondent have both requested the adjudicator not to include those reasons in the determination).

(4) If, in determining an adjudication application, an adjudicator has, in accordance with section 10, determined:

(a) the value of any construction work carried out under a construction contract, or

(b) the value of any related goods and services supplied under a construction contract,

the adjudicator (or any other adjudicator) is, in any subsequent adjudication application that involves the determination of the value of that work or of those goods and services, to give the work (or the goods and services) the same value as that previously determined unless the claimant or respondent satisfies the adjudicator concerned that the value of the work (or the goods and services) has changed since the previous determination.

(5) If the adjudicator’s determination contains:

(a) a clerical mistake, or

(b) an error arising from an accidental slip or omission, or

(c) a material miscalculation of figures or a material mistake in the description of any person, thing or matter referred to in the determination, or

(d) a defect of form,

the adjudicator may, on the adjudicator’s own initiative or on the application of the claimant or the respondent, correct the determination.”

12. Section 20(2B) of the Act provides:

“(2B) The respondent cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant.”

13. CCB’s claim on this issue is made up of the following points:

1. By its payment schedule, CCB claimed that Milestone had delayed the completion of the Contract. There were two periods of delay asserted: one being 21 November 2018 to 22 February 2019 (the “First EOT claim”) and the second being a period of 23 February 2019 to 24 April 2019 (the “Second EOT claim”): see the letter at CB 115-118 dated 24 April 2019. The payment schedule has these two paragraphs on this point (CB 118):

“In our view, you have without cause abandoned the works from 23 February 2019, and you have not completed the scheduled works within the Construction Period. We are therefore entitled to deduct, at a minimum, the amount of $1,500 per day agreed Delay Costs pursuant to the contract.

On the basis that you abandoned the site on 23 February 2019, 47 business days have been lost to date, and the Delay Costs claimed are $70,500. On the basis that the works were scheduled to be completed on 20 November 2018 and no valid extensions of time were applicable, 50 days were lost between 21 November 2018 and 22 February 2019, and the Delay Costs claimed for that period are $75,000.”

2. The Adjudicator referred to the Second EOT claim at [133] of his reasons (CB 219) stating:

“133. The payment schedule reads in part as follows:

‘In our view, you have without cause abandoned the works from 23 February 2019…’”

Although this is truncated, it contains enough of the reference to the Second EOT claim to indicate that the Adjudicator was aware of it, yet at CB 220 the Adjudicator stated:

“136. S 20 of the Act ‘Adjudication responses’ reads in part as follows:

‘(2B) The respondent cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant.’

137. The respondent has claimed ‘Delay Costs’ / liquidated damages for the period 21 November 2018 to 22 February 2019 and now pursuant to s 20 (2B) of the Act, is prevented from extending the period claimed to 24 April 2019.

138. I have already determined that the claimant is entitled to an EOT until 9 March 2019.”

3. The Adjudicator’s view that CCB was prevented from including the Second EOT claim in its adjudication response is clearly founded on the view that CCB had not advanced the Second EOT claim in its payment schedule.

4. The view that CCB had not raised the Second EOT claim in its payment schedule is clearly erroneous, even having regard to the Adjudicator’s reasons themselves. By reason of that error, the Adjudicator has wrongly precluded himself from considering CCB’s submissions on the topic of the Second EOT claim.

5. The failure to consider CCB’s submissions on the Second EOT claim amounts to a failure to accord procedural fairness, amounting to a denial of natural justice that should lead to the setting aside of the Adjudicator’s rejection of CCB’s claim.

14. I think that [13](1)-(4) above are made out but the question is whether the submission in [13](5) should be upheld.

15. Mr Hume submitted that:

1. The determination of the scope and nature of the payment is a matter for the Adjudicator (Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157) and the Adjudicator construed the payment schedule as not claiming liquidated damages for the period after 22 February 2019. Errors in construing the Contract or in understanding the payment claim or payment schedule do not constitute jurisdictional errors: Iskra at [50]-[52]; Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2018] NSWCA 339 at [16]-[19], [27].

