Martinus Rail Pty Ltd v Qube Re Services (No 2) Pty Ltd (No 2)

[2024] NSWSC 1223

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd (No 2) [2024] NSWSC 1223

Hearing dates:

4, 5, 6, 26 September 2024

Date of orders:

26 September 2024

Decision date:

30 September 2024

Jurisdiction:

Equity - Commercial List

Before:

Parker J

Decision:

See [359-361]

Catchwords:

BUILDING AND CONSTRUCTION — Building and Construction Industry Security of Payment Act 1999 (NSW) (‘SOPA’) — adjudication of payment claims — adjudicator’s obligation to give reasons — adjudicator’s obligation to consider respondent's submissions — “legal unreasonableness” — jurisdictional error

BUILDING AND CONSTRUCTION — Building and Construction Industry Security of Payment Act 1999 (NSW) (‘SOPA’) — adjudication of payment claims — scope of adjudication proceedings — respondent calls bank guarantees and allows credit against set-off claims in payment schedule — claim for restitution in adjudication application — jurisdiction

BUILDING AND CONSTRUCTION — Building and Construction Industry Security of Payment Act 1999 (NSW) (‘SOPA’) — adjudication determination — application for stay of enforcement proceedings pending arbitration — alleged risk of non-repayment — whether stay available where judgment creditor not in liquidation — SOPA, s 32B — whether expert evidence required as to risk of non-repayment —– degree of risk — stay refused

Legislation Cited:

Building and Construction Industry Security of Payment Act 1999

Commercial Arbitration Act2010

Corporations Act2001 (Cth)

Cases Cited:

Acciona Infrastructure Projects Australia Pty Ltd v EnerMech Pty Ltd [2023] NSWSC 1565

A-Civil Aust Pty Ltd v Ceerose Pty Ltd [2023] NSWCA 144

Allianz Australia Insurance Ltd v Probuild Constructions (Aust) Pty Ltd [2023] NSWCA 56

Australia Avenue Developments Pty Ltd v Icon Co (NSW) Pty Ltd [2018] NSWSC 1578

Binah Constructions Pty Ltd v PTMG Pty Ltd [2024] NSWSC 872

Bouygues Construction Australia Pty Ltd v Southern Cross Electrical Engineering [2017] NSWSC 1665

Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421

CC Builders (Aust) Pty Ltd v Milestone Civil Pty Ltd [2019] NSWSC 1251

Ceerose Pty Ltd v A-Civil Aust Pty Ltd (2023) 112 NSWLR 225

Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393

City of Ryde v AMFM Constructions Pty Ltd & Anor [2011] NSWSC 1469

Demex Pty Ltd v McNab Building Services Pty Ltd [2023] NSWCA 261

Downer Construction (Australia) Pty Ltd v Energy Australia (2007) 69 NSWLR 72

EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd [2024] NSWCA 162

Fulton Hogan v Cockram Constructions (2018) 97 NSWLR 773

Grosvenor Constructions (NSW) Pty Limited (in administration) v Musico [2004] NSWSC 344

Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2018] NSWCA 339

Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWSCA 211

LPTD v Minister for Immigration [2024] HCA 12; 98 ALJR 610

Minister for Immigration and Citizenship v Li (2013) 249 CLR 332

Pinnacle Construction Group Pty Ltd v Dimension Joinery & Interiors Pty Ltd [2018] NSWSC 894

Prime Constructions (Qld) Pty Ltd v HPS (Qld) Pty Ltd [2019] QSC 301

Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1

Queensland Bulk Water Supply Authority v McDonald Keen Group Pty Ltd [2009] QSC 165

Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Palme (2003) 216 CLR 212

Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2018] NSWCA 33

TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 118

Veolia Water Solutions v Kruger Engineering [No 3] [2007] NSWSC 459

Texts Cited:

Nil

Category:

Principal judgment

Parties:

Proceedings 2024/278963
Martinus Rail Pty Limited (Plaintiff)
Qube RE Services (No 2) Pty Limited (Defendant)

Notice of Motion filed 1 August 2024
Qube RE Services (No 2) Pty Limited (Applicant)
Martinus Rail Pty Limited (Respondent)

Proceedings 2024/278984
Martinus Rail Pty Limited (Plaintiff)
Qube RE Services (No 2) Pty Limited (Defendant)

Notice of Motion filed 1 August 2024
Qube RE Services (No 2) Pty Limited (Applicant)
Martinus Rail Pty Limited (Respondent)

Proceedings 2024/286961
Qube RE Services (No 2) Pty Limited (Plaintiff)
Martinus Rail Pty Limited (First Defendant)
John Tuhtan (Second Defendant)

Representation:

Counsel:
Proceedings 2024/278963
J C Giles SC/ T J Boyle/ J Bridgett (Defendant/Applicant)
S Robertson SC/ A Langshaw (Plaintiff/Respondent)

Proceedings 2024/278984
J C Giles SC/ T J Boyle/ J Bridgett (Defendant/Applicant)
S Robertson SC/ A Langshaw (Respondent/Applicant)

Proceedings 2024/286961
J C Giles SC/ T J Boyle/ J Bridgett (Plaintiff)
S Robertson SC/ A Langshaw (Defendant)

Solicitors:
Proceedings 2024/278963
Maddocks Lawyers (Plaintiff/Respondent)
King & Wood Mallesons (Defendant/Applicant)

Proceedings 2024/278984
Maddocks Lawyers (Plaintiff/Respondent)
King & Wood Mallesons (Defendant/Applicant)

Proceedings 2024/286961
King & Wood Mallesons (Plaintiff)
Maddocks Lawyers (First Defendant)

File Number(s):

2024/278963; 2024/278984; 2024/286962

Publication restriction:

Nil

JUDGMENT

1. These proceedings arise out of two adjudications under the Building and Construction Industry Security of Payment Act 1999 (“SOPA” or “the Act”). The adjudications took place under two separate contracts between a head contractor and a sub-contractor. They obliged the head contractor to pay $71 million in total to the sub-contractor. In the present proceedings, the sub-contractor seeks to enforce the payment of the adjudicated amounts. The head contractor seeks to set the adjudications aside or alternatively to stay their enforcement until the parties’ rights are determined by arbitration.

2. The dispute between the parties has already been the subject of proceedings in this Court, which resulted in a judgment of Rees J last December: Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd [2023] NSWSC 1550 (“J1”). At J1 [11]-[28] her Honour summarised the background and some of the contractual provisions. The background for the purposes of the present dispute may be further summarised as follows.

3. The contracts in question were for works forming part of a large infrastructure development being undertaken at Moorebank in Western Sydney, known as the Moorebank Intermodal Terminal Project. The development is being carried out by a Commonwealth government business enterprise named National Intermodal. The head contractor is Qube RE Services (No 2) Pty Ltd (“Qube”). The sub-contractor is Martinus Rail Pty Ltd (“Martinus”).

4. The contract between National Intermodal and Qube is known as the “Development and Operation Deed” (“DOD”). The two sub-contacts between Qube and Martinus, which are the subject of these proceedings, were both dated July 2022. They are styled “Interstate Terminal Works Contract” dated 8 July 2022 (“INTS Contract”) and “Interstate Rail Access Works Contract” of the same date (“ISRA Contract”). I will refer to them collectively as “the Contracts”. The Contracts were on “construct only” terms; that is, Martinus was to undertake the specified construction work in accordance with designs provided by Qube.

5. As is conventional, the administration of the Contracts took place under the direction of a superintendent appointed by Qube (“the Superintendent”). The Superintendent was obliged by the terms of the Contracts to “act independently”. Qube appointed Mr Peter Marshall of Rail Planning Services Pty Limited (“RPS”).

6. In February last year, Martinus was estimating that the date for practical completion under the Contracts was ten months away, in December. Over the following months that date blew out. By August it had reached June this year (still ten months away). According to Qube, at that point the adjusted date for practical completion under the Contracts, taking into account approved extension of time claims, was 30 November. The “sunset date” by which completion of Qube’s works was required under the DOD was 24 January this year.

7. For its part, Martinus blamed Qube for the delay. According to Martinus, the necessary designs to undertake the work had been delivered late, and were in some cases inadequate. Furthermore, Qube had failed to give access to the site to allow Martinus to undertake the works. According to Martinus, access had been delayed in some cases by more than a hundred days after the originally scheduled date. Martinus claimed not only that it was not responsible for the delays, but also that Qube was liable for additional costs attributable to them.

8. It seems that these arguments were not accepted by the Superintendent. Martinus’ payment claims for the period up to 31 May went to adjudication. In early August, the adjudicator (Mr Alan Stapleton, not the adjudicator whose adjudications are in issue in these proceedings) handed down determinations in favour of Martinus totalling $11.1 million. These amounts were paid by Qube.

9. Matters came to a head at the end of August. Qube issued formal notices invoking the show cause procedure required for termination of the Contracts. Martinus responded, but Qube took the position that the response was unsatisfactory. On 25 September, Qube issued formal notices of termination for cause. On the same date, it issued formal notices of termination for convenience to take effect if the terminations for cause proved to be invalid.

10. Martinus disputes the validity of the termination for cause, but it is common ground that the Contracts were terminated on 25 September; the question is whether the termination was for cause or for convenience.

11. Martinus’ payment claims under the Contracts for the period up to 31 August 2023 also went to adjudication before Mr Stapleton. Early in November, he delivered determinations in favour of Martinus, totalling $4.6 million. These amounts were also paid by Qube.

12. By this point Qube had paid a total of $113 million (or perhaps $117 million) to Martinus under the Contracts, including adjudicated amounts.

13. In early December, Qube issued formal notices of dispute under the dispute resolution clauses of the Contracts. Qube alleged that it was entitled to substantial damages from Martinus for breach of contract, and to reimbursement of monies which should not have been allowed in the adjudications before Mr Stapleton.

14. The dispute resolution clause in the INTS Contracts (which I understand to have been the same in the ISRA Contract) provided for an elaborate multi-stage process. The first step involved negotiations between appointed representatives of the parties. If these negotiations were unsuccessful, there was to be what the Contracts described as an “Escalation of Dispute” involving further negotiations between the parties at senior executive level. Provision was made for the executive negotiators, if unable to agree on a resolution of the dispute, to refer it to mediation, expert determination or arbitration. If the matter was not resolved through mediation or expert determination (including if any party was dissatisfied by the expert’s determination), the dispute would be determined by formal arbitration.

