Hansen Yuncken Pty Ltd v Ian James Ericson trading as Flea's Concreting

[2011] QSC 327

SUPREME COURT OF QUEENSLAND

CITATION:

Hansen Yuncken Pty Ltd v Ian James Ericson trading as Flea’s Concreting & Anor [2011] QSC 327

PARTIES:

HANSEN YUNCKEN PTY LTD
ACN 063 384 056
(Applicant)

v

IAN JAMES ERICSON TRADING AS FLEA’S CONCRETING

ABN 86 016 599 870
(First Respondent)

and

PHILIP DAVENPORT

(Second Respondent)

FILE NO:

BS 7864 of 2009

DIVISION:

Trial Division

PROCEEDING:

Originating Application

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

4 November 2011

DELIVERED AT:

Brisbane

HEARING DATE:

22-24 March, 11-15, 18-21 April and 11-13 May 2011

Further written submissions received on 10 June 2011

JUDGE:

McMurdo J

ORDER:

Upon the applicant paying to the first respondent by 25 November 2011 an amount which is the total of $2,363,619.29 and interest on that sum from 13 June 2009 at the rate according to s 67P of the Queensland Building Services Authority Act 1991 (Qld):1.

the first respondent will be restrained thereafter permanently from taking any steps to obtain an adjudication certificate or to otherwise enforce the adjudication decision of the second respondent;(a)     

the Registrar will unconditionally release to the applicant any bank guarantee provided under the orders of 23 July 2009 or 6 December 2010.(b)     

If payment of that total sum is not made by 25 November 2011:2.   

the order within paragraph 1 of the orders made on 23 July 2009 will be set aside;(a)     

the first respondent will be restrained from recovering more than an amount which is the total of $2,363,619.29 together with interest on that sum from 13 June 2009 until the date of recovery at that rate of interest, by recourse to one or more of the said bank guarantees or otherwise;(b)     

upon the recovery of that total, the first respondent will thereafter be restrained from taking any further steps to enforce the adjudication decision of the second respondent and such of the bank guarantees which then remain in place will be unconditionally released to the Registrar and any moneys paid under any bank guarantee which are surplus to the funds recovered by the first respondent in accordance with these orders will be paid to the applicant.(c)      

3.     Liberty to apply.

CATCHWORDS:

ADMINISTRATIVE LAW – JUDICIAL REVIEW –  GROUNDS OF REVIEW – ERROR OF LAW – where the applicant was a head contractor and the first respondent a subcontractor – where the first respondent made an adjudication application under the Building and Construction Industry Payments Act 2004 (Qld) – where the adjudicator accepted the first respondent’s claim in full – where the applicant obtained an injunction restraining the first respondent from enforcing the adjudication decision until trial or further order – whether the applicant was denied natural justice – whether a denial of natural justice must be substantial or material for relief to be granted

EQUITY – EQUITABLE REMEDIES – INJUNCTIONS –  INJUNCTIONS FOR PARTICULAR PURPOSES – OTHER CASES – whether the first respondent’s claim was fraudulent – whether the adjudication decision should be set aside where the fraud affected only part of the claim

ADMINISTRATIVE LAW – JUDICIAL REVIEW –POWERS OF COURTS UNDER JUDICIAL REVIEW LEGISLATION – GENERALLY – whether s 18 of the Judicial Review Act 1991 (Qld) displaces judicial review on the grounds of fraud

CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – REMUNERATION – STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS – OTHER MATTERS – whether the decision of an adjudicator should be set aside upon the basis of evidence which was discovered after, but discoverable before, the decision – whether an adjudicator could be said to have not decided an adjudication application under s 32(1)(b) of the Act because the application was affected by the applicant’s fraud

Building and Construction Industry Payments Act 2004 (Qld), s 21(3)(c), s 25(3), s 32(1)(b), s 100
Building and Construction Industry Security of Payment Act 1999 (NSW), s 26(1)(b)
Judicial Review Act1991 (Qld), s 18, Sch 1, Pt 2

Queensland Building Services Authority Act 1991 (Qld), s 67P(3)(a)

Akerhielm v De Mare [1959] AC 789, applied
Angus v Clifford [1891] 2 Ch 449, cited
Arnison v Smith (1889) 41 Ch D 348, cited
Bezzina Developers Pty Ltd v Deemah Stone (Qld) Pty Ltd [2008] 2 Qd R 495, cited
Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421, considered
Cardinal Project Services Pty Ltd v Hanave Pty Ltd [2010] NSWSC 1367, considered
Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 272 ALR 750, considered
Colonial Bank of Australasia v Willan (1874) LR 5 PC 417, considered
Derry v Peek (1889) 14 App Cas 337, cited
Emergency Services Superannuation Board v Sundercombe [2004] NSWSC 405, considered
Fifty Property Investments Pty Ltd v O’Mara [2006] NSWSC 428, considered
Hansen Yuncken Pty Ltd v Ericson [2010] QSC 156, cited
Hansen Yuncken Pty Ltd v Ericson (No 2) [2010] QSC 457, cited
HML v The Queen (2008) 235 CLR 334, cited
John Holland Pty Ltd v Made Contracting Pty Ltd [2008] NSWSC 374, considered
John Holland Pty Ltd v TAC Pacific Pty Ltd [2010] 1 Qd R 302, considered
Johns v Cosgrove [2002] 1 Qd R 57, distinguished
Jones v Dunkel (1959) 101 CLR 298, cited
Kirk v Industrial Court of New South Wales (2009) 239 CLR 531, considered
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, applied
Lees v Tod (1882) 9 Rettie 807, cited
McDonald v McDonald (1965) 113 CLR 529, applied
Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2) (1992) 37 FCR 234, considered
Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140, considered
Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors [2011] QCA 022, considered
Owens Bank Ltd v Bracco [1992] 2 AC 443, considered
Owens Bank Ltd v Etoile Commerciale SA [1995] 1 WLR 44, cited, considered
Quasar Constructions NSW Pty Ltd v Demtech Pty Ltd [2004] NSWSC 116, considered
R J Neller Building Pty Ltd v Ainsworth [2009] 1 Qd R 390, applied
Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1, cited
Re Refugee Review Tribunal; ex parte Aala (2000) 204 CLR 82, considered
Spankie v James Trowse Constructions Pty Ltd [2010] QCA 355, considered
Stead v State Government Insurance Commission (1986) 161 CLR 141, cited
SZFDE v Minister for Immigration and Citizenship (2007) 232 CLR 189, cited
Toubia v Schwenke (2002) 54 NSWLR 46, applied
Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2008] NSWSC 399, applied

Wentworth v Rogers (No 5) (1986) 6 NSWLR 534, considered

COUNSEL:

TP Sullivan SC with T Duggan for the applicant

GW Walsh for the first respondent

SOLICITORS:

Hopgood Ganim acting as town agent for Crawford Legal for the applicant
No appearance for the first respondent

1. In August 2007, the applicant (‘Hansen Yuncken’) was engaged as the head contractor for the redevelopment of Cairns Airport.  About a month later, it engaged the first respondent, Mr Ericson, as the subcontractor for all concreting works.  As I will discuss, the basis upon which Mr Ericson was engaged is controversial.  But clearly he was the subcontractor for the concreting works from then until about the middle of 2008 when, a dispute having developed between the parties, he left the site. 

1. On 29 May 2009, Mr Ericson caused to be served on Hansen Yuncken a payment claim under the Building and Construction Industry Payments Act 2004 (Qld) (‘the Act’). The amount claimed was $4,803,866.60, calculated as follows:

Total value (before GST) of work carried out   $7,530,901.91

Less payments made to Mr Ericson  $2,886,299.46

Less payment by others  $81,553.50

Less allowed deduction for rectification  $47,822.50

Less retention moneys     $148,075.00

Balance  $4,367,151.45

Plus GST     $436,715.15

Total claimed  $4,803,866.60

1. Hansen Yuncken delivered a payment schedule dated 5 June 2009, stating that it proposed to pay nothing of the claim. 

1. On 22 June 2009, Mr Ericson made an adjudication application.  On 30 June 2009, Hansen Yuncken delivered its adjudication response, again saying that it should pay nothing. 

1. The second respondent was the adjudicator.  By a decision dated 2 July 2009, he accepted Mr Ericson’s claim in full.  The sum of $4,803,866.60 became the adjudicated amount, and the due date for payment was fixed at 13 June 2009. 

1. On 23 July 2009, Byrne SJA was persuaded to order that Mr Ericson be restrained, until trial or further order, from taking any step to enforce the adjudication decision.  Accordingly, he has not filed an adjudication certificate.  The order was made upon condition that Hansen Yuncken lodged bank guarantees to secure the adjudicated amount.  Those guarantees were lodged with the Court, and pursuant to a subsequent order, Hansen Yuncken lodged another guarantee to secure interest accruing on the adjudicated amount. 

1. In essence, the adjudicator’s decision is challenged by Hansen Yuncken upon two bases.  The first is that there was a denial of natural justice, because the adjudicator had what is said to have been an important letter from Mr Ericson, which Hansen Yuncken alleges was not within the copy of the adjudication application which was served upon it. 

1. Secondly, Hansen Yuncken alleges that Mr Ericson defrauded it and the adjudicator.  The fraud was in respect of what the adjudication application put forward as Mr Ericson’s labour costs.  Hansen Yuncken alleges that some of Mr Ericson’s employees, for whom he claims some amounts against Hansen Yuncken, were not working on the airport project but instead were on other sites.  The amount claimed for these employees was, in total, $108,244.88.  Further, Mr Ericson claimed that the “actual cost” of the labour which he employed on this site was of the order of $3.7 million (to which he added increments of 5 per cent for overheads and 7 per cent for profit), when the true costs of that labour was approximately $1.8 million.

1. In Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors,[1] the Court of Appeal held that adjudication decisions made under the Act are subject to judicial review for jurisdictional error. Hansen Yuncken says that the denial of natural justice would entitle it to an order setting aside the adjudicator’s decision. But it says that upon that ground the decision is already devoid of effect, because the provision of natural justice is an essential condition of a valid adjudication, relying upon Brodyn Pty Ltd v Davenport.[2]  It argues that judicial review is available upon the fraud ground, just as a writ of certiorari would have been available to quash a decision of an inferior tribunal which was procured by fraud.  Alternatively, it argues that the fraud ground warrants the same relief in the exercise of an equitable jurisdiction to prevent the enforcement of a judgment obtained by fraud:  Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2);[3] Toubia v Schwenke.[4] 

   [1][2011] QCA 22.

   [2](2004) 61 NSWLR 421 at 442.

   [3](1992) 37 FCR 234.

   [4](2002) 54 NSWLR 46.