2. In relation to the payment schedule, the Court of Appeal said in Perform at [67] per Giles JA (with whom McColl and Young JJA agreed):

“In my opinion, what a payment schedule indicates as the reasons for the scheduled account being less than the claimed amount and for withholding payment is also a matter for the adjudicator, and if the adjudicator makes an error in that respect it does not invalidate the determination. Added reference to s 22(2)(d) does not take this further, see Brodyn Pty Ltd v Davenport at [56] holding that it is sufficient that the adjudicator bona fide address the requirements of s 22(2) as to what is to be considered. By s 22(2) the legislature has committed to the adjudicator consideration of the payment claim, any payment schedule, and all submissions duly made. There is no reason to regard a correct view of what a payment schedule indicates as more basic and essential to a valid determination than an adjudicator’s view of what a payment claim identifies or indicates, or whether a submission has been duly made.”

3. Whether a submission has been duly made is a matter for the Adjudicator: Downer Construction (Australia) Pty Ltd v Energy Australia [2007] NSWCA 49; (2007) 69 NSWLR 72 at [86]:

“It may be added that in John Holland Pty Ltd v Roads and Traffic Authority of New South Wales (2007) 23 BCL 205, decided after the hearing of the present appeals and cross-appeal, whether a submission had been “duly made” (s 22(2)) was said to be a matter for the adjudicator, whose error in that respect would not invalidate his determination. It was not a matter for objective determination by the Court, see per Hodgson JA, with whom Beazley JA agreed (at 219 [57]) and Basten JA (at 221 [71]-[72]): the latter referred to what he had said in Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd.”

16. I note that support for Milestone’s position is obtained from John Dorter and John Sharkey in Building and Construction Contracts in Australia (Thomson Reuters, loose-leaf, 2019) at 3-15123, who summarise the position as follows:

“If the adjudicator addresses the question of whether submissions are or are not duly made, a failure to take account of that submission is not a failure to afford the measure of natural justice contemplated by the Act: John Holland Pty Ltd v Roads and Traffic Authority of New South Wales (2007) 23 BCL 205; [2007] NSWCA 19 at [63] and [71]; Co-ordinated Construction Pty Ltd v Climatech (Canberra) Pty Ltd (2005) 21 BCL 364; [2005] NSWCA 229; Robson Civil Projects Pty Ltd v Helcon Contracting Australia Pty Ltd [2009] NSWSC 1071 at [47].”

17. I raised with Mr Hume the difficulty that the Adjudicator at para 136 of his reasons appeared to ignore the fact that CCB did raise the Second EOT claim in its payment schedule, inconsistently with para 133 of his reasons, and that the Adjudicator was obviously wrong to have concluded that CCB had not done so (and hence to have concluded that the submission was not “duly made”). Mr Hume accepted that the Adjudicator “might be wrong” and did not point to any other material which would explain how the Adjudicator arrived at his conclusion, but Mr Hume contended that it did not matter having regard to what had been said in John Holland Pty Ltd v Roads and Traffic Authority of New South Wales [2007] NSWCA 19 per Hodgson JA (with whom Beazley JA agreed) that an erroneous determination by an adjudicator as to whether a submission was duly made did not invalidate the adjudicator’s decision. In Basten JA’s judgment (concurring in the result), his Honour said at [71] said that “the scope of the payment schedule” and the identification of submissions “duly made” by the respondent in support of the schedule are “matters to be determined by the adjudicator.”

18. In John Holland, the RTA claimed that part of the contractor’s claim could not be dealt with because of a lack of jurisdiction to deal with contested EOT claims (see [13] of the judgment and para 80 of the RTA’s submissions). The RTA contended that the adjudicator had failed to consider and deal with the jurisdiction point. An Associate Judge upheld RTA’s complaints concerning the issue and found that the adjudicator had failed to comply with a basic and essential requirement for the existence of the adjudication determination set out in the Act, that the adjudicator had not bona fide attempted to exercise the relevant power and that there had been a denial of the measure of natural justice that the Act required to be given. Hodgson JA held that the RTA submission was made in breach of s 20(2B) and was not duly made. His Honour went on to consider the consequence if the RTA submission had been duly made and said:

“57. Accordingly, even if RTA’s jurisdiction submissions were matters that should have been considered under s.22(2), the adjudicator’s failure to do so did not invalidate his decision. At worst for Holland, they were submissions as to which there were strong reasons to hold they were not “duly made”, the adjudicator made a reasonable if erroneous decision that they were not duly made, and the adjudicator took a reasonable if erroneous view that the matters raised were not of sufficient relevance to warrant express consideration under pars.(a) and (b) of s.22(2). Accordingly, if there was any breach of s.22(2), it was not of a kind that could invalidate the decision.