15. Following the issue of the notices of dispute, the earlier proceedings in this Court to which I have referred were commenced. Martinus applied under the Commercial Arbitration Act2010 for an injunction restraining Qube from calling on the bank guarantees provided as security for Martinus’ obligations under the Contracts. The application was heard by Rees J on 11 December and her Honour delivered judgment on 20 December. She dismissed the application.

16. Although the injunction was refused, Qube did not immediately call on the bank guarantees. That did not happen until 8 February this year.

17. The payment claims which resulted in these proceedings were also issued on 8 February (shortly after, but in ignorance of, the call on the bank guarantees). The amounts claimed were $104.1 million for the INTS Contract and $33.3 million for the ISRA Contract. Qube responded on 22 February. Qube alleged that under each Contract it was owed money by Martinus. The scheduled amounts were credits of $1.4 million for the INTS Contract and $1.4 million for the ISRA Contract. The difference between the parties was therefore almost $140 million.

18. On 7 March, Martinus issued its adjudication applications. Qube was served later that day. The applications claimed payment of $104.1 million under the INTS Contract and $33.3 million under the ISRA Contract. They were referred to Mr John Tuhtan (“the Adjudicator”). On 15 March, Qube duly provided its responses to the applications.

19. The adjudication proceedings before the Adjudicator were complex and proved to be protracted. The payment claims, payment schedules, applications and responses involved scores of disputed items, hundreds of pages of submissions and thousands of pages of supporting material.

20. Under the timetable laid down by the Act, the adjudications were to be completed by 2 April. On 22 March, the Adjudicator requested an extension of 21 business days, noting the volume of documents and the complexity of the issues . The parties consented. In the end, four further extensions of time were sought and granted, taking the date for delivery of the determinations to the second half of July. According to counsel for Qube, the Adjudicator’s fees were calculated on the basis that he spent more than 9 hours a day, on average, on the adjudication over the 132 calendar days (that is, including weekends and public holidays) between the beginning of the adjudications and the delivery of the determinations. I did not understand these figures to be in dispute.

21. The Adjudicator delivered his determinations on 22 July. Including the reasons, they consisted of 560 pages for the INTS adjudication and 287 pages for the ISRA adjudication, although there was a degree of repetition. The Adjudicator determined that progress payments of $63.1 million should be made under the INTS Contract and $7.1 million under the ISRA Contract. He also decided that Qube should pay the whole of the costs of the adjudications. The Adjudicator’s fees totalled $543,000 which was split $209,000 for the ISRA adjudication and $334,000 for the INTS adjudication).

22. On 2 February, Qube had given notices pursuant the dispute resolution procedure under the Contracts escalating the dispute to executive level. A mediation took place unsuccessfully and it seems there were no further attempts at executive resolution. On 27 March, while the adjudication proceedings were pending, Qube issued formal notices of referral to arbitration under the Contracts. On 26 July, four days after delivery of the Adjudicator’s determinations, Qube served notices of arbitration under the rules of the Resolution Institute, the body under whose auspices arbitrations of disputes are to occur under the Contracts. Counsel for the parties told me that the identity of the arbitrator has not yet been agreed.

23. Under the Act the time for payment of the adjudicated amounts was 29 July. Qube failed to pay and the commencement of the present proceedings followed soon after.

Issues for determination

24. There are three proceedings before the Court. The first two proceedings (2024/278693 and 2024/278984) were commenced by Martinus to enforce payment of the adjudicated amounts under the Act. I will refer to them as the “enforcement proceedings”.

25. Adjudication certificates were filed on 30 July, commending the enforcement proceedings. Judgments were entered, pursuant to s 25 of the Act, on the following day. For the INTS Contract the judgment was $66.087 million. For the ISRA Contract it was $7.595 million.

26. On 5 August, Qube filed its own proceedings (2024/286961), to which I will refer as the “judicial review proceedings”. In these proceedings Qube seeks to set aside the determinations on the grounds of alleged jurisdictional error on the part of the Adjudicator.

27. Qube’s primary case is that the errors made by the Adjudicator are so extensive that the whole of the adjudications should be set aside, along with the judgments based on them. An interim order has been made staying execution on the judgments entered in the enforcement proceedings until after I deliver my judgment, as a condition of which Qube has paid $4 million to Martinus and lodged bank guarantees to secure the remaining amounts outstanding under the judgments.

28. Alternatively, if the judicial review proceedings fail or only result in the adjudications being partially set aside, Qube applies for stays of any remaining obligation to pay. These applications have been made by way of notices of motion filed in the enforcement proceedings (for convenience I will refer to them as a single application).

29. In these circumstances, I will deal first with the judicial review proceedings. I will then consider the stay applications in the enforcement proceedings in the light of my conclusions in the judicial review proceedings.

Judicial review proceedings

30. In their written submissions, counsel for Qube advanced 37 challenges to different components of the adjudications. Counsel also challenged the Adjudicator’s determinations on costs.

31. Counsel for Qube did not challenge every single component of the Adjudicator’s determinations. But their primary position was that the determinations were so riddled with jurisdictional errors that the determinations should be set aside as a whole. Alternatively, counsel asked me to set aside the determinations to the extent that Qube’s challenges were sustained, pursuant to s 32A of the Act.

Jurisdictional error: general principles

32. Authoritative guidance on jurisdictional error has recently been provided by the judgment of six members of the High Court in LPTD v Minister for Immigration [2024] HCA 12; 98 ALJR 610. At [2]-[3], the Court identified the relevant context (citations omitted):

Jurisdictional error can refer to breach of an express or implied condition of a statutory conferral of decision-making authority which results in a decision made in the purported exercise of that authority lacking the legal force attributed to exercise of that authority by statute. Though a decision affected by jurisdictional error is a decision in fact, it is “in law … no decision at all” and is in that sense “void”.

... Jurisdictional error can result from breach by a third party of a condition of a statutory process preceding a decision, but more often results from breach by a statutory decision-maker of a condition of the making of a decision. Jurisdictional error on the part of a statutory decision-maker in making a decision can include: misunderstanding the applicable law; asking the wrong question; exceeding the bounds of reasonableness; identifying a wrong issue; ignoring relevant material; relying on irrelevant material; in some cases, making an erroneous finding or reaching a mistaken conclusion; or failing to observe some applicable requirement of procedural fairness.

33. The Court continued at [4] (citations omitted):

A statute which contains an express or implied condition of a conferral of decision-making authority is not always to be interpreted as denying legal force and effect to every decision that might be made in breach of that condition. Only by construing the statute so as to understand the limits of the statutory conferral of decision-making authority is it possible to determine, first, whether an error has occurred (that is, whether there has been a breach of an express or implied condition of the statutory conferral of decision-making authority) and, second, whether any such error is jurisdictional (that is, whether the error has resulted in the decision made lacking legal force).

34. At [6]-[7], the Court addressed the requirement of “materiality” (citations omitted):

In some cases, where an error is established, the error will be jurisdictional irrespective of any effect that the error might or might not have had on the decision that was made in fact. In other cases, the potential for an effect on the decision will be inherent in the nature of the error. An example of the former is apprehended or actual bias. An example of the latter is unreasonableness in the final result. In such cases, the error necessarily satisfies the requirement of materiality.

In most cases, however, an error will only be jurisdictional if the error was material to the decision that was made in fact, in the sense that there is a realistic possibility that the decision that was made in fact could have been different if the error had not occurred. That is because it is now accepted that a statute which contains an express or implied condition to be observed in a decision-making process is ordinarily to be interpreted as incorporating such a “threshold of materiality” in the event of non-compliance.

35. At [9]-[13], the Court discussed how these principles operate in practice. There are two requirements, namely that an error has occurred, and if so, that that error was material (if materiality must be demonstrated to establish jurisdictional error). The onus lies on the applicant to satisfy the court on the balance of probabilities that the alleged error in fact occurred. If that is established, then whether the error is, or is not, material is determined by inference from the evidence adduced on the application.

36. The Court went on to give specific guidance on the test of materiality (citations omitted):

The question … is whether the decision that was in fact made could, not would, “realistically” have been different had there been no error. “Realistic” is used to distinguish the assessment of the possibility of a different outcome from one where the possibility is fanciful or improbable. Though the applicant must satisfy the court that the threshold of materiality is met in order to establish that the error is jurisdictional, meeting that threshold is not demanding or onerous.

What must be shown to demonstrate that an established error meets the threshold of materiality will depend upon the error. In some cases, it will be sufficient to show that there has been an error and that the outcome is consistent with the error having affected the decision. Where the error is a denial of procedural fairness arising from a failure to put the applicant on notice of a fact or issue, the court may readily be able to infer that, if fairly put on notice of that fact or issue, the applicant might have addressed it by way of further evidence or submissions, and that the decision-maker would have approached the applicant’s further evidence or submissions with an open mind. In those cases, it is “no easy task” for the court to be satisfied that the loss of such an opportunity did not deprive the person of the possibility of a successful outcome. Importantly, a court called upon to determine whether the threshold has been met must be careful not to assume the function of the decision-maker: the point at which the line between judicial review and merits review is crossed may not always be clear, but the line must be maintained. This case affords an example.

In sum, unless there is identified a basis on which it can be affirmatively concluded that the outcome would inevitably have been the same had the error not been made, once an applicant establishes that there has been an error and demonstrates that there exists a realistic possibility that the outcome of the decision could have been different had that error not been made, the threshold of materiality will have been met (and curial relief will be justified subject to any issue of utility or discretion).

Jurisdictional error under the Act

37. Counsel for both parties addressed me in some detail on the principles which have emerged from the case law on the identification of jurisdictional error in the particular context of the Act. I will address those submissions at this point.

38. Nature and scope of adjudication proceedings: The requirements of an adjudication determination are set out in s 22(1), which provides:

22 Adjudicator’s determination

(1) An adjudicator is to determine—

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

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

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

…

39. An adjudication application is an application for adjudication “of a payment claim” (s 17(1)). A payment claim is a claim “to be entitled to a progress payment” (s 13(1)). Relevantly for present purposes, the entitlements claimed by Martinus were entitlements “calculated in accordance with the terms of” the Contracts (s 8(1) and s 9(a)).