1. The availability of the fraud ground to challenge an adjudicator’s decision was originally disputed by Mr Ericson.  He unsuccessfully applied to strike out those parts of the Statement of Claim.[5]  But ultimately his case accepted that if it is proved that he defrauded the adjudicator in either of the ways claimed, there would be at least a discretionary power to set aside the decision or to prevent its enforcement. 

   [5]Hansen Yuncken Pty Ltd v Ericson [2010] QSC 156.

The payment claim

1. The claim was in the form of a tax invoice, which was numbered 65, together with several attachments.[6]  Within the invoice it was described as a “[c]laim for cost of structural goods, services and labour, hire of machinery, supplied to the abovementioned project… ”.  The sum of $7,530,901.91 was described as the “[t]otal project cost to date”.[7]  That was particularised in the attachments.  One of the attachments was a table described as “Summary of Cost of Works”, on which there was the note “Below are Direct Costs where applicable”.  It contained totals for machinery hire, transport, materials (broken up between types of formwork, consumables, steel and concrete), other items and, most significantly, on site labour, where there was a claim for $3,756,884.  That was said to be the result of applying an hourly rate of $73.44 to 51,159 hours.  There were also claims for offsite personnel and site management, again expressed to be the result of a certain number of hours by certain hourly rates, for amounts of $122,760 and $197,120.  It is the onsite labour claim which is now relevant.  The number of man hours were there described as further particularised in other attachments. 

   [6]Exhibit 2, Vol 1, Tab 1. 

   [7]Ibid.

1. This “Summary of Cost of Works” also contained an item:

“Overheads (5%) and Margin (7%)  12% Of Above          $806,882.35

Includes Flea’s hours”

Mr Ericson is known as “Flea”:  hence the name of his business “Flea’s Concreting”. 

1. Another attachment was described as “Summary of Trade Labour Hours”, showing hours and “Sum Cost”, month by month from October 2007 through September 2008.  The hours totalled 51,250 and the overall cost $3,764,814.  That equates to an hourly rate of $73.46 (to the nearest cent).  What that page shows is that the same hourly rate was not applied to all hours, because the cost of labour per hour varied month by month within this attachment, in a range between $71.32 and $99.99.  Neither this attachment nor the balance of Mr Ericson’s payment claim revealed the various hourly rates which had been applied.  Nor did the claim reveal whether these hourly rates represented what had been paid by Mr Ericson to his employees or something else.  However the overall claim was based upon what was said to be the “cost of works” and “direct costs where applicable”. 

The payment schedule

1. In its payment schedule for this claim, the main point sought to be made by Hansen Yuncken was that the claim had not been made in accordance with what it said was the true agreement between the parties.  It said that the payment claim was “deficient in the detail required to enable an accurate assessment under the terms of the Subcontract Agreement and [the Act]”.[8] 

   [8]Exhibit 2, Vol 1, Tab 2.

1. As to the component of the claim which was for labour, the payment schedule advanced these reasons for rejecting the claim.  The first was that “[t]he rates used in the Payment Claim are in excess of market rates and do not reflect the rates used in the compilation of the Claimant’s tender”.[9]  But that was not confined to the component which was labour costs.  In his evidence, Hansen Yuncken’s Mr Reynolds, who was involved in the preparation of its payment schedule, conceded that there were no such rates which had been used in the compilation of Mr Ericson’s tender.  So this assertion within the payment schedule seems to have been made without reference to Mr Ericson’s case, and instead was extracted from another document in an unrelated matter.

   [9]Ibid.

1. The payment schedule also contained this:

“(m)The payment claim purports to include the Claimant’s actual costs for trade labour.  Off site personnel and site management of some 55,183 hours.  The Claimant has not provided any substantiation of the labour rate or any other substantiation that would verify that the quantum of labour was actually employed on the project.  Furthermore the accounting of actual hours spent on the project does not consider any possible shortfalls contained in the Claimant’s tender submission, nor does it take into account inefficiencies and inadequate management by the Claimant of its labour resources.  The works were undertaken under a fixed price contract and presentation of actual hours worked is not relevant or correct in the assessment of variations to changes in construction documents under Clause 40.”[10]

In essence, Hansen Yuncken’s substantive response was to say that this was a fixed price contract, so that a number of hours or a rate for labour were irrelevant.

[10]Ibid.

The adjudication application

1. The adjudication application was a compilation of documents totalling about 600 pages.  It included a 15 page document described as the Claimant’s Submissions.  That document contained, relevantly, the following contentions.  First it was said that the construction contract was one upon a ‘costs plus’ basis.  As I will discuss, that argument was accepted by the adjudicator.  There were alternative contentions, which were that the contract was for a fixed price but that there were substantial variations from the work which was the subject of that contract or that the contract was in the terms of a certain subcontract document (which had been sent to Mr Ericson but which he had declined to sign).  Under that last alternative, he again claimed that there had been substantial variations.

1. It was submitted that the adjudicator should determine “…the value of the works undertaken by the claimant, including the variations”.[11]  In the submissions under the heading “Valuation of Works” were these passages:

“8.1.2The payment claim represents the actual costs to the claimant of the works carried.  This includes substantial increases over the course of the contract not only of the costs of both labour and primarily steel faced by the claimant but also that of the increased amount of supply of such including concrete …

8.2Given the matters raised by the respondent in its Payment Schedule it is important to note that the claimant’s claim is for his  actual costs incurred plus a margin in regards to all works provided and is represented in the summary page of such attached to the claim along with that of all its workings.  This summary consists of not only of accounts as paid by the claimant – Job Activity ‘Appendix 1b’ but also that of the actual mans hours spent on the project along with estimated costs for such items as Machinery Hire, Processed Bar and costs associated with deliveries along with minor costs allocated for maintenance personnel to ensure the up keep of such equipment… .  In regards to valuation of works, the claimant has provided accurate information based upon actual time sheets, invoices and associated paper work available as of 29^th May 2009.”[12]

(original emphasis)

[11]Exhibit 2, Vol 1, Tab 3.

[12]Ibid.

1. The submissions went on to address the reasons given in Hansen Yuncken’s payment schedule for rejecting the claim, by reference, paragraph by paragraph, to that document.  This section included the following:

“10.1.b   Claim Deficient in Detail  The respondent is well aware of the issues involved in this dispute.  Information was provided to the respondent in August of 2008 of the claimant’s breakdown of costs including that of the provision of substantial backing material.  In April 2009 the respondent was also provided with a 140 page ‘as Built BOQ’ in significant details (sic).  If the respondent wished to resolve this matter prior to applying for adjudication and as per the details contained on the claim ‘if Further information is required on the above please ask’ a meeting would have been set up and under the implied conditions of the respondent’s contract and dispute resolution procedure would have been followed.  The Payment Claim is valid in this case as the parties were in fact aware of the nature of the amounts claimed and how they are calculated … .

10.1.c Markets Rates  The rates contained within the Payment Claim are costs actually incurred by the claimant as set out in the Appendix 1b.  These rates represent market rates in fact facing the claimant plus the margin claimed. 

10.1.d Variations claims  The claimant contends that the Subcontract Agreement does not apply.  In any event, the claimant in fact claims for the ‘price reasonably paid’ within the meaning of the clause as the claim here is for the actual costs incurred by the claimant plus a margin.

10.1.e Contingency Even if the Subcontract Agreement applies, the claimant is at least entitled to a 7% margin, and even if the other margins are not applicable, the claimant seeks in the alternative a determination of the application of a 7% margin.

10.1.f Margin For the information of the Adjudicator and respondent and the trade contractor usually experiences (and budgets for) figures of 25 to 35% on margin whilst between 8 and 12% for over heads.  Alternatively if the 5% limit applies the claimant repeats and relies upon 10.1.e above.

10.1.g Concrete Costs The respondent is incorrect.  … Again it is important to note that the claimant seeks payment based on the actual costs incurred…

10.1.h Steel Costs The respondent is incorrect.  The steel rate was in fact $1850 per tonne as per cost summary sheet.  Differences between preliminary estimates and actual supply costs were subject to a quite abnormal industry increase in steel experienced in 2008 of approximately 45 to 75% - ‘refer Annexure L’

…

10.1.m Trade labour. H&Y have an effective Site Quality Control system along with that of reporting and recording.  The basis of all commercial construction recording is that of a site diary as kept by H&Y Site supervisors, this diary records the daily activities along with that of the number of trade contractors on site and working on site.  This information is summarised usually by Site Management and accessible by such.  Further, the claimant has confirmed the matters set out in this application in his statutory declaration (Annexure A).”[13] 

(again, original emphasis).

[13]Ibid.

1. The application enclosed a statutory declaration, made by Mr Van Diemen, an employee of Mr Ericson, which was towards proving the number of hours worked on this site.  He said that to the best of his knowledge, what was enclosed contained “…an accurate summary of all man hours of employees spent on the Cairns Airport Redevelopment and represents a majority summary of ‘Worked Hours’ on the project …”.  He said also that “[s]ome time sheets have been damaged or missing, however these items are cross checked against weekly wage sheets with that of employee’s”.

1. There was also enclosed a one page document containing a table described as “Summary of Labour Rates”.  The table contained amounts in three columns, respectively headed “$ Per Hr”, “Tool allow[ance]” and “Sum”.  The figures in the first and second columns were added to reach the figure in the third column.  Amounts were inserted against various descriptions of worker, such as labourers, carpenters and formworkers as well as a “Site Supervisor” and “Project & Site Manager”.  The amount per hour varied from $55 to $120 and the tool allowance varied from zero to $4.50.  The total sum varied from $58.50 to $120.  There was a note underneath the table as follows:

“*Above rates include – Overtime and Applicable Penalty Rates and Basic site Allow”.[14] 

[14]Ibid.

1. The tables headed “Summary of Cost of Works” and “Summary of Trade Labour Hours Spnt on Site”, as attached to the payment claim, were again included here.  But this time there were details of these amounts, within 27 pages of a table headed “Summary of Labour Hours”.  This identified the specific employees, the job description of each (such as labourer or foreman), a number of hours for that employee by reference to a particular week and an amount for that employee for that week under the column heading “Cost/Hr”.  Those hourly rates were the same as those (inclusive of the tool allowance) which were set out in the table “Summary of Labour Rates”. 