58. Even more clearly in my view, an omission to consider the submissions could not conceivably justify a finding that the adjudicator did not make a bona fide attempt to exercise the relevant power.

59. Whether or not in this context lack of bona fides can be demonstrated without demonstrating personal dishonesty, I do not see the slightest basis for concluding that the adjudicator did anything other than make a bona fide attempt to exercise his power.”

(Emphasis added)

19. It will be observed that in John Holland there were clearly reasons why the adjudicator was entitled to form the view that the “jurisdiction” submission was not duly made (the Court of Appeal itself holding that it was not duly made) but, importantly, I note his Honour’s use of the word “reasonable” in the phrase: “a reasonable if erroneous decision”. The same approach was taken by Giles JA in Downer at [87]:

“In my opinion, determination of the parameters of the payment claim is a matter for the adjudicator, and a reasonable but erroneous decision by the adjudicator does not invalidate the determination. In the present case, in determining the amount of the progress payment (if any) to be made it was for the adjudicator to decide whether the water ingress fell within latent conditions for the purpose of the contract, and the parameters of the payment claim in that respect. He did so. As to both, it could not be said that the adjudicator’s decision was without foundation, and if the adjudicator addressed the matters and came to his decisions, even if other decisions could have been come to, he did what the Act required – he determined the adjudicated amount. As was stated in Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd (at [49]):

“… an error of fact or law, including an error in interpretation of the Act or of the contract, or as to what are the valid and operative terms of the contract, does not prevent a determination from being an adjudicator’s determination within the meaning of the Act.”

(Emphasis added)

20. In Minister for Commerce v Contrax Plumbing(NSW) Pty Ltd [2005] NSWCA 142 at [49], a case which was cited in Downer, Hodgson JA said of s 22(2) that it:

“…does require the adjudicator to consider the provisions of the Act and the provisions of the contract; but so long as the adjudicator does this, or at least bona fide addresses the requirements of s.22(2) as to what is to be considered, an error on these matters does not render the determination invalid.”

21. In Brodyn Pty Ltd (t/a Time Cost & Quality) v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421, Hodgson JA summarised (at [55]-[56]) the basis on which the Courts might intervene in respect of adjudications made under the Act:

“55. … the legislature did not intend that exact compliance with all the more detailed requirements was essential to the existence of a determination: cf Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 390–391. What was intended to be essential was compliance with the basic requirements (and those set out above may not be exhaustive), a bona fide attempt by the adjudicator to exercise the relevant power relating to the subject matter of the legislation and reasonably capable of reference to this power (cf R v Hickman; Ex parte Fox and Clinton (1945) 70 CLR 598), and no substantial denial of the measure of natural justice that the Act requires to be given. If the basic requirements are not complied with, or if a purported determination is not such a bona fide attempt, or if there is a substantial denial of this measure of natural justice, then in my opinion a purported determination will be void and not merely voidable, because there will then not, in my opinion, be satisfaction of requirements that the legislature has indicated as essential to the existence of a determination. If a question is raised before an adjudicator as to whether more detailed requirements have been exactly complied with, a failure to address that question could indicate that there was not a bona fide attempt to exercise the power; but if the question is addressed, then the determination will not be made void simply because of an erroneous decision that they were complied with or as to the consequences of non-compliance.

56. … In my opinion, it is sufficient to avoid invalidity if an adjudicator either does consider only the matters referred to in s 22(2), or bona fide addresses the requirements of s 22(2) as to what is to be considered…”

(Emphasis added)

22. In Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190; (2010) 78 NSWLR 393 the Court of Appeal confirmed that adjudicators under the Act are amenable to judicial review and Brodyn was held to be in error on several points: see [108] per Basten JA, with whom Spigelman CJ and McDougall JA agreed at [56] and [287] respectively. Basten JA (at [102]) expressed the view that an adjudicator could not determine the validity of an adjudication application but commented that if, contrary to his view, an adjudicator could determine the validity of an adjudication application, then:

“The opinion of the Tribunal that its jurisdiction was engaged cannot be arbitrary, capricious or irrational and must be an option open to a reasonable person correctly understanding the meaning of the law under which authority is conferred.”

Although the Court in Chase was dealing with a different issue than that which arises here, the test of “arbitrary, capricious or irrational” would appear to be equally applicable in the context of a decision not to have regard to submissions apparently duly made.