40. Formal requirements for a payment claim are set out in s 13(2). Relevantly they include:

A payment claim—

(a) must identify the construction work (or related goods and services) to which the progress payment relates, and

(b) must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount), and

…

41. Formal requirements of a payment schedule are set out in 14(2) and (3). Of particular significance is subsection (3), which provides:

If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent’s reasons for withholding payment.

42. As the Court of Appeal (Basten JA, with whom Macfarlan JA and Emmett AJA agreed) explained in Joye Group Pty Ltd v Cemco Projects Pty Ltd [2021] NSWSCA 211 at [12]:

The provision of a payment schedule indicating that part or all of the claim is disputed, engages the entitlement of the claimant to apply for an adjudication pursuant to s 17 of the Security of Payment Act. Importantly, if an adjudication application is made, the party against whom the claim is made is entitled to file an adjudication response, but “cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant”: s 20(2B). The reasons given in the payment schedule therefore impose a critical constraint upon the scope of the adjudication.

43. It had previously been suggested by Hodgson JA in Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421 that where an item in a payment claim was disputed in the payment schedule, but no reasons were articulated, the Adjudicator was still required to consider what was properly payable having regard to the “true construction of the Contract and the Act” and the “true merits of the claim”. In Ceerose Pty Ltd v A-Civil Aust Pty Ltd (2023) 112 NSWLR 225 the suggestion was examined in detail and rejected. Payne JA, with whom the other members of the Court agreed, stated (emphasis added):

It is the dispute between the maker of the payment claim and the recipient of that claim which is referred for adjudication. In the light of [s 20(2B)] an adjudicator is not required to go beyond the terms of the payment schedule, repeated in an adjudication response, in accepting all or part of the payment claim. The requirement in s 22(1), that the adjudicator is to determine “the amount of the progress payment (if any) to be paid” by the respondent to the claimant, in context, is a requirement to determine the amount of the progress payment arising from the dispute submitted by the parties for adjudication. The notion that it is jurisdictional error for an adjudicator to fail to address what the adjudicator considers to be the “true construction of the contract” and the “true merits of the claim” outside the limited issues presented by the parties for determination is an invitation for the reviewing court to embark on an impermissible merits review.

44. The decision of the Court of Appeal (Spigelman CJ, Basten JA and McDougall J) in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393 confirms that judicial review may be obtained in at least some cases where the adjudicator makes a (purported) determination of a dispute which falls outside the scope of the Act. In that case, there was an issue about whether the adjudication application had been served on the respondent within the time limit prescribed by s 17(2)(a). The adjudicator considered that it had been. The Court of Appeal held, however, that the Court was not bound by that determination, which was plainly incorrect. The result was that there had never been valid adjudication proceedings at all.

45. The scope for review is however limited as a result of Court of Appeal decisions which accept that adjudicators may in some respects determine the scope of the adjudication for themselves: see Australia Avenue Developments Pty Ltd v Icon Co (NSW) Pty Ltd [2018] NSWSC 1578 at [74]-[86]. In Downer Construction (Australia) Pty Ltd v Energy Australia (2007) 69 NSWLR 72, the Court of Appeal (Giles JA, speaking for the Court) stated (at [87]):

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

46. In Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2018] NSWCA 339 an adjudicator made a determination in favour of a contractor which included the reversal of “backcharges” previously levied by the principal, the reversal of which had not been claimed in the contractor’s payment claim. The Court of Appeal (Basten JA, with whom Meagher and Leeming JJA agreed) rejected the principal’s challenge to the adjudicator’s jurisdiction.

47. At [23]-[25], Basten JA described how the issue arose:

The references to “backcharge items” requires some explanation: the term is obscure. Indeed, it is not entirely clear that it is used consistently by the parties. Thus, in its written submissions in this Court, the appellant stated:

“The ‘backcharges’ were introduced into the dispute by Australia Avenue in its payment schedule…. The ‘backcharges’ reflected amounts which Australia Avenue asserted should be taken off the contract sum for various items of work because there had been variations reducing the scope (or price) of the relevant works. Variations of that kind can properly be described as ‘negative variations’. In the documents before the adjudicator, the parties called those items ‘backcharges’ because they reflected amounts which Australia Avenue had already paid to Icon, but which Australia Avenue was asserting should not have been paid by reason of the negative variations.”

The submissions further stated:

“In its adjudication application, Icon contended that there should be no deduction for the ‘backcharge’ amounts …. The Adjudicator agreed with Icon's contentions and did not allow the deductions referred to by Australia Avenue …. His Honour held that the Adjudicator erred in doing so.”

It was part of the respondent’s case that the adjudicator allowed an amount on account of “backcharges” which was not to be found in the payment claim. If a backcharge were an amount which reduced the claim, it would not properly be described as an amount for which a claim was made. It would only be part of a payment claim if the claim included amounts which had previously been made and allowed, or perhaps disallowed and were now sought to be reinstated. It is not clear that either party used the language in that sense.

48. His Honour had earlier quoted the passage from Downer reproduced above and commented (at [19]):

It follows that it was no part of the primary judge’s function to examine the payment claim to determine whether he considered that the approach adopted by the adjudicator was erroneous. Even if it were erroneous, it would not constitute jurisdictional error to act upon such an erroneous view…

49. Having described at [23]-[25] how the issue in the instant case arose, his Honour continued (at [26]-[27]):

In substance this case involved a dispute as to how the payment claim and the payment schedule should be understood.

It was not, and is not, appropriate for the Court to engage in an analysis of the manner in which the adjudicator dealt with the payment claim in her determination. …

50. After reviewing what had occurred in the adjudication, his Honour concluded, at [32]-[33]:

This was not a case in which it could be said that the adjudicator awarded more than the amount claimed; she self-evidently did not. Rather, it was a dispute as to the proper construction of the payment claim having regard to the contractual provisions. The statute requires that the adjudicator “is to consider” the provisions of the construction contract and the payment claim.27 However, an error in construing the contract or in understanding the payment claim does not constitute jurisdictional error and therefore cannot form a basis upon which the adjudication can be quashed.

In any event, it is tolerably clear that there was no error. There was a dispute between the parties in relation to what were described as “backcharges”. Once it was accepted that there was a dispute to be resolved, the respondent identified no error in the reasoning of the adjudicator, except to say that the backcharges were not part of the payment claim as served. The respondent accepted that the payment claim as served and adjudicated upon identified the construction work, as required by s 13(2)(a). It was not deficient in that respect. The dispute was as to the calculation of the value of that work, which was the very task vested in the adjudicator.

51. Consideration of parties’ submissions: This topic is addressed in s 22(2)(b) of the Act. For context, I set out the whole of s 22(2):

In determining an adjudication application, the adjudicator is to consider the following matters only—

(a) the provisions of this Act,

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

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

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

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

52. The express terms of s 22(2) are negative in form: all they do is restrict the material to which the Adjudicator may have regard (it has in fact been held that there may be circumstances in which the Adjudicator can have regard to other matters, but that is not material for the purpose of the present case). The section does not say, in terms, that the Adjudicator must consider the material specified. But it seems that the obligation is read as meaning “the adjudicator is to consider, and to consider only” the specified material. For instance, in the passage just quoted from Icon, at [32], Basten JA said that s 22(2) of the Act “requires” that the adjudicator “is to consider” the provisions of the construction contract and the payment claim.

53. In Ceerose, Payne JA (with whom Ward ACJ and Basten AJA agreed) addressed the practical question of how breach of the obligation to “consider” material in s 22(2) is to be established. His Honour stated, at [62]-[69]:

The attempt to articulate, using other language, what is required by the verb “consider” will usually be misconceived. Certainly, it is misconceived in the present statutory circumstance. In a practical sense, the problem for a party challenging a determination is not to identify whether the mental process undertaken by the adjudicator was “active”, “intellectual” or “genuine”, but rather to identify a basis on which it could be said that consideration did not occur. The mental processes of the adjudicator will be entirely opaque, except to the extent that they are revealed in his or her reasons. However … the failure to identify a particular claim or response in reasons will not of itself demonstrate that the adjudicator failed to consider it. That is so for a number of reasons.

First, reasons are not necessarily, or even usually, a comprehensive statement of all aspects of a decision-maker’s thinking. Even judicial reasons, which are expected to be more comprehensive and detailed than those of an administrative decision-maker, are not required to deal with all the evidence or all the submissions. A process of selection is undertaken: that is a necessary part of the process and not merely a concession to judicial frailty.

Secondly, the scope of the reasons will inevitably reflect the practical circumstances under which the adjudicator is operating. … unless time is extended by the parties, the adjudicator may have as few as eight business days to determine the application by reference to the adjudication response.

Thirdly, it is not unusual for the material supplied to an adjudicator to run into hundreds and even thousands of pages (as it did in this case). It is inevitable that, in accordance with this statutory scheme, an adjudicator will spend more time on some items within a claim than on others. The reasons may reflect such choices or they may not. It would, however, be entirely rational for an adjudicator to spend little time on an item of, say, $3,000 in a total claim of over $1 million, both in considering submissions and in preparing reasons.

Fourthly, there is a question as to what specific inference is to be drawn from the absence of reference to a particular submission or contention in a set of reasons. There are a range of possible explanations, only one of which is that the material was not considered. Another is that the claim was readily seen to be well-founded and the submissions to the contrary as lacking in substance. However, the latter would be a good reason to omit reference to the issue in the reasons. If the submission had been misunderstood, the facts mistaken or the law wrongly identified, that might explain absence from the reasons of something expected to be addressed, but not lack of consideration. Of course, the duty to consider a submission is separate from the absence of any duty to deal with it correctly, whether in law or in fact. The point is rather that an unreviewable error may explain why the reasons do not advert to a particular matter.

This is a situation in which the reasoning of Dixon J in Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 at 360; [1949] HCA 26 may be turned on its head. In explaining why a decision may be reviewable even though the decision-maker has not given reasons, Dixon J stated:

“If the result appears to be unreasonable on the supposition that he addressed himself to the right question, correctly applied the rules of law and took into account all the relevant considerations and no irrelevant considerations, then it may be a proper inference that it is a false supposition.”

Often it will be equally likely that an adjudicator who does not refer in reasons to a particular matter mistook the facts or misunderstood the contractual provision or the legal principle to be applied, as that he or she did not consider the factor at all. In those circumstances, a complaint of failure to consider will not be proven.