1. Included within the adjudication application was a form of contract.  This was the contract document which Hansen Yuncken had proposed for the subject works.  Although Mr Ericson had declined to sign that document, he appears to have included it in order to pursue his alternative arguments to which I have referred.[15]  Of present relevance were the provisions for valuing and thereby pricing a proposed variation.  Clause 40.5.1(e) of that document provided that the value of a variation was to be determined by Hansen Yuncken according to any relevant reference in any bill of quantity or schedule of rates, but that if no unit rate could be reasonably applied, the works would be priced at the rates or prices payable by the subcontractor as reflected in any documents that comprised his tender.  It further provided that if none of those means of valuation was applicable, the subcontractor’s “base cost” would be determined, as to labour, by “the wages reasonably paid or payable by the Subcontractor…”.  There was provision for the inclusion of a component for “administration, supervision, off-site overheads and profit…” to be added to the base cost according to a rate in Annexure Part A of the document, where the rate of 5 per cent was specified.  Therefore, if the terms of this document were at all relevant, Mr Ericson departed from them because he added a component of 5 per cent for overheads as well as a component of 7 per cent for profit.

   [15]At [17] above.

1. The adjudication application included a document in the form of a letter from Mr Ericson addressed “to whom it may concern”.  Undoubtedly, this was within the application which the adjudicator received because he referred to it in his decision.  However, this is the document which Hansen Yuncken says was not within the copy of the application served upon it so that it was thereby denied natural justice by being unable to address the case as put to the adjudicator.  I will return to that question.  At this point I will simply set out the terms of the letter:

“22^nd June 2009

Re:  Backing paperwork – Flea concreting claim

Dear Sir / Madam

In regards to the 24 to 30 odd folders of misc dockets such as included but not limited to the below we have not supplied (although can) primarily due to the effect on our environment along with that of the huge paper that would be consumed with three (3) copies required for such.  We note that the information provided is a summary of such.

We have provided stat decs to confirm the accuracy of such – and if requested we will be happy to provide.

·   Concrete deliveries

·   Steel schedules

·   Accounts and relative invoices

·   Labour time sheets and folders

·   Machinery dockets

·   Site Diaries and records

·   Consumables and hardware invoices

It would be more economical and practical to fly you to Cairns to review such, and I take pleasure in offering such

Yours faithfully

Ian Flea Ericson”[16]

[16]See Exhibits 50 and 52.

The adjudication response

1. Hansen Yuncken’s response was dated 26 June 2009 and ran to about 170 pages.  It began with 20 pages of submissions.[17] 

   [17]Exhibit 2, Vol 2, Tab 4.

1. Hansen Yuncken accepted that the adjudication application had arisen from the payment claim. It accepted that there was a construction contract for the purposes of s 3(1) of the Act and that Mr Ericson was a licensed builder and otherwise a competent applicant. But it contended that the true agreement was for a fixed lump sum contract, evidenced by Mr Ericson’s tender form submitted to Hansen Yuncken, the minutes of a meeting which had been signed by Mr Ericson described as the “Pre Award Meeting Minutes”, a letter of acceptance signed by Hansen Yuncken and the form of subcontract which Mr Ericson had enclosed within his application.

1. Much of its submissions were devoted to the subject of what constituted the contract (if any) between the parties.  As I have noted, Mr Ericson had not signed the form of subcontract.  Hansen Yuncken argued that nevertheless the parties had agreed to be bound in those terms.  In particular, Hansen Yuncken submitted to the adjudicator that the parties had not entered into an agreement to carry out the work on a cost plus basis.[18]

   [18]Ibid, paragraph 6.1.

1. On page 11 of this document, Hansen Yuncken referred to the payment claim.  By a series of paragraphs, each of which commenced with the words “The Respondent accepts …”, it made several concessions.  Most relevantly here, in paragraph 7.3, it wrote:

“7.3The Respondent accepts that the payment claim represents the Claimant’s opinion of actual costs incurred for the work claimed.”[19]

[19]Ibid.

1. Then followed a section headed “Valuation of Works”.  That began with a contention that Mr Ericson’s payment claim had not been made according to cl 42 of the form of subcontract.  There followed these contentions:

“8.1.1.The Claimant has submitted a payment claim for 25 areas, however the Claimant’s methodology in compiling the payment claim is severely flawed, the Claimant has done a complete re-measure of the works and has reflected a cost plus arrangement within the payment claim.  This is not the agreement that exists between the Respondent and the Claimant all evidence shows that the nature of the agreement is a fixed lump sum agreement, therefore the Claimants costs associated with the Claimants re-measure are irrelevant.

8.1.2The Respondent accepts that the Claimant’s payment claim Tax Invoice No 65 is representative of the Claimants opinion of actual costs incurred.  The Claimant’s actual costs are irrelevant, as the contractual agreement between the parties is a lump sum contractual agreement not a cost plus agreement.  (refer to annexure N, C & E)

8.1.3(refer to annexure A.1)  The Respondents independent Quantity Surveyors and Cost consultants Davis Langdon undertook an assessment of the Claimants variation number 52 AS01.  Davis Langdon in their assessment have outlined rates which are not reflective of the Claimants tender pricing however the result of their assessment actually indicates that the variation is a credit to the Respondent for $5,209.00 as opposed to the Claimants claim for $358,927.24.

8.1.4…

8.2The Respondent accepts that the Claimants payment claim Tax Invoice No 65 is in the Claimants opinion actual costs incurred, the Respondent does not accept that the costs incurred are an accurate reflection of the true market value.   The Respondent does not accept that the Claimants payment claim for the Claimants alleged actual costs constitutes a valid payment claim due to the nature of the agreement between the Respondent and Claimant being a lump sum agreement.  (refer to annexure N, C & E).”[20]

[20]Ibid.

1. It can be seen that by this point in the document, Hansen Yuncken had stated its acceptance of the fact that the payment claim accorded with Mr Ericson’s opinion of what actual costs he had incurred.  That was not an acceptance of the accuracy of the quantification of his claim as a cost plus claim.  But in my view, it was unambiguously an acceptance of the honesty of the claim, insofar as what were represented to have been the actual costs to the claimant. 

1. Paragraph 10 was headed “Reasons for Non-Payment by the Respondent”.  It began with the statement that these reasons had been provided in the payment schedule.  Most importantly, Hansen Yuncken maintained that there was an agreement according to the form of subcontract.  Under this heading these further contentions were included:

“10.1.cMarket Rates  The rates that the Claimant has articulated within payment claim Tax Invoice No 65 are not consistent with the rates that the Claimant included within the Claimant’s submitted and accepted tender.  The Claimant submitted a tender price to undertake the subcontract works on a lump sum arrangement, as already stated this is evidence within the Tender Form submitted by the Claimant, the Pre Award Meeting Minutes signed by the Claimant, the Letter of Acceptance sent Claimant and the Subcontract agreement.  The Claimant did not at time of tender and signing of the Pre Award negotiate into the agreement between the Claimant and the Respondent an allowance to adjust the Claimants rate to reflect market changes.  To suggest that market rate applies and is relevant to each of the Claimants payment claims is a contradiction to the tender submitted by the Claimant and accepted by the Respondent.

…

10.1.gConcrete Costs  The Respondent again reiterates the nature of the arrangement between the Respondent and the Claimant is a lump sum agreement not a cost plus arrangement.  The Claimants alleged actual costs are irrelevant.  …

10.1.hSteel Costs  The Respondent again reiterates the nature of the arrangement between the Respondent and the Claimant is a lump sum agreement not a cost plus arrangement.  The Claimants alleged actual costs are irrelevant.  …

…

10.1.mTrade Labour  As outlined in the payment schedule provided to the Claimant on 5^th June 2009 the payment claim purports to include the Claimant’s actual costs for trade labour.  Off site personnel and site management of some 55,183 hours.  The Claimant has not provided any substantiation of the labour rate nor any substantiation that the quantum of labour was actually employed on the project.  Furthermore the accounting of actual hours spent on the project does not consider any possible shortfalls contained in the Claimant’s tender submission, nor does it take into account inefficiencies and inadequate management by the Claimant of its labour resources.  The works were undertaken under a fixed price contract and presentation of actual hours worked is not relevant or correct in the assessment of variations to changes in construction documents.  …”[21]

In those paragraphs, it was made clear that Hansen Yuncken was not admitting that either the number of hours worked or the hourly rates were in fact accurate.  That can be reconciled with the repeated acceptance of the honesty of the claim in those respects, upon the basis that Hansen Yuncken was admitting that the quantification of actual costs was honest but not necessarily accurate.

[21]Ibid.

1. The further contention (contained within cl 12.1) was that Mr Ericson was claiming effectively “…the complete contract value of the agreement when [he] simply has not completed the subcontract works”.[22]  Its case was that only about one-half of the works had been completed.  Again, this was not a challenge to his honesty, but was part of the broader point that this was a lump sum contract. 

   [22]Ibid.

1. In no part of the response did Hansen Yuncken attempt to challenge the quantification of the claim, at least insofar as labour costs were concerned, except as I have mentioned.  That challenge went only as far as saying that the number of hours and the labour rates had not been “substantiated”.  For example, there was no suggestion that the labour rates seemed to be too high to represent actual costs, because Mr Ericson could not have been paying such high rates to his employees. 

The adjudicator’s decision

1. The adjudicator’s reasons extended to 11 pages, much of which was occupied by the question of what constituted the relevant contract.  The adjudicator rejected Hansen Yuncken’s case that there was a lump sum contract.  He wrote:

“19] I am satisfied that the respondent and the claimant proceeded without a written contract. It appears that the respondent was anxious to have the claimant commence work and both parties were prepared to proceed without a written contract or agreement on just what work the claimant would carry out for what price. There was an arrangement between the parties which arrangement is a construction contract as defined in the Act. It is easier to decide what were not terms of the arrangement between the parties than to decide what were the terms of the arrangement. I am satisfied that the clauses of the so called Subcontract Agreement relied upon by the respondent in the payment schedule were not part of the arrangement under which the work was carried out. In particular, in the payment schedule the respondent relies upon clauses 40 (Variations) and 44 (Default). I am satisfied that these clauses were not part of the arrangement.”[23]

[23]Exhibit 2, Vol 2, Tab 5.

1. He then discussed the basis for the claim and the evidence in support of it.  He wrote:

“24]      In the payment claim the claimant provides details of the work, materials and labour for which payment is sought.  Essentially it is a claim for alleged actual costs plus 5% for overheads and 7% ‘margin’.  At [7.3] of the adjudication response the respondent says, ‘The Respondent accepts that payment claim Tax Invoice No 65 represents the Claimant’s opinion of the actual costs incurred for the work claimed’.  The respondent does not contend that the claimant’s alleged actual costs were not truly actual costs incurred by the claimant.  In the payment schedule the respondent does not provide any alternative valuation of the work carried out.