23. In Timwin Construction v Façade Innovations [2005] NSWSC 548; (2005) 21 BCL 383 (a case on which Ms Foda relies) McDougall J held that the adjudicator had denied the builder natural justice by virtue of how he dealt with Timwin’s submission in response to the subcontractor’s claims against it, and he set aside the determination. McDougall J (at [1]) summarised the bases upon which, according to Brodyn, a determination could be set aside:

“In Brodyn v Davenport and Anor [2004] NSWCA 394, the Court of Appeal (Hodgson JA, with whom Mason P and Giles JA agreed) held that a determination made by an adjudicator under the Building and Construction Industry Security of Payment Act 1999 (the Act) could be set aside and relief granted by way of deprivation and injunction in the following circumstances:

(1) Where an adjudicator failed to comply with the basic and essential requirements laid down in the Act for there to be a valid determination;

(2)   Where the adjudication determination does not amount to an attempt in good faith to exercise the relevant power, having regard to the subject matter of the legislation;

(3)   Where the adjudicator denied natural justice to a party (the content and operation of the doctrine of natural justice must take account of the narrow statutory scheme); or

(4)   Where the adjudication determination was procured by fraud in which the adjudicator was complicit.

If any of those circumstances applied, the Court held, a determination would not be a "determination" within the meaning of the Act at all, and would be void.”

This list was adopted in Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129; (2006) 22 BCL 285 per Brereton J (as his Honour then was) at [30].

24. McDougall J in Timwin referred to the passages from [55] and [56] of Brodyn set out above and then said (at [29]) that the adjudicator:

“…appears to have turned to the submissions in response made by Timwin in its adjudication response, and treated those submissions as falling within s 20(2B), and therefore as matters that he could not take into consideration.”

McDougall J said further:

“38. There has not been any decision to my knowledge elaborating the requirement of good faith to which Hodgson JA pointed in Brodyn. Clearly, I think, his Honour was not referring to dishonesty or its opposite. I think he was suggesting that, as is well understood in the administrative law context, there must be an effort to understand and deal with the issues in the discharge of the statutory function: see, for example, the speech of Lord Sumner in Roberts v Hopwood [1925] AC 578, 603, where his Lordship said that a requirement to act in good faith must mean that the board "are putting their minds to the comprehension and their wills to the discharge of their duty to the public, whose money and locality which they administer.”

39. That construction of the requirement of good faith is supported by the provisions of s 22(2), requiring an adjudicator to "consider" certain matters. A requirement to consider, or take into consideration, is equivalent to a requirement to have regard to something: see Zhang v Canterbury City Council (2001) 51 NSWLR 589 at 602 (Spigelman CJ, with whom Meagher and Beazley JJA agreed).

40. As his Honour emphasised, the requirement to “have regard to” something requires the giving of weight to the specified considerations as a fundamental element in the determination, or to take them into account as the focal points by reference to which the relevant decision is to be made. His Honour relied on the tests expounded in The Queen v Hunt; ex parte Sean Investments Proprietary Limited (1979) 180 CLR 322 (Mason J) and in Evans v Marmont (1997) 42 NSWLR 70, 79-80 (Gleeson CJ and McLelland CJ in Eq).

41. In the present case, I think that an available, and better, inference is that the adjudicator did not consider, in the sense that I have just explained, the submissions for the parties in which the ambit of the dispute that was intended to be raised in relation to variations was explained. Had he turned his mind to those submissions, he would have known what it was the parties understood the dispute to be; what it was that they were arguing. Because he did not, as it appears, turn his mind to those submissions, he did not deal with the real dispute.

42. It is of course apparent that the adjudicator turned his mind to the submissions for Timwin. However, did he so in the context of dismissing them (on this issue) because of s 20(2B). Had he read, and given consideration to, the submissions for Façade, he could not reasonably have done this. That, to my mind, supports rather than denies the drawing of the inference that the adjudicator did not have regard to, or consider, the relevant submissions.”

25. It will be observed that this case is similar to Timwin.

26. In Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2007] NSWSC 941, an adjudicator excluded from consideration a relevant report and determined that the claimant had not substantiated the allegation that the tiles were defective. Hammerschlag J held (at [58]) that the adjudicator had not determined that the report was not part of a submission, or material in support of it, “duly made”. His Honour proceeded:

“60. The report contained information of critical importance to the plaintiff in establishing its reasons for withholding payment.