For all of these reasons, there are likely to be few cases in which an applicant for judicial review can establish a breach of the duty to consider the matters set out in s 22(2). That is not to say that there may not be circumstances in which the inference of omission to consider is demonstrated. Thus, failure to refer to a submission on a centrally important matter, clearly articulated and based on uncontested facts, may demonstrate a failure to consider at all. Such is likely to be a rare case.

54. The High Court in LPTD expressly identified “ignoring relevant material” as conduct of a decision-maker which may amount to jurisdictional error. But as I understood counsel for Martinus, they did not accept that an adjudicator’s failure to consider a submission, even if it involved a contravention of s 22(2), would be a jurisdictional error for the purposes of the Act.

55. It is true that not every contravention of s 22(2) has been so treated. The key decision of the Court of Appeal in this regard is Brodyn. The leading judgment was given by Hodgson JA.

56. His Honour began by referring to the “basic and essential requirements” specified, expressly or impliedly, in the Act, which, if not satisfied, could give rise to jurisdictional error. His Honour stated, at [53], that there were at least five such requirements, including:

1. The existence of a construction contract between the claimant and the respondent, to which the Act applies (s 7 and s 8).

2. The service by the claimant on the respondent of a payment claim (s 13).

3. The making of an adjudication application by the claimant to an authorised nominating authority (s 17).

4. The reference of the application to an eligible adjudicator, who accepts the application (s 18 and s 19).

5. The determination by the adjudicator of this application (s 19(2) and s 21(5)), by determining the amount of the progress payment, the date on which it becomes or became due and the rate of interest payable (s 22(1)) and the issue of a determination in writing (s 22(3)(a)).

57. After referring to some of the more detailed procedural requirements of the Act, including: s 13(2) as to the content of payment claims; s 17 as to the contents of an adjudication application; and s 22 as to the matters to be considered by the adjudicator and the provision of reasons, his Honour continued at [55]-[56] (emphasis added):

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

It was said in the passage in Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147, quoted by McDougall J, that a decision may be a nullity if a tribunal has refused to take into account something it was required to take into account, or based its decision on something it had no right to take into account. However, in Craig v South Australia (at 177) the High Court said that this would involve jurisdictional error if compliance with the requirement in question was made a pre-condition of the existence of any authority to make the decision. I do not think that compliance with the requirements of s 22(2) are made such pre-conditions, for the same reasons as I considered the determination not to be subject to challenge for mere error of law on the face of the record. The matters in s 22(2), especially in pars (b), (c) and (d), could involve extremely doubtful questions of fact or law: for example, whether a particular provision, say an alleged variation, is or is not a provision of the construction contract; or whether a submission is “duly made” by a claimant, if not contained in the adjudication application (s 17(3)(b)), or by a respondent, if there is a dispute as to the time when a relevant document was received (s 20(1) and s 22(2)). In my opinion, it is sufficient to avoid invalidity if an adjudicator either does consider only the matters referred to in s 22(2), or bona fide addresses the requirements of s 22(2) as to what is to be considered. ...

58. These observations must, of course, be read in the light of the more recent decision of the Court of Appeal in Chase Oyster Bar: see, in particular, Spigelman CJ at [20]-[32].

59. In isolation, the first emphasised sentence in [56] of Brodyn appears to support the conclusion for which counsel contend. But I do not think that, when his Honour’s remarks are read in context, they actually do support it. In the second emphasised sentence, his Honour spoke of addressing the requirements of s 22(2) “as to what is to be considered”. Forming a view, bona fide but incorrect, that a submission has not been “duly made” and then not addressing it further (if not itself sufficient “consideration” for the purposes of s 22(2)) is not a jurisdictional error.

60. But I think it is implicit in what his Honour was saying that a failure to address a submission which is not attributable to having formed such a view, for example because of inadvertence, would be. And, at [57], his Honour went on to say explicitly that if there was “a failure by the Adjudicator to receive and consider submissions” occasioned by breach of s 22(2), the determination would be a nullity. I will proceed on this basis, subject, of course, to the requirement of materiality.

61. Natural justice: As we have seen, Hodgson JA stated in Brodyn that “substantial denial of the measure of natural justice that the Act requires to be given” is a jurisdictional error. That has never been disputed in later cases.

62. Counsel for Martinus, however, referred me to Demex Pty Ltd v McNab Building Services Pty Ltd [2023] NSWCA 261, where the Court of Appeal observed that the requirements of procedural fairness are somewhat attenuated in the context of the Act. Kirk JA, speaking for the Court at [9]-[24], identified various reasons for that. These reasons included: that the decision did not finally determine the parties’ rights (albeit that for practical purposes an obligation to pay a sum of money could put the principal at risk of not being able to recover it in practice); the tight deadlines provided by the Act; and the fact that adjudicators are not required to be lawyers but may instead be persons from the building industry experienced in the administration of building contracts.

63. His Honour concluded, at [32]:

Consistently with the effect of what was said in Brodyn, … it should be understood that only if there has been a substantial denial of procedural fairness by an adjudicator in determining an adjudication application will there be jurisdictional error under the Act. Put another way, the content of the requisite procedural fairness is reduced [citation omitted]. What this means in practice will turn on the particular circumstances of cases. But generally a conclusion of invalidity would only be reached if there was a significant departure from what would ordinarily be the requirements of procedural fairness for a person exercising a statutory power, and where that departure could be characterised as leading to substantial practical injustice in all the circumstances. This approach reflects the fact that the Act provides for a “rough and ready” process [citation omitted], not intended readily to be held invalid on judicial review.

64. The “rules” of natural justice, as they apply to statutory proceedings, are generally regarded as including an obligation to entertain, and take account of, submissions by the parties. In the case of adjudications under the Act, that obligation is expressly stated in s 22(2). Clearly, in limiting natural justice under the Act to “substantial” or “significant” departures from the rules involving “substantial practical injustice”, Kirk JA was drawing attention to the requirement of materiality now laid down by the High Court in LPTD. But I have already accepted that a breach of s 22(2) can only amount to a jurisdictional error if it is material in the relevant sense. I do not read his Honour as saying that the obligation in s 22(2) should be further “reduced” beyond that (if that is what counsel intended).

65. Other procedural rules of natural justice, such as the obligation not to decide a matter on a point which occurs to the decision-maker without giving notice to the parties, are not expressly stated in the Act. They may be spelled out of the express provisions, or arise separately by implication (although the factors mentioned in the Act may limit the extent to which this can happen). If so, breach of them will, to amount to jurisdictional error, have to satisfy the requirement of materiality. But as with the obligation under s 22(2), I do not understand Demex to require some further attenuation of their effect.

66. Reasons for determination: Reasons are addressed in s 22(3), which relevantly provides:

The adjudicator’s determination must—

(a) be in writing, and

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

...

67. It is common in administrative law to speak of an obligation to give “reasons” for a decision. But that is not quite the way in which s 22(3)(b) is worded. It speaks of an obligation to give “the reasons” for the determination and goes on later to refer to “those reasons”.

68. The natural grammatical meaning of this language is to oblige adjudicators to record in their adjudication determinations the reasons which they actually had for making the determination. This was the construction of s 22(3)(b) advanced by the appellant in Fulton Hogan v Cockram Constructions (2018) 97 NSWLR 773, a case to which I was referred by counsel for Martinus.

69. The Court of Appeal (Meagher JA, with whom Barrett AJA agreed) was prepared to accept that construction, at least for the sake of argument. On that construction, s 22(3)(b) arguably presupposes that “reasons” within the meaning of the Act existed for the determination, and those reasons were conceptually independent of what had been recorded: see the concurring judgment of Basten JA at [4]-[8]. Thus, it may be said that, implicitly, s 22(3(b)) requires that adjudicators have such “reasons” for their determinations.

70. It would follow that two types of error could arise under s 22(3)(b). One would arise if the reasons which the adjudicator actually had for determining the application were not recorded, or wholly recorded, in the determination. That would be a clear breach of the express terms of s 22(3). The other would arise if the adjudicator had not actually had “reasons” within the meaning of the Act for the determination, in breach of the possible implicit requirement of the enactment.

71. The next question is what “reasons” mean for the purposes of the Act. On one view, the term means no more than the thought process followed by the adjudicator, no matter how bizarre or irrelevant that process might be. On that view, if an adjudicator were to decide to resolve an adjudication by flipping a coin, and then record that he had done so in his published reasons, he would comply with s 22(3)(b).

72. The alternative view is that the term implicitly requires that there be some element of rationality to the thought process, or relevance to the determination made. Clearly, it cannot have been intended that “reasons” in s 22(3)(b) means “correct reasons”. But in the coin-toss example, it may be possible to argue that the adjudicator’s thought processes were so irrelevant to the task at hand that it did not to amount to “reasons” under the Act.

73. I have gone into this in some detail because it seemed to me in the course of the oral argument that it might provide a statutory foundation for a requirement of “legal unreasonableness”, which is one of the grounds on which counsel for Qube challenged components of the Adjudicator’s determinations. But neither counsel seemed particularly interested in developing that thought further. Having regard to the conclusions I have reached on “legal unreasonableness”, it is not necessary to do so and I will proceed on the basis that s 22(3)(b) creates an obligation to give reasons without analysing that obligation in more detail.

74. Counsel for Martinus of course accepted the existence of such an obligation. But counsel submitted that breach of it did not constitute jurisdictional error.

75. Counsel, in the end, accepted that in Fulton Hogan the Court had left this question open. But counsel submitted that it had been determined in the negative by Brereton J in City of Ryde v AMFM Constructions Pty Ltd & Anor [2011] NSWSC 1469, and that I should follow that decision.

76. In City of Ryde, Brereton J referred to the previous decision of the High Court in Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Palme (2003) 216 CLR 212 where four of the five members of the Court held that failure of a decision maker to comply with a statutory obligation to give reasons under the Migration Act 1958 (Cth) for cancelling a visa was not a jurisdictional error. In a joint judgment, three members of the Court said (at 226):

The visa cancellation decision may be reviewed in this Court for jurisdictional error. Such error may be found from what is disclosed by reasons provided under s 501G(1)(e). Failure to provide reasons may also be reviewed in this Court and compliance by the Minister with the statutory duty may be ordered. The reasons then provided may furnish grounds for prohibition under s 75(v) in respect of the visa cancellation decision. But what is not provided for is for a prosecutor, as in this case, to bypass that earlier step utilising mandamus, and to impeach the visa cancellation decision itself for want of discharge of the duty to provide reasons. There is, as was pointed out in argument, a critical distinction between failure to comply with s 501G(1)(e) [the obligation to give the reasons] and using that failure to conclude that the visa cancellation decision is flawed by jurisdictional error.