…

27] The respondent says that the payment claim is deficient in the detail required to enable an accurate assessment under the terms of the Subcontract Agreement and the Act. It appears to me that the claim includes quite sufficient detail to allow an assessment under the Act. The Subcontract Agreement was not part of the construction contract. The claimant ceased work on 26/9/09. The respondent has had adequate time to make an accurate assessment of the value of the contraction work carried out by the claimant. …

28]        The respondent says that the rates used in the payment claim are in excess of market rates and do not reflect the rates used in the compilation of the claimant’s tender.  The claimant says that the rates represent the claimant’s actual costs.  The claimant says that over the course of the contract there were substantial increases in the costs of labour and steel.  I do not consider that rates used in the compilation of the claimant’s tender are relevant.  That offer was not accepted.  Consequently, the rates used are not binding.  The respondent has not provided a valuation based upon alleged market rates or upon the rates used in tile compilation of the tender.  …

…

31]        The claim for 7% for ‘Margin’ is apparently a claim for profit.  In the payment schedule the respondent relied upon the alleged 5% agreed in the alleged Subcontract Agreement but did not address what would be a reasonable profit in the absence of any agreement on profit.  In the absence of any submission from the respondent on what would be a reasonable allowance for profit on actual costs, other than the argument that the 5% should apply to overheads and profit, I am satisfied that the 7% margin claimed is reasonable for the purposes of assessing a payment on account.

39]        The respondent says that the claimant has not provided any substantiation of the labour rate or the number of hours.  That is not strictly correct.  For example, included in the adjudication application is a statutory declaration by Mr Nicolaas van Diemen, the claimant’s site manager and leading hand on the project.  He says that he has correlated the summaries and checked the figures.  The claimant says that there are 24 to 30 folders of dockets that the claimant has not included with the adjudication application ‘primarily due to the effect on our environment’.  They included accounts and relevant invoices, labour time sheets, site diaries, etc.  The claimant says that it would be more economical and practical to fly me to Cairns to review the documents.  I don’t see that it would serve any purpose for me to inspect the documents.  The respondent has apparently not bothered to inspect the material.  It seems to me that the approach of the claimant in summarising the material is appropriate.

40]        The respondent says that the accounting of actual hours does not consider any shortfalls contained in the Claimant’s tender.  It does not have to.  That tender was not accepted.  The respondent says that the accounting of actual hours does not take into account inefficiencies and inadequate management by the claimant of its labour resources.  However, the respondent fails to provide anything upon which I could decide the amount, if any, to be deducted for the alleged inefficiencies and inadequate management.  What were the alleged inefficiencies and inadequate management?  How many hours should be allowed for them?  The respondent provides no answers.  Instead the respondent submits that the actual hours worked are irrelevant because the works were undertaken under a fixed price contract.  As I have said, I am not satisfied that the parties made a fixed price contract for the construction work.

…

50]        …[H]aving decided that the alleged Subcontract Agreement is not the construction contract and that the construction work cannot be valued on the basis of a lump sum plus variations, the only evidence I have upon which to value the construction work for the purpose of a progress payment is that provided by the claimant.  The claimant claims cost plus.  I am satisfied that the costs claimed by the claimant are the claimant’s actual costs and the percentage added for offsite overheads and profit is reasonable.  The respondent has not satisfied me that the costs or any of them were not reasonably incurred in the carrying out of the construction work.  I am satisfied that the claimant is entitled to the whole amount claimed.”[24]

[24]Ibid.

1. Several things must be noted about the adjudicator’s reasons.  The first is that he interpreted Mr Ericson’s references to “actual costs” to be just that:  the costs actually incurred by him.  For the fraud case against Mr Ericson, it is what Mr Ericson believed was the effect of his representation which is relevant.  But it is relevant that the adjudicator could see no ambiguity in the term “actual costs”. 

1. Secondly, the adjudicator noted the letter of 22 June 2009 and its reference to “24 to 30 odd folders”.  Not surprisingly, the adjudicator assumed that Hansen Yuncken had been given a copy of that letter and he commented on its apparent lack of interest in looking at these documents.  Similarly, he remarked that “the respondent has had adequate time to make an accurate assessment of the value of the construction work carried out by the claimant” and he noted the absence of any positive case as to what was that value. 

The fraud case

1. Hansen Yuncken was very surprised by the adjudicator’s decision.  As I have mentioned, it promptly applied for an order that Mr Ericson be restrained until a trial from taking any step to enforce the decision.  It then set about a thorough investigation of Mr Ericson’s documents, from which it built its fraud case.  

1. The fraud case has two parts, each relating to labour costs.  The first is that Mr Ericson represented that these were his ‘actual labour costs’, whereas his actual costs were much lower, and he could not have believed the amounts he put forward in his claim were accurate or, at least, a reasonable estimate of his actual costs.  Secondly, it is said that he claimed for the costs of some workers who did not work on this job at least on the relevant day or days, and that he must have known that this was the case. 

Actual costs

1. Hansen Yuncken prepared two spreadsheets, comparing Mr Ericson’s true labour costs and the amounts which he claimed.  Ultimately, there was no contest as to the accuracy of these comparisons.  The first of them results in a total for true costs of $1,838,788.67, as against the sum claimed for those employees which was $3,764,814.[25]  The second comparison excludes the tool allowance from the amounts claimed, resulting in a total of $3,655,449.25 against that same amount of estimated true costs of $1,838,788.67.[26] 

   [25]MFI 1.

   [26]MFI 2.

1. Hansen Yuncken accepts the accuracy of the number of hours claimed to have been worked by each employee (apart from those employees whom it says were not on this job). 

1. The spreadsheets show the comparison between the amount claimed and the estimated true costs week by week, employee by employee. To take the example of the first line in each spreadsheet, the comparison there made is in relation to Mr Shane Heaven for the week ending 23 October 2007. He was a foreman and worked 43.5 hours. The amount claimed by Mr Ericson was $87 per hour, made up of $85 per hour plus a tool allowance of $2.00 per hour, according to the Summary of Labour Rates to which I have referred above at [21]. Net of the tool allowance, the sum thereby claimed for Mr Heaven for that week was $3,697.50. The hourly rates actually paid to employees have been derived mostly from Mr Ericson’s payroll documents, kept on a MYOB system. Those payroll records are not complete or, it would seem, completely accurate. In some instances within these spreadsheets then, Hansen Yuncken has estimated the likely cost by assuming that the relevant employees did work the number of hours as claimed and by applying an hourly rate for those employees from other weeks for which there are payroll records. Then there are some employees for which no payroll advice at all was disclosed by Mr Ericson, but they were shown on the Summary of Labour Hours as labourers. In those instances, Hansen Yuncken has averaged the amounts paid to labourers and applied the average to these employees. It has had to do the same with some steel fixers and form workers.

1. I am satisfied that the amounts shown in each of these spreadsheets as “Wages Paid for Week” constitute, for the most part, an accurate statement of what in truth was paid and where it is an approximation, that it is a reasonable one.  Overall, the extent to which the true wages paid have had to be approximated in this analysis, rather than being derived exactly from the payroll records, does not detract from the substantial accuracy of these spreadsheets in their comparisons of the costs claimed and what were in truth the actual costs. 

1. To that sum of “wages paid”, Hansen Yuncken has added superannuation (assumed at 9 per cent), payroll tax (at 4.75 per cent) and workers compensation premium (at 5 per cent).  So in Mr Heaven’s case for that first week ending 23 October 2007, the estimated true costs per week is an amount of $1,925.40.  On the basis of the number of hours for that week as claimed by Mr Ericson (43.5 hrs), it equates to an actual hourly rate of $44.26.  The comparison for this employee is representative of the difference between the sum claimed and the true costs, week by week, for each employee.  There is a difference of the same order in the respective totals, such that what was claimed as the total “actual cost” was about twice the cost actually incurred according to this analysis. 

1. As I have said, there is no challenge to the substantial accuracy of these spreadsheets.  Hansen Yuncken says that Mr Ericson must have known that what he was claiming did not represent even a reasonable estimate of his actual costs.  I turn to the various arguments for Mr Ericson. 

1. In order to establish fraudulent misrepresentation, it must be proved that the representor had no honest belief in the truth of the representation in the sense in which he intended it to be understood.  In stating that proposition in Krakowski v Eurolynx Properties Ltd,[27] Brennan, Deane, Gaudron and McHugh JJ cited this passage from the decision of the Privy Council in Akerhielm v De Mare:

“The question is not whether the defendant in any given case honestly believed the representation to be true in the sense assigned to it by the court on an objective consideration of its truth or falsity, but whether he honestly believed the representation to be true in the sense in which he understood it albeit erroneously when it was made.  This general proposition is no doubt subject to limitations.  For instance, the meaning placed by the defendant on the representation made may be so far removed from the sense in which it would be understood by any reasonable person as to make it impossible to hold that the defendant honestly understood the representation to bear the meaning claimed by him and honestly believed it in that sense to be true … (For the general proposition that regard must be had to the sense in which a representation is understood by the person making it, see Derry v Peek;[28] Angus v Clifford;[29] Lees v Tod,[30] which authorities must, in their Lordships’ view, be preferred to Arnison v Smith[31] so far as inconsistent with them.)”[32]

[27](1995) 183 CLR 563 at 578.

[28](1889) 14 App Cas 337.

[29][1891] 2 Ch 449.

[30](1882) 9 Rettie 807 at 854.

[31](1889) 41 Ch D 348.

[32][1959] AC 789 at 805, 806.

1. Mr Ericson says that he had a different understanding of the term “actual costs”.  In his original Defence, Mr Ericson pleaded that:

“17.2the hourly pay rates at which the first respondent employed his workers were less than the hourly rates applied to labour hours in the Adjudication Application by reason that the latter were estimates of the hourly cost of the relevant workers to the first respondent;

17.3the Summary of Labour Rates and Summary of Labour Hours were an estimate of the costs that the first respondent actually incurred in engaging employees.”[33]

[33]Defence and Counterclaim filed 23 July 2010.

Those paragraphs were deleted and replaced with the following in the ultimate Defence:

“16.4the Adjudication Application in fact represented that hourly rates applied to labour hours was an estimate of the hourly cost to the first respondent, known as a ‘charge-out rate’, and not the actual wage rate at which first respondent employed the particular individuals;

16.5the Adjudication Application did not purport to state the hourly pay rates of employees as alleged;

16.6the applicant knew or ought to have known that the Adjudication Application and the Payment Claim contained hourly rates for employees which represented actual charge-out rates and not amounts calculated as pled at paragraphs 35.1 and 35.2 of the Statement of Claim, and that the expression ‘actual costs’ referred to such charge-out rates, because:

(a)the Adjudication Application at Appendix K contained an extract from Rawlinsons Construction Costs Guide comprising ‘Contract Charge-Out Rate[s]’ which corresponded approximately to the hourly charge-out rates charged by the first respondent;

(b)the applicant’s own ‘back charge’ rates corresponded approximately to the hourly charge-out rates charged by the first respondent;

(c)no reasonable contractor in the position of the applicant could have believed that the hourly rates charged by the first respondent could have represented the actual wages and entitlements paid to the first respondent’s employees, because such rates would be fancifully high.”[34]

Thus Mr Ericson’s case is that he estimated the labour costs by the use of market or “charge-out” rates because they represented the complete cost of employing a worker.