61. Despite the interim nature of an adjudication, natural justice nevertheless clearly required the adjudicator to consider the report unless (even if erroneously) he determined that it was, or was part of, a submission not duly made. In this case, he made no such determination. This amounted to a substantial failure to afford natural justice which worked practical injustice on the plaintiff and rendered the whole adjudication void.

62. Section 22(2)(d) required the adjudicator, in the circumstances, to consider the report because it was part of submissions duly made. In so far as a failure to do so was jurisdictional error in the sense that a legislative requirement essential to the existence of a determination was not met, he made such an error.”

27. It will be observed that Hammerschlag J (at [61]) accepted that, whilst natural justice might require the adjudicator to consider the report, if he determined (even erroneously) that a submission was not duly made, that would not produce the result that there was, for the purposes of the Act, a substantial failure to afford natural justice which would work practical injustice on the plaintiff and render the whole adjudication void.

28. In Emergency Services Superannuation Board v Davenport [2004] NSWSC 697 McDougall J held that the decision of an adjudicator should be quashed by reason of the adjudicator’s failure to accord procedural fairness to the principal on two heads of claim because the adjudicator found against the principal on a basis expressly disavowed by the contractor: see [39], [50] and [62].

29. None of the authorities referred to in Sharkey and Dorter at [16] above deal with circumstances similar to those in this case. I draw from John Holland and Downer the notion that whilst decisions on whether a submission is duly made is a matter for the adjudicator not the Court to determine, a decision that a submission was not duly made which is not reasonable or which is without foundation will not be immune from correction by the Court. I think that Timwin and Emergency Services offer support for this conclusion.

30. CCB contends (in its submissions of 30 July 2019) that it cannot have been intended that the Court would not be able to correct a clear example of procedural unfairness which would otherwise:

“…allow an adjudicator to set for himself the outer limits of what he chooses to consider in the payment schedule, and any decision by him to ignore a matter made obligatory by the Act would not be reviewable.”

31. In the present case it appears that the Adjudicator did determine, in effect, that the submission by CCB was not duly made, but apparently because, inferentially, he took the view (for which there was no identifiable basis) that the payment schedule did not include the Second EOT claim.

32. In a sense, this case involves the intersection of two important principles:

1. The clear restriction of intervention by the Court in adjudications under the Act; and

2. The need for “the measure of natural justice that the Act requires to be given” (per Hodgson JA in Brodyn) and adherence to the requirements of s 22.

33. It is apparent that an adjudicator is required to take into account the submissions of the parties: s 22(2)(c) of the Act. If the submissions traverse a matter not contained in the payment schedule (or the payment claim) s 20(2B) prevents the respondent (or claimant) from including that matter in its adjudication response (or adjudication claim). I accept that if the Adjudicator has found that a submission was not duly made for reasons that are reasonable (albeit erroneous) it is not for the Court to determine whether or not the Adjudicator was correct to so conclude, and the Adjudicator’s decision would not constitute a denial of procedural fairness. However, if the Adjudicator does not explain how he has concluded that the adjudication response or submissions relate to a claim that has not been advanced in the payment schedule, but there is clear evidence that they do (and the Adjudicator’s own reasons confirm that they do), then there is a lack of reasonableness and rationality as to the determination that the submissions were not duly made because they were not contained in the payment schedule. The decision to exclude the submission amounts to a denial of procedural fairness establishing jurisdictional error (see Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379; (2016) 95 NSWLR 157 at [3] per Basten JA, with whom Macfarlan and Leeming JJA agreed at [91] and [92]) and the failure to consider the submissions, duly made, constitutes jurisdictional error on the issue of the Second EOT claim.

34. I am fully aware of the considerable pressure on adjudicators and it can be seen that the Adjudicator in this case was called upon to determine many issues. Nevertheless, I am persuaded that his decision to reject CCB’s submission on the Second EOT claim had no rational or reasonable basis, taking this case outside of the strictures of John Holland, and cases such as Icon and Perform.

35. I shall deal with the consequences of that conclusion after I have dealt with the Carry Over and Fees issues.

Carry Over

36. One of Milestone’s claims was that CCB had not paid to it all of the monies that had been assessed as due to Milestone under the Contract. Ms Foda submitted that whilst Milestone claimed that $245,046 had been assessed as due (of which $168,000 had been paid), there was no evidence before the Adjudicator that the $245,000 had been assessed and, hence, that $77,000 was due.