77. In his concurring judgment, McHugh J said (at 227-228):

The prosecutor contends that the Minister’s failure to give reasons constitutes jurisdictional error with the result that the Minister has no jurisdiction or power to cancel the visa. Jurisdiction is the authority to decide. It is not easy to accept the notion that a decision is made without authority because subsequently the decision-maker fails to give reasons for the decision. Nevertheless, it is always possible that a statutory scheme has made the giving of reasons a condition precedent to the validity of a decision. If it has, a decision that does not give reasons will be made without authority... In this case, it is beyond argument that the Act did not intend failure to comply with s 501G should invalidate the decision to cancel a visa...

...

The Minister's failure to give reasons did not leave the prosecutor without remedy. It was open to the prosecutor to seek a writ of mandamus to compel the Minister to provide reasons for the decision. If reasons were provided as the result of the issue of the mandamus, they might demonstrate an error of the kind that would attract prohibition under s 75(v) of the Constitution. But the prosecutor has not sought a writ of mandamus.

78. At [9], Brereton J said:

As to the first of these, the inadequacy, insufficiency, inconsistency or illogicality of reasons for a decision, even when the governing statute requires a decision-maker to give reasons in conjunction with and contemporaneously with the decision, does not of itself amount to jurisdictional error. The significance of the reasons, or their inadequacy, is that in the context of the surrounding material they may reveal jurisdictional error, or that the adjudicator has not performed the task of determining an adjudicated amount by reference to the specified relevant factors in accordance with s 22 of the Act. This distinction was adverted to in the context of the (CTH) Migration Act, 1958, [sic] by the High Court of Australia in Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Palme (2003) 216 CLR 212…

79. As McHugh J said in the passage just quoted, whether the act of giving reasons is a condition of validity of the decision in question is always a matter of construction of the governing statute. Counsel for Martinus’ submission comes down to saying that adjudicators could hand down determinations which simply set out the amount allowed, without including any reasons at all, or without including reasons for specified components of the determination, and such determinations would be valid and enforceable as if they contained a full set of reasons. Can that intention be attributed to Parliament?

80. In my opinion, what Brereton J said in City of Ryde does not sustain counsel’s submission. It is one thing to say that, where mandamus is available to compel the giving of reasons, a plaintiff should not be allowed to “bypass” that step by challenging the decision itself on the ground that the failure to give reasons invalidated it. But that is not realistic in the context of the Act. The Act requires that the reasons be given in the very same document which records the adjudicator’s determination. If the determination is given without reasons, it is hard to see how the statutory obligation could be enforced by mandamus, particularly when the very tight timetables prescribed by the Act for proceeding to judgment and enforcement are taken into account.

81. Apart from the practical availability of mandamus, I think that there are other considerations relating to presumed Parliamentary intention which make this conclusion untenable. One must ask why it was that Parliament required the giving of reasons in the first place.

82. The self-discipline involved in writing reasons is, in general, a benefit to the decision-making process, in that it is apt to improve the quality of the decision quite independently of the later publication of those reasons. But even if this is part of the explanation, it is not the whole of it.

83. Parliament has, by the enactment of s 32A of the Act, confirmed the availability of judicial review of adjudicator’s determinations for jurisdictional error. It must therefore have been intended that adjudicators’ reasons would at least be sufficient to allow that right of judicial review to be exercised.

84. But it does not end there. Section 22(5) confers on the adjudicator a wide power to vary determinations including a power to correct any error “arising from an accidental slip or omission”. This power may be invoked not only by the adjudicator of his or her own motion, but by the parties. The power is wide. Any error or omission, whether of fact or law, or whether jurisdictional or non-jurisdictional, can be so corrected. Clearly, the parties could not meaningfully exercise their right to seek review of a determination on that ground unless reasons for the determination are given in the first place.

79. In any event, the utility of providing reasons to parties is not necessarily limited to allowing decisions to be challenged, any more than a duty to give judicial reasons only applies to decisions, or aspects of decisions, which are subject to appeal. Parliament must have intended, in my view, that, as with judicial proceedings, reasons, as a matter of principle, must be provided so that parties who are unsuccessful in adjudications can see why they lost.

80. The extent of the reasons required is, of course, another matter. It no doubt depends on what can reasonably be expected having regard to the tight timetables prescribed by the Act and the relative importance of the different components of the determination being made: a point made by Brereton J in City of Ryde at [13]; see also Ceerose at [64] quoted at [53] above. And, to be jurisdictional, any such breach would have to satisfy the requirement of materiality. But within these confines, it seems to me, an absence of reasons for a determination may give rise to a jurisdictional error.

81. “Legal unreasonableness”: The starting point for the submissions of counsel for Qube was the discussion concerning unreasonableness as a ground for judicial review by three of the five members of the High Court in Minister for Immigration and Citizenship v Li (2013) 249 CLR 332 at 362-367 ([63]-[76]). The case concerned the exercise of a statutory discretion. At 367 ([76]), the Court stated:

As to the inferences that may be drawn by an appellate court, it was said in House v The King (1963) 55 CLR 499 at 505 that an appellate court may infer that in some way there has been a failure properly to exercise the discretion “if upon the facts [the result] is unreasonable or plainly unjust”. The same reasoning might apply to the review of the exercise of a statutory discretion, where unreasonableness is an inference drawn from the facts and from the matters falling for consideration in the exercise of the statutory power. Even where some reasons have been provided, as is the case here, it may nevertheless not be possible for a court to comprehend how the decision was arrived at. Unreasonableness is a conclusion which may be applied to a decision which lacks an evident and intelligible justification.

88. The Court’s judgment in Li makes it clear that the identification of “legal unreasonableness” is not confined to inferring jurisdictional errors of other types in cases where no reasons, or no adequate reasons, are given for a decision. A vitiating error may be identified in a reasoned decision: see in particular at 350-351 (at [26] and [28)].

89. In LPTD, the High Court identified potential jurisdictional errors as including “exceeding the bounds of reasonableness” and “in some cases, making an erroneous finding or reaching a mistaken conclusion”. One or other of both of these would appear to encompass “legal unreasonableness”. In practice, other potential errors identified by the Court, such as “identifying a wrong issue” and “asking the wrong question” may also result in a decision which can be described as lacking an "evident and intelligible justification”.

90. Turning to jurisdictional error under the Act, counsel referred me to various subsequent decisions at first instance, both in this Court and in the Supreme Court of Queensland, which have accepted that a decision which “lacks an evident and intelligible justification” or some similar formulation, may involve jurisdictional error: Queensland Bulk Water Supply Authority v McDonald Keen Group Pty Ltd [2009] QSC 165 at [32]; Bouygues Construction Australia Pty Ltd v Southern Cross Electrical Engineering [2017] NSWSC 1665 at [21]; CC Builders (Aust) Pty Ltd v Milestone Civil Pty Ltd [2019] NSWSC 1251 at [29]; Prime Constructions (Qld) Pty Ltd v HPS (Qld) Pty Ltd [2019] QSC 301 at [39].

91. One of the judgments was the decision of Stevenson J in Bougyes. That decision, however, was an interlocutory decision concerning the arguability of a jurisdictional challenge to a determination, rather than a final decision. In the following year, his Honour stated in Pinnacle Construction Group Pty Ltd v Dimension Joinery & Interiors Pty Ltd [2018] NSWSC 894 that:

… it would require a most extraordinary case for a court to find an adjudicator’s decision to be unlawful because it is irrational or fails to disclose a logical connection between the findings made and the evidence.

92. Counsel for Martinus scathingly described “legal unreasonableness” as “the traditional refuge of the damned in administrative law cases”. They emphasised that in his concurring judgment in Li, Gageler J (as his Honour then was) stated that the concept of “legal unreasonableness” should not be used as an invitation to merits review; it can only apply where a condition, arising expressly or impliedly, of the validity of the administrative decision in question has not been satisfied.

93. Counsel however did not go so far as to submit that the first instance decisions to which counsel for Qube referred were incorrect in accepting that, at least in some circumstances, the lack of an evident and intelligible justification for a determination could amount to jurisdictional error. As I understood their position, this was possible in theory, but “extraordinary” in practice.

94. I would add, however, that an important practical limitation arises from the decision of the High Court that no judicial review is available for error of law on the face of the record: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1. Rarely, if ever, could a decision, even if it involved a patent error of construction of the relevant building contract, be challenged for “irrationality” if a direct challenge based on error of law would not be available.

95. In City of Ryde, at [12], Brereton J explained some previous judicial review decisions on the footing that the adjudications in question involved decisions having been made on an “essentially capricious basis”. One characteristic of reasoned decision making is that the decision-maker acts consistently and in accordance with an external body of rules, so that, if the same circumstances recur, the decision-maker will make the same decision. A determination which is reached capriciously would arguably be a determination otherwise than in accordance with the process of decision-making assumed by the Act. This might be an indication of the sort of determination which could be challenged as “legally unreasonable”.

Material before Adjudicator

96. The payment claims were in conventional form. Each consisted of a summary page, containing figures for the various components of the claim and, showing, for each category, amounts previously allowed and additional amounts claimed in the current claim. Attached was a spreadsheet which contained a line-by-line breakdown for the figures in the summary. Accompanying the claim were various supplementary documents referred to in the spreadsheet.

97. Qube’s payment schedules appear to have been prepared for Qube by the Superintendent. Each schedule took broadly the same, conventional, form as the payment claims. That is, the schedule consisted of a summary dealing with categories of claim, setting out the amount scheduled for each category, supported by a lengthy spreadsheet annexed breaking the categories down into individual items. The spreadsheet contained, for each item, a comment field which set out in summary terms the grounds on which the claim for that item was rejected or accepted only in part. The schedule was accompanied by supplementary documents incorporated by reference into the spreadsheet.

98. In order to understand the issues presented in the adjudication, it is necessary describe the payment claims and payment schedules in more detail.