[34]MFI 4.

1. It is convenient to discuss at this point the relevant events and circumstances out of which the payment claim was made.  By the middle of 2008, the parties were in dispute as to variations.  Mr Ericson claimed that as a result of variations, his costs had been greatly increased.  Hansen Yuncken agreed that there had been substantial variations but denied that the costs had been increased.  It obtained a quantity surveyor’s report which supported its case. 

1. Mr Ericson sent an email to Hansen Yuncken’s Mr Norton on 4 September 2008, saying that he had spent about $5.5 million on the project having been paid by Hansen Yuncken $3 million.  He said that he was then “bankrolling this project to the tune of approx $3mil”.[35]  On 10 September 2008, Mr Ericson repeated those claims and said that the circumstances made it impossible for him to continue on the site.  He left the site in late September 2008. 

   [35]Exhibit 2, Vol 5, Tab 15.

1. At about this time Mr Ericson retained a Mr Darcy Ringland, who was an independent consultant offering the service of assisting in the submission of claims in construction matters.  Mr Ringland became heavily involved in the preparation of the subject claim.  But he did not give evidence.

1. On 9 April 2009, Mr Ericson served five payment claims on Hansen Yuncken.  They were within tax invoices respectively numbered 51, 54, 55, 56 and 57.[36]  The covering letter for invoice 51 was headed “Variation to ALL works up to Sept 2008”.  The invoice claimed an amount of $1,733,449.23, which the letter explained was calculated as follows:

   [36]Exhibit 2, Vol 17, Tab 71.

“Estimated and Surveyed Cost of Works Completed -

As per Schedules – refer to attached  $4,722,424.09
•     Add Previously Approved Variations

as of Sept 08  + $82,971.46

•     Less retention held as of Sept 08  - $127,735.78
•     Less outstanding defects as of 1st Sept 08  - $47,822.50
•     Less Previous certified as of Sept 08  - $2,896,387.41

Total

Gross Cost of Variation No. 51  $1,733,449.23 ex [GST]”[37]

An attached schedule sets out the calculations of this total cost of $4,722,424.09.  But those calculations were not by reference to labour costs.  Rather they involved the application of certain rates per cubic metre of concrete, certain rates per ton for steel and the costing of other components.  Clearly, this total was less than the $5.5 million which Mr Ericson had claimed when he left the site, but was considerably less than the total project cost of $7,530,901.91, according to the subsequent claim which the adjudicator accepted.  The other invoices issued at the same time need not be discussed.  They were for relatively small amounts ranging from $4,801.50 to $70,254.68. 

[37]Ibid.

1. At about this time, Mr Ericson was engaging a further consultant, which was an organisation called Building and Construction Payment Solutions (‘BCPS’).  Upon Mr Ericson’s instructions, Mr Ringland requested Ms Wiles of BCPS to quote for the work of preparing an adjudication application, to which she responded on 2 April 2009.  But it appears that these five payment claims were not prepared with the assistance of BCPS. 

1. Mr Ericson made a further payment claim on 20 April 2009, by a tax invoice numbered V57 which was for a particular variation and in an amount of $17,222.83.[38]  On the following day, he made yet a further payment claim, by a tax invoice number V58, for another particular variation, in an amount of $4,574.16.[39] 

   [38]Exhibit 2, Vol 17, Tab 72.

   [39]Exhibit 2, Vol 17, Tab 73.

1. On 23 April 2009, Hansen Yuncken served payment schedules in respect of all seven payment claims.  In each case, it said that nothing was payable.  In response to tax invoice 51, Hansen Yuncken referred to the report of its quantity surveyor, which was to the effect that there had been no substantive increase in quantities of the magnitude asserted by Mr Ericson.  It added that it was “prepared to review and assess any claim for a variation to the scope of the Subcontract however any claim must be presented having regard to documented quantities at time of tender versus the current construction drawings.  The claim must also be prepared using equivalent rates to that used in the tender for the Subcontract works.  Any claim is to be supported by a fully itemised and rated bill of quantities that totals to the Subcontract sum.  Any subsequent determination made by [Hansen Yuncken] of any valid variation claims made by [Mr Ericson] in accordance with the terms of the Subcontract will be taken into consideration with the final reconciliation of the Subcontract works”.[40] 

   [40]Exhibit 2, Vol 17, Tab 74.

1. On 27 April 2009, Mr Ringland sent an email to Ms Wiles, referring to Hansen Yuncken’s response.  Mr Ringland there wrote:

“The client has assured me his costs are around the $6m with $3m of approved payments to date – I can easily see $1.4 to $1.8m argument arising along with that of the further $1.2m being ‘negotiated’ and used as leverage to secure the $1.4/1.8m.”[41]

That email is shown as having been copied to Mr Ericson.  He agreed that he would have read it.[42]

[41]Exhibit 2, Vol 5, Tab 19.

[42]T 8-69.

1. On 29 April 2009, Mr Ringland sent an email to a number of Mr Ericson’s employees, including Mr Ericson’s wife who performed clerical and accounting work in the business.  It was copied to Mr Ericson and Ms Wiles.  Mr Ringland set out the various tasks for the employees in the preparation of an adjudication application.  Part of that work involved the collection of all timesheets and records “of all weekly time spent on the job”.[43] He stressed the urgency of the task because the Act permitted only a number of days from the service of the payment schedules (23 April) for the submission of an application.[44]

   [43]Exhibit 2, Vol 5, Tab 20.

   [44]An apparent reference to s 21(3)(c)(i) of the Act.

1. On 5 May 2009, Ms Wiles wrote to Mr Ericson, saying that BCPS had reviewed his “file” and that the best course of action was to serve a fresh payment claim for all outstanding moneys.  She wrote that this would “…greatly enhance your prospects of convincing an adjudicator that you are entitled to the amount you have claimed…”.[45] 

   [45]Exhibit 2, Vol 5, Tab 22.

1. At the same time, Mr Megson, an employee of Mr Ericson, sent an email to Hansen Yuncken as follows:

“I am currently amending our Safety and Personnel files and request that you send us a copy of your records relating to the Site Induction of all our personnel who were involved on the Cairns Domestic Terminal Project during the period of our company’s involvement.

(Request name of inductee, date of induction, inductee’s signature etc)”[46]

He sent a follow-up email on 8 May 2009, again saying that the requested information was for workplace health and safety purposes.  It is clear enough that the true purpose was to obtain information which was relevant to the preparation of an adjudication application or a new payment claim.  Mr Ericson denied that purpose in his evidence.  But Mr Van Diemen said that he was aware of the request but that its purpose was to find out “…when we had been inducted so we would establish when we actually started the job.  We needed to get a start date”.[47]  That evidence supports what is in any case strongly indicated by the timing of this request.  Mr Megson was not called, although he was available to give evidence.[48]  I infer that his evidence would not have assisted Mr Ericson’s case on this point.  Mr Megson’s request was not answered by the time the relevant payment claim was made on 29 May 2009. 

[46]Exhibit 2, Vol 5, Tab 23.

[47]T 10-40.

[48]Mr Ericson’s evidence T 9-71.

1. On 6 May 2009, Mrs Ericson produced a document described as a “summary of hours”, which she sent to Ms Wiles and which was copied to Mr Ericson.  It set out a number of hours for each of the months from October 2007 through September 2008, together with 213.5 hours described as “misc hours”.  The total was 47,946.5 hours.  The summary then showed additional hours for certain project managers, the project foreman, herself as the office manager and for delivery drivers and a boilermaker.  Adding those resulted in a total number of hours of 53,945.7.[49]

   [49]Exhibit 2, Vol 5, Tab 25.

1. On 8 May 2009, a Mr Barrell from BCPS sent a questionnaire to Mr Ericson.  He asked that Mrs Ericson provide a breakdown of the “summary of hours” with a copy of all timesheets.[50]  On 11 May 2009, Mr Ericson emailed in response:

“Spread sheet finished today, need to put costs to men?

…

By itemising claim & doing this complete breakdown of costs it will end up between $4.5 to $5m.”[51]

[50]Exhibit 2, Vol 5, Tab 26.

[51]Exhibit 2, Vol 5, Tab 27.

1. On the same day, Mr Ringland emailed Mr Ericson a table showing hourly rates for various categories of workers. They were the same categories, for the most part, as those within the document described as Summary of Labour Rates, which was included in the adjudication application and to which I have referred above at [21]. Mr Ringland wrote that:

“Above figures based on COMMERCIAL project in far north Queensland.”[52]

The table was incomplete.  Against each category of worker, there were gaps to be completed under the headings “Buildcorp”, “Plaza”, “Airport” and “Rawlinsons”.  The last of those was a reference to the publication “Rawlinsons Construction Costs Guide”.  The others appear to have been references to other sites on which Mr Ericson had worked.  Again on the same day, Mr Ringland sent an email to BCPS asking for hourly rates from the Rawlinsons Guide. 

[52]Exhibit 2, Vol 5, Tab 28.

1. On 12 May 2009, Mr Ringland emailed Mrs Ericson asking for “that summary”, which was an apparent reference to the incomplete table he had sent to Mr Ericson on the previous day.  She responded saying:  “don’t have rates answer yet from flea”.  At the same time, she attached a schedule of the hours worked by each employee over the project.  The total was 51,170.75 hours.[53] 

   [53]Exhibit 2, Vol 5, Tab 30.

1. Later on the same day, Mr Ringland emailed Mr Ericson with a draft of the summary of the claim, which showed an hourly rate of $67 against a total number of hours of 51,174.  He then wrote to Mr Ericson:

“Rough calcs below – once time sheets rates and so forth get finished – can finalise and release.

What I DON’T understand:  is [Ms Miles] is either doing a OVERALL cost claim or Going down the QS route – so WTF do we need all the Job QS’d?  (as it will fall short of costs incurred) – don’t know where she is going with that??”[54]

This draft can be seen as the model for the ultimate claim.  It followed essentially the same form.  It was described as “Cost of Works”.  It added 12 per cent for overheads and margin. 

[54]Exhibit 2, Vol 5, Tab 31.