37. Mr Hume drew attention to CB 87, being a progress claim by Milestone recording the amount of $245,046.82 as agreed to be paid, but also CB 594 - “Assessment Progress Claim 05” - a document produced by CCB. The latter document shows a total assessed to be paid of $247,474.47 and an amount yet to be paid of $78,416.71, although that is stated to be inclusive of GST. There is not a precise correlation of figures but CB 594 constituted an admission by CCB and was a document on which the Adjudicator was perfectly entitled to rely in resolving the dispute on the Carry Over claim, and he dealt with that document at CB 228-229. CCB fails on this ground. Furthermore, no “jurisdictional error” has been identified: see Icon at [12]; Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4; (2018) 92 ALJR 248 at [2] per Kiefel CJ, Bell, Keane, Nettle and Gordon JJ.

Fees

38. I was informed that there have been no cases on the question of the award of an adjudicator’s fees under the Act. The question of what costs (or fees) are payable is a matter of discretion and there are cases in the Courts in which the successful party has recovered all of its costs, even on matters on which it was unsuccessful: see e.g. Waters v P C Henderson (Aust) Pty Ltd (unreported CA (NSW), Kirby P, Mahoney and Priestley JJA, 6 July 1994) cited in James v Surf Road Nominees Pty Ltd [No 2] [2005] NSWCA 296. Based on the fact that Milestone had succeeded on its claims to an amount of $113,000, I would not have seen any basis to interfere with the Adjudicator’s decision. However, the success of CCB on the Second EOT claim in this Court affects the fees determination, and I shall return to that below.

Consequences

39. There was no agreement as to the consequence of a finding that the Adjudicator breached the obligation of procedural fairness and natural justice. CCB contends that the entire adjudication should be set aside. Milestone contends that only that part of the adjudication relating to the delay claim should be set aside, since the maximum claim is $77,550 (incl. GST), leaving approximately $36,000 still payable.

40. There are a number of authorities which support CCB’s contention: John Holland at [55]; Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 at [92]; Watpac Construction (NSW) Pty Ltd v Austin Corp Pty Ltd [2010] NSWSC 347 at [28] and [33] per McDougall J; Parkview Constructions Pty Ltdv Total Lifestyle Windows Pty Ltd t/a Total Concept Group [2017] NSWSC 194 at [84] per Hammerschlag J, and see Dorter & Sharkey, Building and Construction Contracts at 3-15123. Mr Hume, however, relies on YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2019] NSWCA 110.

41. In YTO the developer sought to set aside an adjudication award in the amount of approximately $1.6 million on the grounds that a sum of approximately $462,000 plus GST had been obtained by fraud of the contractor. Following dismissal of the fraud claims, YTO appealed and was successful on one of its grounds of appeal with the consequence that the matter was remitted for further hearing. Innovative, which in the meantime had obtained as a result of its success in defending the proceedings the sum of $1.5 million previously paid into Court, contended that it should not be required to repay into Court any amount beyond the $400,000 that, on YTO’s case, Innovative had fraudulently obtained.

39. The Court of Appeal (per White JA, with whom Macfarlan and Emmett JJA concurred) expressed the view at [80]-[83] and [87] that:

“80. 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”.

81. 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.

82. 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.

83. 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).

[…]

87. 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.”

The Court of Appeal then required repayment of $399,000 plus interest plus GST.

43. Mr Hume submits that YTO provides authority for the proposition that a Court can sever part of an award that has been set aside. Mr Hume draws attention to the fact that in Rhomberg Rail Australia Pty Ltd v Concrete Evidence Pty Ltd [2019] NSWSC 755, Ball J indicated that, had he found a denial of natural justice, he would have been willing to sever part of the adjudication, saying (at [25]):