99. The summary page for Martinus’ INTS payment claim identified two groups of categories. Martinus’ ISRA payment claim summary followed the same format.

100. Group 1 consisted of Preliminaries (category 1A) and Contract Works (Category 1B)). Preliminaries were allowances under the Contracts for costs associated with the preparation of, and otherwise preliminary to, the execution of the Contract Works, which were the works specified in the Contracts.

101. Group 2 consisted of: a group of Variations associated with changes to the design of the works, and referred to collectively as “CN-521” (item 2A.1); other Variations (Category 2A.2); a claim based on “Termination for Convenience”, being additional entitlements Martinus had if that was the true basis for termination (item 2A.3); and a claim for delay costs consequent upon contested claims for extensions of time (“EOTs”; Category 2B.1).

102. The summary page for Qube’s INTS payment schedule contained the same elements as Martinus’ payment claim, but organised differently. Preliminaries and Contract works were combined (item 1). That item also included Variation claim CN-521. The other Variation claims, EOTs and Termination for Convenience were shown separately (items 2, 3 and 4B). Qube also raised a credit for off-sets (item 4A) claimed consequential on termination (which, on Qube’s case, had been a termination for cause).

103. The mismatch between the parties’ categories made it difficult, in some cases, to marry up Martinus’ claims with Qube’s scheduled amounts and supporting grounds, although the parties were apparently able to navigate their way through the problem and the totals all reconciled. The mismatch became an issue in the adjudication and I will return to it below.

104. The disputes concerning the Variations and EOT claims involved questions of contractual entitlement as well as quantification. So too did the Termination for Convenience claim. The Contract Works and Preliminaries claims were largely matters of quantification (although potentially affected by the outcome of the disputed variations).

105. Martinus’ adjudication applications were prepared on its behalf by its solicitors. Each application took the form of a lengthy written submission with attached witness statements and other supporting documents. The principal supporting document was a statutory declaration of Mr Mitchell Corrigan. Mr Corrigan is a civil engineer specialising in the management of large infrastructure projects. He was Martinus’ project manager for the Contracts until July 2023. In his declaration, he gave a lengthy description and explanation of Martinus’ claims.

106. Qube’s adjudication responses were likewise prepared by its solicitors, and consisted of lengthy written submissions together with supporting witness statements and other evidentiary material. Among the witness statements were ones from Mr Marshall, the Superintendent, and one from Mr Simon Barney. Mr Barney is a Qube executive who had management responsibility for the administration of the Contracts.

107. On 24 March, having obtained his first extension of time (see [20] above), the Adjudicator made a request for supplementary submissions pursuant to s 21(4)(a) of the Act. Under the heading “new jurisdictional issues” the request stated:

The respondent [Qube] has raised a number of jurisdictional issues in response that the claimant [Martinus] has not previously been given the opportunity to consider and provide submissions [sic].

108. Martinus was invited to “make submissions about new jurisdictional issues (only) raised for the first time in the response or new reasons for withholding payment not stated in the payment schedule” and Qube was invited to “reply to the claimant’s submissions (only)”.

109. The invitation was taken up by Martinus which provided supplementary written submissions on 28 March addressing what were described as “new jurisdictional issues”. Qube duly responded on 5 April.

110. The description of jurisdictional issues raised by Qube in its response as having been “new”, and “only” raised “for the first time”, was somewhat tendentious. Qube was contending that Martinus, in its adjudication applications, had advanced claims which fell outside the payment claims initially made. Ex hypothesi such contentions could only be raised in the adjudication responses. But no point was taken about the Adjudicator’s decision, in effect, to give Martinus a right of reply on these points. Further supplementary submissions were provided at the request of the Adjudicator, the latest in July (I describe these in some detail later in the judgment).

111. The reasons for both adjudication determinations listed Qube’s adjudication response, and the supporting statements, as having been received by the Adjudicator. But a recurring complaint by Qube in the proceedings was that, so Qube asked me to infer, the Adjudicator had failed to consider this material (and later submissions). Counsel produced an aide memoire of references in the adjudications which showed that there were no other references in the Adjudicator’s reasons to the statements of Mr Marshall or Mr Barney (or indeed any other Qube witness). Counsel contrasted this with numerous mentions of Mr Corrigan’s statement, and indeed those of other Martinus witnesses.

112. In the end, I did not understand that counsel for Martinus disputed that this was correct on a factual level. Of course, what inferences could be drawn from it was a matter of argument and I deal with it below.

Resequencing variation CN-420

113. This challenge arose out of a claimed variation under the INTS Contract resulting from the resequencing of part of the works. Martinus alleged that the resequencing resulted in an increase in the costs associated with providing temporary access to the site, resulting from the construction of temporary “haul roads” and the provision of concrete barriers for safety purposes.

114. The amount claimed was $9.5 million, which was entirely disputed by Qube. The Adjudicator upheld the claim and awarded the full amount in the INTS determination.

115. The INTS Contract defined “work under the Contract” or “WUC” as meaning:

the work which the Contractor is or may be required to carry out and complete under the Contract and includes variations, remedial work, construction plant, temporary works, and the Preparatory Works,…

116. Clause 32 of the Contract dealt with the programming of the works. Clause 32.1 provided (emphasis added):

32.1 Progress

The Contractor shall proceed with WUC with due expedition and without delay.

The Superintendent shall give to the Contractor the information, materials, documents and instructions by the times or within the periods both stated in Annexure Part A.

The Contractor shall give the Superintendent reasonable advance notice of when the Contractor needs other information, materials, documents or instructions from the Superintendent or the Principal.

The Principal and the Superintendent shall not be obliged to give any information, materials, documents or instructions earlier than the Principal or the Superintendent, as the case may be, should reasonably have anticipated at the date of the Contract.

The Superintendent may direct in what order and at what time the various stages or portions of WUC shall be carried out. If the Contractor can reasonably comply with the direction, the Contractor shall do so. If the Contractor cannot reasonably comply, the Contractor shall give the Superintendent written notice of the reasons.

If compliance with any such directions under this clause, except those pursuant to the Contractor’s default, causes the Contractor to incur more or less cost than otherwise would have been incurred had the Contractor not been given the direction, the difference shall be assessed by the Superintendent and added to or deducted from the contract sum.

117. The relevant variation provisions of the Contract were clauses 36.1 and 36.3A:

36.1 Directing variations

The Contractor shall not vary WUC except as directed in writing by the issue of a variation order.

The Superintendent, before the date of commissioning completion, may direct the Contractor to vary WUC by any one or more of the following which is nevertheless of a character and extent contemplated by, and capable of being carried out under, the provisions of the Contract ('variation'):

a) increase, decrease or omit any part;

b) change the character or quality;

c) change the levels, lines, positions or dimensions;

d) carry out additional work;

e) demolish or remove material or work no longer required by the Principal.

A variation may involve the omission of any part or parts of WUC and the Contractor acknowledges and agrees that the Principal may engage others to carry out that part or parts so omitted. The Contractor further acknowledges that any one or more omission will not constitute a basis to allege that the Principal has repudiated the Contract notwithstanding the extent or timing of the omission.

…

36.3A Contractor's claim for a variation

If the Contractor considers that it has been required to carry out a variation (whether as a result of a direction or any other event) but the Superintendent has not given a written direction in the form of a variation order, the Contractor must, within 5 business days after receipt of the direction or after that other event, give written notice of:

a) its opinion that the work involves a variation which should have been directed in the form of a variation order;

b) the reasons for its opinion; and

c) the Contractor’s estimate of the:

i) effect of the work on the approved delivery program (including the date for practical completion and the date for commissioning completion); and

ii) cost (including all time-related costs, if any) of the work calculated in accordance with the principles in subclause 36.4, including a full breakdown of costs in support of the estimate.

In response to a written notice by the Contractor under this subclause, the Superintendent may:

e) confirm that the work involves a variation and issue a Variation Order under subclause 36.1;

f) withdraw the relevant direction; or

g) notify the Contractor that the work does not involve a variation.

If the Contractor fails to give the notice required by this subclause, it shall have no Claim against the Principal for any additional time or cost arising out of or in any way connected with the direction or event to the extent that either is claimed to be the basis for a variation claim.

118. On 10 October, Qube formally notified Martinus that the access date for part of the site was to be deferred from early November to 30 June the following year. At the end of March, a further formal direction was given bringing the access date forward from 30 June to 26 May, with some limited access available from 5 May.

119. Five months later, on 31 August, (after the Show Cause Notice had been issued but before formal termination of the Contract on 25 September), Martinus formally gave notice for the purpose of cl 36.3A of the Contract that, in its opinion, the relevant work involved a variation which should have been the subject of a Variation Order. The amount claimed was $1.1 million. The claim was rejected by the Superintendent on 18 September.

120. On 8 February this year, Martinus sent Qube a further notice renewing the variation claim. The new variation claim was, I assume, incorporated by reference into Martinus’ INTS payment claim which was lodged on the same date. It was expressed to be made in accordance with cll 32.1, 36.1 and 36.3A. The amount claimed was $14.2 million.

121. In rejecting the claim, Qube’s payment schedule referred to an accompanying response document and summarised the grounds for refusal. Among the summary grounds identified in the schedule were:

1. “the works which are the subject of the Initial CN 420 Claim and the Updated CN 420 Claim do not constitute a variation under the Contract”;

2. “the Contractor failed to submit CN 420 in accordance with clause 36.3A of the Contract and therefore has no entitlement to claim for any additional time or cost arising out of or in any way connected with the alleged directions or delay in the provision of site access”;

274. Qube had been invited to “reply” to Martinus’ supplementary submission and it did so, including by providing a reply to Martinus’ restatement of its argument. It was not suggested that the submission was not, in that regard, “duly made”.

275. In these circumstances, for the Adjudicator to have decided not to analyse Qube’s submission on its merits might have led to a question about natural justice. But there is no reason to think that the Adjudicator did in fact make any such decision. If he had had that view, it would only have taken him a sentence to say it. It is notable that, instead of doing so, he went into the EnerMech decision in some detail. Evidently, he thought that the decision was worth referring to in the context.

276. In my view, further speculation as to what the Adjudicator’s reasoning process might have been is unhelpful. The Adjudicator was presented with apparently weighty submissions, which, if accepted, would have defeated Martinus’ claim. He did not refer to those submissions in his reasons and upheld the claim. The natural and straightforward inference is that he did not refer to them. That is the inference which I draw on the balance of probabilities.