1. On 14 May 2009, BCPS emailed Mr Ringland, attaching a page from the Rawlinsons Guide with the information that the figure should be multiplied by 1.09, that being the regional index for Cairns according to the Guide.  This extract was ultimately included in the adjudication application.  It did not show amounts precisely according to the categories of workers in Mr Ringland’s draft.  But it showed amounts for labourers of various subcategories.  The figures were set out under two columns.  One was the “Av. Tender (Costing) Rate Incl. Overheads and Profit”.  The second column was headed “Av. Contract Charge-Out Rate Incl. Overheads and Profit”.  Under the first column, the rates for a labourer varied from $54 to $66.50.  Under the second column the variation was from $62 to $77.  The Guide had a notation as follows:

“The Contract Charge-Out rate assumes a negotiated rate, this should not be confused with the usually much higher rate charged for non-contract works.”[55]

[55]Exhibit 2, Vol 5, Tab 38.

1. Although this extract was included in the adjudication application, its connection with the calculation of the claim is far from clear.  The categories of workers do not correspond with those in the claim and different rates were provided by Rawlinsons for different categories of labourers, without it being apparent that one in particular of these categories was appropriate to Mr Ericson’s labourers on this job.  And importantly, the Rawlinsons figures were inclusive of overheads and profit, whereas a total of 12 per cent was added to the hourly rates in the payment claim.  

1. Late on 13 May 2009, Mr Ringland emailed Mr Ericson, attaching a number of documents “for your review”.[56]  One was a table in the form of the Summary of Labour Rates, which was ultimately included in the adjudication application.  The rates in the draft were the same as those which appeared ultimately in the application, except that $65 per hour was shown for a carpenter ($70 in the application), $65 per hour and $2.50 per hour for a tool allowance was shown for a formworker (compared with $68 and $4.50 in the application) and $90 was shown for a crane operator (as compared with $80 in the application).  In addition, the draft also contained this notation:

“above rates are DIRECT COST.”[57]

[56]Ex 2, Vol 5, Tab 38.

[57]Ibid.

1. On 14 May 2009, Mr Ringland emailed BCPS, with a copy to Mr Ericson.  There were attachments in forms similar to those subsequently used in the payment claim.  The Summary of Labour Rates was attached, but the amounts had been altered to those which ultimately appeared in the adjudication application.  But for that notation referring to the rates being a “direct cost”, the document was identical to that which was within the adjudication application.  In the email to BCPS, Mr Ringland said that the labour rates were “direct costs to engage personnel”, and that he believed that the summary of the claim provided “...evidence/support for the total cost incurred by Flea’s Concreting for this project …”.[58]

   [58]Exhibit 2, Vol 5, Tab 37.

1. On the following day, Ms Wiles wrote to Mr Ericson and Mr Ringland.  She strongly recommended that he engage an independent quantity surveyor to go through each plan and drawing revision, identify the variations and “evaluate all costs”.[59]  Mr Ericson replied immediately, rejecting that advice.[60]

   [59]Exhibit 2, Vol 5, Tab 41.

   [60]Exhibit 2, Vol 5, Tab 42.

1. From that point the relationship between Mr Ringland and Mr Ericson on the one hand and BCPS on the other became strained.  Mr Ringland was critical that BCPS had not met certain deadlines.  Ms Wiles replied with a query as to how the amount of the claim had grown so much in the past two weeks.  That was followed by an acrimonious response from Mr Ericson. 

1. On 16 May 2009, Mr Ringland emailed Mr Ericson and Ms Wiles.  He complained that the proposed date for a claim had been postponed several times and that there were “indecisions and changing of directions”.  As to the suggestion of a quantity surveyor’s report, Mr Ringland wrote:

“As for the QS he/she will never be able to calculate the true cost of the project compared to actual costs, and the simple argument of A Cost Claim vs a QS claim needs to be finalised and planed [sic] accordingly.  I also note that there will be around a $2m discrepancy between such.  Ie the cost claim is approx $7.5m whilst indicative estimates of plans to date are $4.8 to $5m.”[61]

On the same day, BCPS withdrew and made no further contribution.

[61]Exhibit 2, Vol 5, Tab 43.

1. The payment claim was delivered on 29 May 2009.  As I have mentioned, it claimed for labour at a “price” of $73.44 per hour.  But the Summary of Labour Rates was not included in the payment claim.

1. At this time Mr Ericson was facing large demands from his creditors.  In November 2008, the Deputy Commissioner of Taxation filed a claim in this Court seeking to recover $2,885,882.40 from Mr Ericson.  In addition, a company called Cemex Australia Pty Ltd filed a claim on 7 October 2008, seeking to recover from Mr Ericson a sum of $928,033.65 as money said to be owed for unpaid concrete.  Mr Ericson agreed that by the end of March 2009 his obligations to the Australian Tax Office and to Cemex Australia were together in an approximate amount of $3,813,000 together with accruing interest.  From this evidence, Hansen Yuncken contends that Mr Ericson’s circumstances made it necessary for him to recover more than something which was calculated according to his true costs with an appropriate margin for overheads and profit.  That submission has some force.  I do not have a complete picture of Mr Ericson’s financial position at the time.  But clearly he was under particular pressure from creditors with large claims.  And it is significant that those claims, in aggregate, exceeded any amount which he had previously alleged was the difference between his costs and what he had been paid for this job. 

1. In Mr Ericson’s favour, it can be said that the labour rates which he claimed did have some connection with labour charge-out rates.  In preparing his draft, Mr Ringland had reference to the Rawlinsons Guide.  But that would have provided limited assistance because, as I have explained, there was no close correlation between it and either the form or content of the Summary of Labour Rates as prepared by Mr Ringland.

1. As the sequence of emails demonstrates, Mr Ericson was closely involved in the quantification of this claim, specifically as to the labour rates. In his evidence, he claimed that he was conservative in providing labour rates to be used for the claim, because he wanted to enhance his prospects of a successful claim, albeit through an adjudication.  However, I infer that he instructed Mr Ringland to make the changes to Mr Ringland’s draft Summary of Labour Rates of 13 May, which I have discussed above at [66] to [67].  Four changes were there made, but three of them involved increases to the figures shown in that draft. 

1. It can also be said in his favour that the process of compiling this claim was far from ideal and a priority was put on expedition rather than precision.  Of course, a reckless indifference as to the accuracy of what was put forward could constitute fraud, because it would represent the absence of a genuine belief in the truth of that case.  On the other hand, the process involved here was also conducive to mere carelessness and some misconception of the nature of the claim.  At least in the early stages, Mr Ericson and Mr Ringland were relying upon BCPS for advice in the formulation, as well as the ultimate presentation, of his case.  Mr Ringland, and I would infer, Mr Ericson, seemed to be uncertain as to what BCPS had in mind.  Even as late as 12 May 2009, Mr Ringland expressed his lack of understanding as to whether BCPS was proposing an “overall cost claim” or one which would use the opinion of a quantity surveyor.[62]

   [62]See above at [63].

1. The email from Mr Ringland of 16 May shows something of that confusion.  His suggested comparison of “the true cost of the project” with “actual costs” is difficult to understand.  But what Mr Ringland was saying, with the apparent endorsement, if not the direction, of Mr Ericson, was that a quantity surveyor would not provide an accurate picture of the real cost of this work.  The point he was trying to make was that it was Mr Ericson, with his experience of this job and his knowledge of his own costs, who would be best equipped to assess the cost. 

1. But it appears Mr Ericson did not go to his own wage records to check what were his costs of employing the relevant workers.  Instead, he provided figures which had some similarity to labour charge-out rates.  Even then, there was no correlation between the rates in this claim and what Mr Ericson claims were his usual charge-out rates because he said that to some extent he discounted his usual rates by being conservative in the exercise.[63] 

   [63]See [74] above.

1. In his evidence, he sought to explain the connection between his charge-out rates with his own costs, by reference to a publication of the Building Services Authority.  He referred to a page which contained, under a heading which warned builders “Ensure you’re covered!”, a labour costing rate calculation together with some explanation.  The text included the following:

“This rate will only recoup the net cost of employing the Carpenter.  It makes no allowance for any overhead costs or profit, and only makes minimum allowances for lost productivity.  You must allow for overhead costs, profit and any productivity losses (other than the minimum 30 minutes a day) separately in the estimate for the work.

Smaller projects incur proportionally high overhead costs and a higher proportion of non-productive time.  Where overheads costs are not separately calculated, you can use a rate of 2 – 2.5 times the hourly labour rate.  For example, where overhead costs have not been separately calculated, an hourly charge out rate on a small job could be quoted based on:  2 to 2.5 x $33/hr = $66 to $85 per hour.

At first glance, $66 to $85 per hour might seem excessive.  If so, take some time to calculate the reduced productivity, overhead costs and profit that would be applicable to this type of small job.  Start with the $33/hr, add in any time lost due to poor productivity associated with the small job (eg travelling) then add on all overhead costs associated with the work and an appropriate amount to cover your office overhead costs.  Finally add on a suitable percentage for profit and risk.  You may find the $66 to $85 per hour is not so unrealistic after all!”[64]

This publication was a guide to builders in calculating a labour charge-out rate for “smaller projects”. On no view could this job be put in that category. The calculation in this publication showed the components of the cost of employing a carpenter. They were the carpenter’s wage, site allowance (if any), leave loading, travelling allowance and other allowances including, if applicable, a tool allowance. Those components showed the totals paid to the employee. There were further components then added, described as “statutory on costs”, which were payroll tax, compulsory superannuation, workers’ compensation, long service leave and provision for severance pay. The total was then divided by the number of hours over a year to reach a calculated $33 per hour as “total labour cost per hour”. That explains the reference to $33/hr in the text I have extracted. It can be seen that the components of that calculation are substantially those which make up the true actual costs incurred by Mr Ericson, as I have explained above at [44]. The particular point made by this publication was that on smaller jobs, the charge-out rate had to be at least double the actual cost of the employee to allow for overheads and profit.

[64]Exhibit 34. 

1. In the present case, Mr Ericson used labour rates which were equivalent to about double his actual costs.  He sought to justify that multiple by this BSA publication.  But Mr Ericson added 12 per cent again for overheads and profit.  And the publication’s suggestion of a multiple of 2 – 2.5 was for the case of a “smaller project”.  I do not accept that he used the BSA publication as he claimed in his evidence.

1. Mr Ericson’s case did not attempt to establish that there were specific costs within his business, which could be attributed to the employment of his workers, from which there could be calculated the overall costs of labour in amounts even approximating those charged by his payment claim. This non-specific aspect of his case arose upon an interlocutory application, when Hansen Yuncken sought further particulars of what was then paragraph 17 of Mr Ericson’s Defence, which I have set out above at [47]. Hansen Yuncken sought particulars as to the basis upon which he alleged that the hourly rates as claimed had been his estimates of his hourly costs. I declined to order particulars, because I held that Mr Ericson was entitled to advance the case, based merely on his say so, that these had been his genuine estimates of the relevant hourly costs. For the same reason, I did not order particulars of paragraph 20 of the Defence, in which Mr Ericson pleaded at 20.7 that “[h]e knew that the Adjudication Application did not set out actual wage rates for his employees, but he honestly intended to convey and did in fact convey by the Adjudication Application that the rates applied to labour hours [were] his estimate of the hourly cost to [him] of the particular employees”.[65]  Consistently with the absence of a particular explanation for the quantification of these rates, his case at the trial did not seek to show any calculation by which he went from what he paid to or for his employees to something equivalent to a discounted charge-out rate. 