“Prior to the decision of the Court of Appeal in YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2019] NSWCA 110, it was generally accepted in New South Wales at least that the effect of a jurisdictional error was to render a determination void, on the basis that a determination is a single determination of a single payment claim: see Fulton Hogan Construction Pty Ltd v Cockram Construction Ltd [2018] NSWSC 264, and the cases cited there. However, it is accepted that any relief given by the Court in respect of jurisdictional error is discretionary and, in some cases, the Court has made it a condition of exercising that discretion that the plaintiff undertake to pay that portion of the claim that is unaffected by the error: see, for example, Emergency Services Superannuation Board v Davenport [2004] NSWSC 697. Nonetheless, without discussing the earlier authorities, the Court of Appeal appears to have reached the conclusion in YTO Construction that part of a determination affected by error can be severed from that part that is not. Mr Roberts SC, who appeared for RRA, submitted that the conclusion expressed by the Court of Appeal was obiter or at least not directly on point because it was concerned not with the question of what part of an adjudication determination should be set aside but how much should be retained in Court pending a rehearing of the matter. Nonetheless, Mr Roberts did not seriously advance a submission that I should not follow the decision in the present case, except formally to preserve RRA’s rights on appeal. Consequently, had it been necessary, I would have concluded that the adjudication determination should be set aside only to the extent that the Adjudicator determined that Concrete Evidence was entitled to recover in respect of variations on which RRA was not invited to make submissions and on which it could have made submissions consistently with s 20(2B) of the SOP Act.”

44. In John Holland, Hodgson JA, with whom Beazley JA concurred, said at [55]: “there is no basis for partial invalidation of a determination, that is, invalidation only of that part affected by the omitted submissions.” No case was cited to me in which the Court has quashed a decision of an adjudicator and substituted a different amount. Nor does the Act have any provision permitting the Court to make an adjudication award, and s 69 of the Supreme Court Act1970 (NSW) speaks in terms of quashing a decision not substituting an amount for that previously determined.

45. One considerable advantage of the approach in YTO, if it applies in cases of this kind, is that time would not need to be spent in a future adjudication on the issues which are not affected by any denial of natural justice. There are, however, several reasons why it might be thought inappropriate to treat YTO as departing from earlier authority. First, the Court was dealing with what amount should be repaid into Court not whether the adjudication should be set aside partially or wholly; second, the case was one involving a claim for recovery of money from the contractor consequent upon an adjudication award said to have been obtained by fraud which would involve a positive finding of fact in relation to the amount claimed; and, third, because these earlier authorities on severance were apparently not cited and, therefore, not considered by the Court of Appeal in YTO. There is a further aspect which is that to determine that the Adjudicator has not considered submissions that he was required to consider says nothing as to the potential effect that those submissions would have on the outcome of the matter – it is entirely possible that the Adjudicator will, on further consideration, reject the Second EOT claim, either wholly or in part, and there would seem to be a real obstacle in the Court now fixing what the amount of the adjudication determination should be when there is a real prospect that Milestone may be held to be entitled to more than just the Carry Over amount.

46. In Emergency Services McDougall J said at [71]-[73]:

“71. The grant of relief in the nature of prerogative relief is discretionary. See Multiplex at [94]. See also Brodyn Pty Ltd v Davenport [2004] NSWSC 254 and ACA v Sullivan; Austruc v ACA [2004] NSWSC 304.

72. In the present case, ESSB has succeeded on two of its challenges, but failed on the third. The challenges (leaving aside the s 13(1)(a) point) were to individual items within the Determination, not to the Determination overall. There is but one Determination. If I were to quash that Determination, Lipman would be deprived of the benefit of the entire Determination, including that portion which, as I have found, is not affected by reviewable error.

73. In the present case, if I were to grant relief, it would be on condition that ESSB pay Lipman the unaffected amount of the Determination ($85,770), together with interest thereon from 21 June 2004, in accordance with the Determination. If ESSB is not prepared to accept this condition then, in the exercise of my discretion, I would withhold relief.”

47. It appears to me that the approach taken in Emergency Services is an appropriate course to take here as well, since it is consistent with both the underlying approach in YTO and the balance of authority to which I have referred, thereby avoiding the need for a decision as to whether YTO should be seen in its application as narrow (and, hence, distinguishable) or as wide (and, hence, to be followed, either as a matter of binding precedent or authoritative pronouncement).

48. I am prepared to grant the relief sought by CCB but only on conditions. I will therefore ascertain whether CCB is willing to accept, as a condition of relief, that it will not seek to re-agitate the Carry Over claim at any further adjudication or to seek to recover the Carry Over amount from Milestone other than at a final hearing pursuant to s 32 of the Act.

49. The issue of the award of fees is closely connected with the success or failure on issues before the Adjudicator. I am presently inclined to require as a further condition that CCB accept liability for 50% of the Adjudicator’s fee, which, in any event, is the default position specified in s 29 of the Act.

50. I will hear the parties on the issue of the conditions to be imposed and the precise form of orders, and on the issue of costs.

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Decision last updated: 20 September 2019