277. For these reasons, I think jurisdictional error is also made out on this ground. It is not necessary to consider Qube’s other challenge based on “legal unreasonableness”.

Conclusions so far and other challenged items

305. These proceedings were brought on for hearing urgently, and only two days were set aside. In the end, it took a further half day to complete the argument, which I was able to make available.

306. Qube’s written submissions were extremely comprehensive and dealt with all of the items challenged. But when presenting the argument, senior counsel for Qube concentrated on only some of the challenges. Clearly, it would have been impractical to do otherwise, given the amount of time allotted for the hearing. At the end of his argument on the judicial review proceedings, he said that he had “tried to identify the high points”.

307. I have now addressed all of the issues which were the subject of oral argument. I have upheld some, but not all, of Qube’s challenges. Even if all the remaining challenges were to succeed, I do not think it would be proper for me to accede to the request by counsel for Qube to set aside the adjudication determinations, and the judgments on which they are based, entirely. Rather, I should exercise the power under s 32A of the Act to set the determinations and judgments aside to the extent that Qube has succeeded on the challenged items. This will require further consideration by the parties in order to determine the precise numerical result for those items.

308. What then I should I do about the challenges articulated by Qube in its written submissions which were not the subject of oral argument? To give them all an equivalent level of consideration as the ones which were the subject of argument would delay the delivery of judgment considerably.

309. I have decided that the best course is to make orders now which deal, to the extent possible, with the matters that were argued. It may be that the parties can agree, based on my reasoning on the “high points” argued orally, that some or all of the other challenges should be resolved in the same way.

310. If challenges still remain for resolution, then the convenient course may be, if there is an appeal, to dismiss the other challenges and allow them to be dealt with by the Court of Appeal. Alternatively, it might be possible to arrange a short supplementary hearing to deal with them. I will leave this in the first instance to the parties.

Costs of adjudication

311. The Adjudicator gave the following reasons for requiring Qube to pay the whole of the costs of the INTS Adjudication:

25) I have found the Respondent adopted a harsh contractual approach to the determination of the claimed amounts and to the termination.

26) For example, the Respondent did not apply the agreement to value IFC changes after the date of Contract as agreed by the parties consistently across all IFC design changes. I have considered that conduct and the cost of making this determination and determined that the Respondent is liable for 100% of the Adjudicator’s fees and expenses accordingly.

312. The same reasons were given, and determination made, in the ISRA Adjudication.

313. Counsel for Qube contended that this reasoning disclosed jurisdictional error on the basis that it was “legally unreasonable”. Counsel pointed out that the amount allowed in the adjudication was over $60 million less than Martinus had claimed. Counsel submitted that the Adjudicator appeared to have exercised his power so as to punish Qube for adopting what he had clearly seen as an overly legalistic approach to the task. This was not a proper basis for the award of costs.

314. If it were a matter for me, I would have some sympathy with that submission. The Adjudicator’s task was to determine Martinus’ contractual entitlement to the sums sought in its payment claim. I do not see why insistence by Qube on compliance with the terms of the Contracts should necessarily be seen as “harsh”, or, even if so, that it is a reason to award costs, especially of the whole proceedings. But on the approach I have taken in this judgment, the complaint does not disclose jurisdictional error.

315. But that is not the end of the matter. Section 32A gives the Court power to set aside an adjudication determination in part where the error in question “affects” a component of the determination only. It is well established that this power extends to a determination on costs: Ceerose at [87]-[106].

316. It seems to me that the errors which I have identified do affect the Adjudicator’s determination on costs in this sense. On three items of the claim, Qube’s submission before the Adjudicator has been vindicated, at least in the sense that I have decided that the submission was one of substance which the Adjudicator should have, but did not, consider. Collectively these will result in a significant reduction in the determinations. As with the question of materiality, I do not think that one can assume that the Adjudicator had a preconceived view in favour of one party or the other. I therefore conclude that the Adjudicator’s decision, at least to the extent that it required Qube to pay 100% of the costs, could well have been different if he had not made the errors which I have identified.

317. The power under s 32A, however, does not permit the Court to substitute its own decision, in the same way as it could by way of appeal from a discretionary decision. The power is limited to setting aside components of the adjudication to the extent “affected”. But at the same time, I do not think that it is either practicable or justified for the Court to try to ask what percentage of costs the Adjudicator might have awarded against Qube in the absence of the jurisdictional errors identified. In the circumstances, I think the proper course is to set aside the costs determinations made by the Adjudicator, leaving the costs to fall on the parties in equal shares, in accordance with the default position in s 29(2) of the Act.

Stay application

318. Qube’s application to stay the enforcement proceedings (to the extent the adjudications were not set aside in the judicial review proceedings) was described in submissions as a “Grosvenor application”. Stays of this type originated with the decision of Einstein J in Grosvenor Constructions (NSW) Pty Limited (in administration) v Musico [2004] NSWSC 344. The basis for the application in that case, which was successful, was that if the adjudicated amount were paid over, the successful contractor would be unable to repay it.

319. Einstein J recognised that the intention of the Parliament in enacting the Act was to establish a “pay first, argue later” regime. But this did not necessarily exclude the grant of a stay:

30 … it has been observed that “[t]his Court regularly stays execution on judgments pending an appeal where there is a risk that the plaintiff will be unable to repay the money without difficulty or delay if the appeal were to succeed”: TCN Channel 9 Pty Ltd v Antoniadis [No. 2] (1999) 48 NSWLR 381 at 385 [15].

31 Similarly, there is no reason why, in appropriate cases, a stay cannot be ordered in circumstances such as the present. Clearly the analogy with appeals is not a perfect one. Whilst payments under the Act are interim, it nonetheless is the policy of the Act that successful claimants be paid. For that reason, there is a sound reason for making stays less readily available in relation to debts arising under the Act, in contrast to the position in relation to appeals arising from curial proceedings. For example, in cases such as the present, the Court might require more than a “real risk that [the respondent] will suffer prejudice or damage, if a stay is not granted” (Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737, at 741-742 [18] (emphasis added)).

32 However I accept that in a case such as the present, where there is a certainty that the defendants’ rights will be otherwise rendered nugatory, and that it will suffer irreparable prejudice, the proper and principled exercise of the Courts discretion is to grant a stay.

33 This is especially so given that the plaintiff’s entitlement to the adjudicated amount is apparently fully protected by the unconditional bank guarantee referred to above. (As noted above, the unconditional bank guarantee, which is in the sum of $712,757, secures the plaintiff’s entitlement to the adjudicated amount of $486,324.77).

34 There are sound reasons for the above approach, and the approach adopted by the English cases. The fundamental purpose of the Act is to provide for interim payment. Both the second reading speech and the authorities are at pains to point out that the result which flows from an order to pay a sum following an adjudication is not a final determination of the parties’ rights.

35 In the present case, if no stay is granted, an interim arrangement would be in practice converted into a final order. The effect of not granting a stay would be that the defendants’ rights to recoup the adjudicated amount in the “appeal” pursuant to section 32 of the Act would be rendered nugatory, and the defendants would thus suffer irreparable prejudice.

320. In Veolia Water Solutions v Kruger Engineering [No 3] [2007] NSWSC 459, McDougall J adopted the principles stated by Einstein J as being generally applicable. He noted, however, that in any particular case the application of the principles and the balancing of the various considerations would require careful attention and, in particular, close analysis would be needed about the “extent or certainty of the risk or prejudice or damage if a stay is not granted”.

321. Later in his judgment, McDougall J stated:

The exercise of the discretion to grant a stay requires a balancing of the relevant factors. Two factors of particular significance in this case are:

(1) On the one hand, the policy of the Security of Payment Act, that successful applicants be paid promptly (recognised by Einstein J in Grosvenor at para [31]); and

(2) On the other, the likelihood of irreparable prejudice, where that prejudice would flow from the refusal of the stay because cross-claims would be rendered worthless (recognised by Einstein J in Grosvenor at para [32]).

…

The second reason flows from the plain legislative intention that progress claims should be dealt with, and paid, promptly. In my view, any court faced with, and required to give effect to, that clear legislative policy should be careful before exercising a discretion in a way that would intercept the effectuation of that policy in a particular case. Thus, I agree with Einstein J that the Court would ordinarily do so (in cases such as the present) only where the failure to do so would have the practical effect of making permanent that which, clearly enough, the legislature intended to be only interim.

322. In TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 118, the Court of Appeal said at [89]:

As McDougall J said in Veolia at [75], a court may nonetheless intervene where there is the likelihood of irreparable prejudice. In such a case a Court will be cautious, in light of the policy of the statute, but it may do so where the practical effect is to make permanent that which the legislature intended to be merely interim.

323. In A-Civil Aust Pty Ltd v Ceerose Pty Ltd [2023] NSWCA 144, the Court of Appeal reviewed these authorities. The Court referred to TFM as approving what McDougall J had said in Veolia at [39]. At [28], the Court also quoted [89] of TFM (quoted at [322] above) which cited Veolia at [75]. The Court then stated at [26] and [29]-[31]:

Where it is certain that the principal will suffer irreparable prejudice, it would generally be a proper exercise of the Court’s discretion to grant a stay. It is also correct that the extent or certainty of the risk of prejudice must be closely examined in each case and will depend in part on the merit of the principal’s claim under the contract. It does not follow, however, that the policy of the Security of Payment Act is to encourage a searching examination into the solvency of those who receive payments made pursuant to the Act when contractual proceedings are contemplated or pending.

…

The conclusion that the policy of the Act is to place the risk of insolvency on the developer/principal contractor is further underlined by s 32B which was introduced in 2018:

32B Application of Part to a claimant in liquidation

(1) A corporation in liquidation cannot serve a payment claim on a person under this Part or take action under this Part to enforce a payment claim (including by making an application for adjudication of the claim) or an adjudication determination.

(2) If a corporation in liquidation has made an adjudication application that is not finally determined immediately before the day on which it commenced to be in liquidation, the application is taken to have been withdrawn on that day.