   [65]Defence and Counterclaim filed 23 July 2010.

1. At one point in his examination in chief he gave this evidence:

“If I can take you back to actual costs.  What was your belief or definition of what actual costs were or included?--  My understanding of actual costs was – is that it includes the costs associated for me to produce that – the men on that – that job.

Now, how would you describe costs like the hourly rate that you paid and – with the statutory – like superannuation, WorkCover and payroll tax?--  Direct cost.

Now, you’ve explained the general term for actual costs.  What, in your interpretation of actual costs, is included in actual costs?--  It includes direct costs like we just explained.  It then has the other costs that are associated with running a business.  In – it’s – you’ve got a lot of contingencies and – like when you discuss like direct cost of WorkCover, it’s not just that cost of the four to four and a half or five per cent, you have also a lot - continuing liability that continues on for years in relation to claims and then potentially pushing up your other WorkCover rates, and also - so that one, and you’ve got all your – there’s different insurances, there’s - sorry, your Honour, I’m trying to - thinking about it too much.

Well, the Gordonvale yard --?--  Yes.

---- did you own that?--  No.

So how were you occupying it?  On what basis were you there?--  It was a leased yard.

Where was that in your costs?--  That’s part of my costs to my men.

Did you have any other offices?--  We had an office in town that we moved into when we took over this project.  When we commenced this project, we had to move into a bigger office.

And did you buy that or was it some other basis that you occupied it?--  No, it was leased.

And where was the cost for that?--  Cost for that was attributed some into the overheads and some into the men.

In producing the steel that went into the job, how was that done?--  That was done out at the Gordonvale yard.

Where did the steel come from, the actual steel bars or----?--  Come from Brisbane or Sydney.

And how did it arrive?--  We’d freight it up.

And after it arrived, what was done with it?--  It was then stored in our yard, then processed, then transported to site.

How was it processed?--  It was processed by my own men in our processing facility at Gordonvale.

How many men did you have working there?--  Four, sometimes five in the steel shed.

And how many of them were working on this job?--  Actually on site, none.

No, in the shed?--  Probably 50 per cent of their time was towards this job.”[66]

At this point counsel for Hansen Yuncken objected that the case was being expanded beyond the unparticularised one which had been pleaded.  That was as far as the evidence went in Mr Ericson’s attempts to identify other sources of costs which, at least as he would contend, were relevant for the calculation of labour costs.  That passage of evidence was of no assistance to Mr Ericson’s case.  He identified costs which were either overheads (for which he separately charged in the payment claim) or the costs of other workers, who supposedly were inexplicably omitted from the group upon which he had made his claim for labour costs. If Mr Ericson did advert to these areas of costs within his business, when quantifying the labour rates for this claim, it would be extraordinary that he would be able to properly bring them into account without creating any document in the exercise.  No such document was disclosed.  Nor was there disclosure of documents which would be relevant to the costs of things mentioned in that passage of evidence, such as the Gordonvale plant.

[66]T 8-17 to 8-18.

1. I have referred to the Summary of Cost of Works within the payment claim, and to the notation on that document which was:  “Below are Direct Costs where applicable”.[67]  That represented that the labour costs were “direct costs”, which Mr Ericson, in his evidence, said was a description of the types of costs which can be attributed to a particular employee, namely wages, allowances, superannuation, payroll tax and workers’ compensation.  His case is that he had to claim on the basis of charge-out rates because he needed to recover also his costs which were not direct costs.  Yet he represented there that these were direct costs. 

   [67]Above at [11].

1. It is of some significance that he did not include within the payment claim the Summary of Labour Rates nor the Summary of Labour Hours, both of which had been prepared by then.  This gives the impression that he had decided to save these documents for the adjudication application.  Then when he did use the Summary of Labour Rates, the reference to “direct costs” was deleted.  The apparent explanation is that by this stage, he had decided to use the expression “actual costs”, one which he had not used in the payment claim but which Hansen Yuncken had used in its payment schedule.  In particular, it had there said that “[t]he payment claim purports to include the Claimant’s actual costs for trade labour.  Off-site personnel and site management …”.[68] 

   [68]Exhibit 2, Vol 1, Tab 2, paragraph l.m.

[111][2011] QCA 22.

[112](2010) 272 ALR 750.

[113](2007) 232 CLR 189 at 197 [18].

[114](2010) 239 CLR 531 at 580 [97].

[115](1874) LR 5 PC 417 at 442.

[116](2010) 239 CLR 531 at 567 [56].

1. Accordingly, I consider that the established jurisdictional basis for the relief which is sought by Hansen Yuncken is the equitable one. 

1. Hansen Yuncken argues that the appropriate relief is simply to set aside the adjudicator’s decision and to restrain Mr Ericson from making another payment claim.  For Mr Ericson, it is argued that if I concluded that there should be relief on account of fraud but not for a denial of natural justice, then I should quash or set aside the decision but also require the adjudicator to reconsider the matter.  His argument is that it would be unjust for the fraud to affect the entirety of the adjudication, when it was confined to a discrete component of the claim. 

1. Hansen Yuncken submits that there is no power for the matter to be sent back to the adjudicator because he would have no power to reconsider the application.  It says that it is not unjust that Mr Ericson should lose the benefit of the adjudication and he should be left to his rights under the general law. 

1. Section 25(3) of the Act provides that except where the parties agree otherwise, an adjudicator must decide an adjudication application within 10 business days from the receipt of the adjudication response. Section 32(1)(b) permits a claimant to make a new application if the adjudicator does not decide the application within the time allowed by s 25(3). In that circumstance, a claimant may withdraw the application and make a new application under s 21. Section 32(3) provides that any new adjudication application may be made at any time within five business days after the claimant becomes entitled to withdraw the previous application. Section 32(1)(a) also permits a new application to be made where a claimant does not receive an adjudicator’s notice of acceptance of an adjudication application within four business days after it is made.

1. Other than in the circumstances within s 32, the Act makes no provision for an adjudication application to be made outside the time period prescribed by s 21(3)(c). There is a question here as to whether the setting aside of the adjudicator’s decision would have the result that s 32 was engaged upon the basis that the adjudicator would not have decided the application within the time allowed. The arguments here referred to several cases in New South Wales dealing with an apparently equivalent provision, although there is some difference in the language.[117] Section 32(1)(b) of the Act applies where an adjudicator accepts an adjudication application but “...does not decide the application within the time allowed...”. The New South Wales provision applies where the adjudicator accepts an application but “...fails to determine the application within the time allowed …”.[118]  The difference in wording seems immaterial.

   [117]Building and Construction Industry Security of Payment Act 1999 (NSW), s 26.

   [118]Section 26(1)(b).

1. The first of these judgments is Multiplex Constructions Pty Ltd v Luikens,[119] where an adjudicator’s decision was quashed for jurisdictional error.[120]  In obiter dictum, Palmer J said that this circumstance would be within the requirement of (the equivalent of) s 32, entitling the claimant to withdraw its application and make a fresh application within five days of the quashing order.[121]  That was referred to with apparent approval by Barrett J in Quasar Constructions NSW Pty Ltd  v Demtech Pty Ltd.[122]  It was followed by Bergin J (as she then was) in Emergency Services Superannuation Board v Sundercombe[123] and by Nicholas J in John Holland Pty Ltd v Made Contracting Pty Ltd.[124] 

   [119][2003] NSWSC 1140.

   [120]Before the decision in Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421.

   [121][2003] NSWSC 1140 at [103].

   [122][2004] NSWSC 116 at [38].

   [123][2004] NSWSC 405 at [23].

   [124][2008] NSWSC 374 at [31], [32].

1. In Cardinal Project Services Pty Ltd v Hanave Pty Ltd,[125] there had been a consent declaration to the effect that a prior adjudication decision was “void and of no effect”.  McDougall J held that the declaration simply described what had always been the absence of any legal effect in the purported determination of the adjudicator.  So whilst there had been a failure to determine the application, that had occurred at the expiry of the time limit fixed for an adjudicator to reach a decision, rather than at the (later) date of the making of the Court’s declaration.  Therefore, it was too late for the application to be withdrawn and a fresh application made.

   [125][2010] NSWSC 1367.

1. In Spankie v James Trowse Constructions Pty Ltd, these cases (with the exception of Cardinal Project Services which was decided after this case was heard), were said to support the view that the respondent there was entitled to make a new application under s 32 of the Act where the decision upon the previous application was declared to be void for a denial of natural justice.[126]  The remarks there were obiter dictum and, as I have mentioned, the conflict in the New South Wales cases as a result Cardinal Project Services was not considered. 

   [126][2010] QCA 355 at [29].

1. Each of these cases was one where the adjudicator’s determination was affected by the adjudicator’s failure to decide the application according to the rules of natural justice or otherwise according to law. In that way, the adjudicator could be regarded as not having decided the application. In the present case, I have held that relief should be refused upon the natural justice ground. The question then is whether the adjudicator here could be said to have not decided the application, because unknown to him, the application was affected by the applicant’s fraud. The fraud provides a basis for setting aside the decision. But it is straining the language of s 32(1)(b) to say that the adjudicator has not decided this application, because there has been no act or omission by the adjudicator by which he has failed to discharge his duty in any respect. I am not persuaded that s 32(1)(b) would be engaged if this decision were set aside.

1. For Mr Ericson, it was submitted that there was an alternative to a fresh application under s 32, which was that the matter be referred back to the adjudicator with an order, in the nature of mandamus, that he consider the application according to law. That submission is supported by obiter dictum of McDougall J in Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd.[127]  Hansen Yuncken does not dispute that, in theory, such an order could be made.  But again, the availability of relief in the nature of the prerogative remedies remains at least in doubt, notwithstanding Kirk, where the basis for disturbing the relevant decision is the fraud ground.  The position is different from that in New South Wales, because in this jurisdiction (subject to Kirk) the availability of relief in the nature of mandamus, prohibition or certiorari has been apparently precluded in the present context by s 18 of the JR Act and the inclusion of decisions of adjudicators within Schedule 1, Part 2 of that Act. It is preferable that the matter not be sent back to the adjudicator if the validity of his further determination could be in doubt.

   [127][2008] NSWSC 399 at paras [80] to [89].

1. For Mr Ericson it was submitted that, as an alternative to mandamus, equitable relief could be granted upon conditions.  It was said that the Court should order, as a condition of setting aside the decision, that Hansen Yuncken pay Mr Ericson “the undisputed portion” of the adjudication sum.  Hansen Yuncken correctly takes issue with the term “undisputed portion”.  All of the payment claim was disputed, upon the threshold argument that there was a lump sum contract according to written terms, which did not permit any of the claim which was made.  The adjudicator decided that issue adversely to Hansen Yuncken.  But because of the provisional nature of an adjudication,[128] it remains an issue which can be litigated, and in that way all of Mr Ericson’s claim remains in dispute. 

   [128]Section 100 of the Act.

1. In the present case, the fraud which was alleged and proved relates to a discrete component of the claim and the impact of the fraud upon the amount of the claim has been precisely proved. The consequence of the fraud can be quantified, as therefore can the relief which is necessary to avoid that consequence. This suggests that it would be unjust for Mr Ericson to lose the whole of the benefit of this adjudication. But Hansen Yuncken submits that the decision ought to be set aside in its entirety, because “a finding of fraud undermines confidence in the reliability of the representations made by Mr Ericson in the payment claim and the adjudication application and in turn undermines confidence generally in the decision”. It is said that “the Court cannot make a positive finding that the rest of the claim and the application are not affected by fraud”. It is also argued that Mr Ericson should not have the benefit of the fast track system offered by the Act when he has abused the process by making a fraudulent claim.

1. I do not accept Hansen Yuncken’s submission that there may be other parts of the claim which were affected by fraud so that Mr Ericson should be left with nothing from the adjudication.  In theory, it is possible that some other part of the claim has been unduly inflated.  But after the adjudication, Hansen Yuncken conducted an extensive investigation into this claim before prosecuting a fraud case only upon two aspects of the labour costs.[129]  It has confined itself to a discrete part of the claim when, as it appears to me from its thorough presentation of its case, it would have pursued any further argument for challenging the quantification of the claim had that been suggested by the evidence which became available to it. 

   [129]I.e. the actual costs issue and the Appendix C workers.

1. Nor am I persuaded that the subject matter of the fraud is not easily severable from other components.  It is said that “the overhead and profit margin applied not just to the fraud components, but to the claim generally”.  But the extent of the overcharge can be calculated by adding to what is proved to be the excessive charge for labour, the increments for profit and overheads totalling 12 per cent.

1. In Johns v Cosgrove, Thomas JA (with whom de Jersey CJ and McMurdo P agreed) held that there was a discretion to refuse to exercise the equitable jurisdiction to set aside a judgment obtained by fraud, but a discretion which would be exercised rarely.[130]  In that case, the respondent suffered personal injuries in a motor accident.  He successfully sued the appellants, a hotel owner who allegedly supplied liquor to him before he was injured and the driver of the vehicle.  He was found guilty of contributory negligence and the trial judge apportioned responsibility amongst the three parties in differing proportions.  Subsequently, the judgment was proved to have been obtained by the respondent’s fraud.  Each appellant sought to have the judgment against it or him set aside.  The respondent argued that only the judgment against the hotel owner should be set aside, because the fraud was directed to that case and not to the case against the driver.  But it was held that the false evidence was relevant also to the case against the driver, because the fraudulent evidence of the responsibility for and state of the respondent’s intoxication was relevant also to the assessment of contributory negligence with respect to his claim against the driver, so that the outcome against both defendants could be seen as tainted or affected by the fraud.  Thomas JA said:

“[98]The effect of the fraud cannot be extracted with any precision leaving discrete segments of the trial intact.  The situation more resembles a cracked windscreen than damage to a discrete unit.”[131]

The argument for Hansen Yuncken cites that passage and says that the present case is similar.  That cannot be accepted.  In the present case, the consequence of the fraud has been identified and measured.  The equitable relief should not extend beyond that which is necessary to avoid that consequence. 

[130][2002] 1 Qd R 57 at 92, 93 [94], [95].

[131]Ibid at 93, [98].

1. As I have said, Hansen Yuncken submits that Mr Ericson should be left to his rights (if any) to payment outside the statutory scheme of the Act. In one way, that might be thought to be reasonable, because an adjudication is provisional as the Act by s 100 preserves the rights of the parties to litigate about the final state of the account. But the intended beneficial purpose of this statutory scheme cannot be overlooked. In R J Neller Building Pty Ltd v Ainsworth, Keane JA said:

“[39]It is evidently the intention of the BCIP Act, and, in particular, s 31 and s 100 … that the process of adjudication established under that Act should provide a speedy and effective means of ensuring cash flow to builders from the parties with whom they contract, where those parties operate in a commercial, as opposed to a domestic, context. This intention reflects an appreciation on the part of the legislature that an assured cash flow is essential to the commercial survival of builders, and that if a payment the subject of an adjudication is withheld pending the final resolution of the builder’s entitlement to the payment, the builder may be ruined.

[40]The BCIP Act proceeds on the assumption that the interruption of a builder’s cash flow may cause the financial failure of the builder before the rights and wrongs of claim and counterclaim between builder and owner can be finally determined by the courts.  On that assumption, the BCIP Act seeks to preserve the cash flow to a builder notwithstanding the risk that the builder might ultimately be required to refund the cash in circumstances where the builder’s financial failure, and inability to repay, could be expected to eventuate.  Accordingly, the risk that a builder might not be able to refund moneys ultimately found to be due to a non-residential owner after a successful action by the owner must, I think, be regarded as a risk which, as a matter of policy in the commercial context in which the BCIP Act applies, the legislature has, prima facie at least, assigned to the owner.”[132]

Thus, where most of this claim is unaffected by the fraud, it is no small thing to deprive Mr Ericson of the substantial benefit of the adjudicator’s decision.  To say that he can be left to an ultimate determination of all issues by a court is to disregard the policy behind and the intended effect of this statutory scheme.  Moreover, the unsuccessful party, Hansen Yuncken, has not sought since the adjudication to litigate the threshold question, and to thereby establish that according to the ultimate merits, nothing is owing to Mr Ericson. 

[132][2009] 1 Qd R 390 at 400-401.

1. It is true that equity should not look kindly upon a fraudulent claimant.  Mr Ericson should be deprived of the benefit of his fraud.  But to deprive him of the benefit of the entirety of the adjudicator’s decision would be to penalise him. 

1. The outcome should be one under which Hansen Yuncken pays the amount of the claim less the overcharges for labour costs.  In the overcharges, I would include the overcharge for the Appendix C Workers, although I was not persuaded that Mr Ericson was fraudulent in that respect.  The overcharge for the Appendix C Workers would not of itself warrant equitable relief.  But as equitable relief is to be granted, it should not be on terms whereby the Court would require Hansen Yuncken to pay for a cost which has been demonstrated to have been wrongly claimed.

1. At paragraph [40], I have referred to the difference between the total of what were truly the actual costs ($1,838,788.67) and the sum claimed and allowed ($3,764,814), the difference being $1,926,025.33.  To that should be added the amount for the Appendix C Workers, which as I have said at [89] is $54,694.89.  Those amounts total $1,980,720.22.  To that sum should be added 12 per cent for overheads and margin, resulting in $2,218,406.65.  Then an amount of 10 per cent for GST should be added to that sum, resulting in $2,440,247.31.  Subtracting that figure from the adjudicated amount, the balance is $2,363,619.29. 

1. Mr Ericson should also have interest on the amount of $2,363,619.29 calculated according to the adjudicator’s decision. He ruled that the adjudicated amount carries interest at the “penalty rate” according to s 67P(3)(a) of the Queensland Building Services Authority Act1991 (Qld), accruing from 13 June 2009.

1. On 23 July 2009, Mr Ericson was restrained from taking any steps to obtain an adjudication certificate or otherwise enforcing the decision until further order of the Court.  That order was made on the undertaking by Hansen Yuncken to provide, to the Registrar of the Court, bank guarantees securing the adjudicated amount.  On 6 December 2010, I ordered that unless Hansen Yuncken provided to the Registrar a bank guarantee securing interest upon the adjudicated amount, in the sum of $1,392,000, the restraining order made on 23 July 2009 would be set aside.[133]  Each guarantee was provided.  In total, this security will more than meet the amount to be paid to Mr Ericson, being $2,363,619.29 together with interest.  Hansen Yuncken should be given some time to arrange the payment of that sum rather than the bank guarantees being called upon immediately.  A reasonable time is, in my view, 21 days. 

   [133]Hansen Yuncken Pty Ltd v Ericson (No 2) [2010] QSC 457.

1. It will be ordered that upon the applicant paying to the first respondent by 25 November 2011 an amount which is the total of $2,363,619.29 and interest on that sum from 13 June 2009 at the rate according to s 67P of the Queensland Building Services Authority Act 1991 (Qld):

(a)      the first respondent will be restrained thereafter permanently from taking any steps to obtain an adjudication certificate or to otherwise enforce the adjudication decision of the second respondent;

(b)     the Registrar will unconditionally release to the applicant any bank guarantee provided under the orders of 23 July 2009 or 6 December 2010. 

1. I should make some provision for the contingency that payment is not made by 25 November.  It will be further ordered that if payment of that total sum is not made by 25 November 2011:

(a)      the order within paragraph 1 of the orders made on 23 July 2009 will be set aside;

(b)     the first respondent will be restrained from recovering more than an amount which is the total of $2,363,619.29 together with interest on that sum from 13 June 2009 until the date of recovery at that rate of interest, by recourse to one or more of the said bank guarantees or otherwise;

(c)      upon the recovery of that total, the first respondent will thereafter be restrained from taking any further steps to enforce the adjudication decision of the second respondent and such of the bank guarantees which then remain in place will be unconditionally released to the Registrar and any moneys paid under any bank guarantee which are surplus to the funds recovered by the first respondent in accordance with these orders will be paid to the applicant. 

1. My intention by these orders is to allow Hansen Yuncken 21 days to make the required payment (rather than the bank guarantees being called upon immediately), so that if payment is then made, the bank guarantees could be returned and there would be no adjudication certificate or consequential judgment in favour of Mr Ericson. If payment is not made within 21 days, Mr Ericson would be able to obtain an adjudication certificate, necessarily for the entire adjudicated amount, and lodge that with the Court resulting in a judgment for that amount. But having done that, he would be able to recover no more than the reduced sum. I have not taken what might be seen as the simpler course of making an order purporting to reduce the adjudicated amount. In my view, there is some doubt as to the Court’s power to affect the operation of the Act in that way, because according to the Act an adjudicated amount is one which can be fixed only within an adjudication.

1. There will be liberty to apply.  I will hear the parties as to other orders, including costs.