In Kennedy Civil Contracting Pty Ltd (Administrators Appointed) v Richard Crookes Construction Pty Ltd; In the matter of Kennedy Civil Contracting Pty Ltd [2023] NSWSC 99 at [34] Ball J said, with respect correctly, that the purpose of s 32B is to deny the benefits of the legislation to companies in liquidation and not otherwise. In Colbran, in the matter of PBS Building Pty Limited (Administrators Appointed) [2023] FCA 276, Halley J said, again with respect correctly, dealing with a claimant subject to a deed of company arrangement (DOCA):

[96] The stated prime objective of keeping cash flowing in the contracting chain by enforcing timely payments cannot be construed as supporting any construction of the SOP Act that limits or qualifies its operation more generally to companies under external administration or that are the subject of a DOCA. Further, any weight that might be given to that prime objective in exercising a discretion to extend convening periods for the second creditors’ meetings must necessarily have regard to the text and operation of the SOP Act. The text of s 32B makes clear that the legislature has chosen the liquidation of a corporation as the relevant event for excluding a person from taking any action under the SOP Act to enforce a payment claim, not the appointment of external administrators or entry into a DOCA.

These matters lend weight to the conclusion that there is a heavy burden on a party who seeks injunctive relief or a stay pending the outcome of proceedings contemplated by s 32 on the basis that a payment may become unrecoverable due to the possible or even likely insolvency of the payee at a later date. Considerable caution should attend the grant of such an injunction or a stay, as to do so may detract from the primary purpose of the Act.

324. In the present case, the application was similarly based on a concern that if payment of the adjudicated amounts were enforced, and Qube was ultimately successful in obtaining an order for restitution, Martinus would, or at least might, be unable to repay.

325. The application was supported by evidence from a chartered accountant, Mr Martin Cairns. Mr Cairns produced two reports for the purposes of the proceedings. For the purposes of his first report, he was given financial information from Martinus. He summarised that information to illustrate historical trends, and also calculated liquidity ratios commonly used in the assessment of solvency. He expressed the opinion, however, that there was insufficient information for him to be able to express an opinion on whether there was a “risk of insolvency” for Martinus.

326. Further information was obtained by way of notice to produce and Mr Cairns prepared a supplementary report. This did not, however, affect the conclusion which he had previously expressed that he was unable to say that there was a “risk to Martinus’ solvency”.

327. When tendered, these reports were the subject of objection by counsel for Martinus. Counsel submitted that, having regard to the conclusions expressed by Mr Cairns, the reports were wholly irrelevant. The point was that the question for the Court was not whether there was a “risk of insolvency” (whatever that meant in the context) but rather whether Martinus would be unable to repay the adjudicated sums if it received them.

328. I considered that counsel’s point as to the issue before me was well taken. Had the objection been confined to the opinions expressed by Mr Cairns, I would have upheld it. But the objection was to the reports as a whole and I considered that some of the other information in Mr Cairns’ report was relevant, or at least potentially relevant, to the question before the Court as to the degree of risk of non-repayment.

329. Another chartered accountant, Ms Dawna Wright, had prepared a report for Martinus, responding to Mr Cairns’ first report. When the objection to Mr Cairns’ report failed, counsel for Martinus tendered Ms Wright’s report and she was briefly cross-examined on it.

330. Ms Wright was briefed to respond to what Mr Cairns had said in his initial report. She did not undertake any enquiries of her own. Her opinion was that the questions asked of Mr Cairns were of no assistance in deciding whether, if it received payment, Martinus would be able to repay that payment at some time around the first half of 2026 (which was assumed to be the date by which the arbitration would be completed). She also said that in her opinion the information presented by Mr Cairns did not establish that that would be so or that Martinus was insolvent or subject to “a risk of insolvency”.

331. There was no objection to Ms Wright’s report, but I very much doubt that it was, strictly speaking, admissible. I come back to this below.

332. In argument, counsel for Qube referred me to evidence from Martinus in the adjudication which referred to its financial position. In support of a claim for redundancy costs, a Martinus executive said that the Moorebank project was Martinus’ biggest. He also said that Martinus staggered the redundancy payments to accommodate limits on its cashflow.

333. Counsel also addressed on the trends in Martinus’ financial statements, which had been extracted by Mr Cairns in his reports. The financial statements initially summarised by Mr Cairns covered the period up to 30 June last year. Apparently the statements for this year have not been completed. In response to a notice to produce, Martinus produced current year management figures. These were included in Mr Cairns’ supplementary report.

334. As analysed by counsel, the figures show that over the last few financial years Martinus has been profitable, but cashflow negative. Debt had been increasing, apparently so as to fund purchases of plant and equipment. Counsel also submitted that current ratios (the rate of payment to debtors and so on) have been tightening.

324. Martinus’s formal financial statements were prepared on the basis that it brings to account revenue under contracts in accordance with generally accepted accounting principles, which require there to be a high degree of confidence that the monies will not have to be repaid. The management accounts for this year may not necessarily have been prepared on that basis. Counsel submitted that it was therefore impossible to say how much in the management balance sheet represents monies which had been claimed in the adjudication (bearing in mind that the Adjudicator awarded $60 million less than Martinus was claiming).

325. According to counsel, it was therefore unclear whether, if Martinus were ordered to repay the amount awarded by the Adjudicator, that would wipe out Martinus’ shareholders’ funds. Together with the other evidence, counsel submitted that there was a sufficient risk to justify a stay.

326. In response, counsel for Martinus took three points.

327. First, counsel submitted that the decision in Grosvenor was no longer good law. Counsel submitted that amendments to the Act since that decision make its reasoning unsound in the present circumstances.

328. Secondly, counsel submitted that expert evidence was required in order to conclude that there was a risk that Martinus would be unable to repay the monies if called upon to do so. Mr Cairns had expressed no opinion on the question and, accordingly, the application could not succeed.

329. Finally, counsel submitted that it was necessary to show much more than a risk of inability to repay. What was required was a certainty, or, perhaps, something close to that. Counsel submitted that the evidence did not establish anything like that degree of risk in the present case.

330. Counsel’s first point picked up on what the Court of Appeal said in A-Civil, at [29]-[31]. Counsel submitted that the enactment of s 32B was a statement from Parliament that unless a contractor was in liquidation it should receive the full benefit of the Act. It followed, according to the submission, that the Court could not (apart, perhaps, from a phoenixing case) grant a stay unless the contractor was in liquidation.

331. There is no doubt that the enactment of s 32B underlines that the statutory process is available to companies under other forms of external administration which have not reached the point of formal liquidation. Accepting that this may make it harder to obtain a stay when the contractor is not in liquidation, I still think it by no means follows that a stay cannot be obtained unless that is so. That is for two reasons.

332. First, the availability of the statutory procedure depends on the contractor company not being in liquidation at the time its payment claim is issued and not going into liquidation before its adjudication application is determined. Whether a stay is to be granted depends on the circumstances at the time that judgment has been obtained. Even if the standard statutory timetables are followed, it is always possible that circumstances could alter in the meantime. And as the facts of the present case show, it may happen that a longer period of time elapses between the commencement of the statutory procedure and the obtaining of judgment.

333. The second point is related but broader. To adopt a rigid rule in dealing with a discretionary matter such as the grant of a stay is generally unwise. The Court needs to retain flexibility to deal with the variety of circumstances which may present themselves.

334. This is especially so because the grant of a stay always involves, to some degree, a balancing exercise. One factor, not present in the present case, illustrates this. Suppose the contractor in question had no need for the money but the principal would be facing insolvency if required to pay. Suppose further that the outcome of the adjudication turned on a disputed question of construction and the principal had already commenced proceedings and obtained an expedited hearing in this Court. Can it be said that the Court would lack power to grant a stay in those circumstances?

335. In my view, in accepting that there may be some circumstances falling short of liquidation (for example, phoenixing) counsel effectively acknowledged this problem in their argument. I therefore do not accept that because Martinus is not in liquidation, no stay can be granted.

336. I turn now to counsel’s second preliminary point. In my view, there are two answers to it.

337. The first, and fundamental, answer is that there is no absolute rule that if an issue is capable of being the subject of expert opinion evidence, a court is unable to make a finding without such evidence. It may be so for some scientific or medical questions. But in other cases, experience and common sense can provide a sufficient guide.

338. For instance, if the value of a property is in issue, there may be evidence before the Court which enables the Court to make a finding of value, perhaps within a range, even if there is no expert report directly addressing the question. The Court may not be as confident in reaching the finding as it would be if assisted by expert evidence, but that is another matter. In the present case, even if I considered that the likelihood of repayment were a matter which was capable of being the subject of expert evidence, that would not exclude the possibility of the Court making its own finding on the question.

339. I turn to the second answer. I have already indicated why I agree with the submission made by counsel for Martinus, in the course of objections, that the issue in the present case is not whether Martinus is insolvent within the meaning of the definition in the Corporations Act2001 (Cth) (although, for reasons given below, I do not necessarily accept that this a proper subject for expert opinion). Nor is it that Martinus is subject to a “risk of insolvency” (whatever that means in the context). The Court is asked simply to make a determination on the likelihood or otherwise of Martinus being able to repay monies payable under the judgments in the enforcement proceedings. This is an ordinary factual issue. It is hardly the sort of question which can be answered definitively by any expert.

340. Indeed, in my view, an expert opinion directly addressing the question would not even be admissible. That is because it would not involve the deployment of any specific expertise. It is hardly the sort of question which a chartered accountant would be required to answer in the course of practice. It involves an evaluative judgment based on the whole of the evidence, and bringing into account elements of common sense and general knowledge and experience.

341. In saying this, I am not saying that evidence from an accountant is of no use on an application of the present type. A report may usefully bring together relevant information, such as the financial data assembled by Mr Cairns. An expert might also inform the Court on technical matters, such as an explanation of how particular insolvency ratios are calculated, which might inform the ultimate decision. But in my view, an opinion on the question is a matter for the Court and does not involve any further element of expertise.

342. Counsel for Martinus, are, however, on stronger ground on their argument concerning the merits of the application. The Parliamentary intention is clear and the discretion must not be exercised in a way which would frustrate that intention. This means that the fact that a contractor company is at risk of insolvency cannot, of itself, justify the making of the order, since the Parliamentary intention is to place the risk of insolvency on the principal.

343. Indeed, up to a point, the more financial difficulty the contractor is in, the less reason there is for granting a stay, as the more likely it will be that the grant of such a stay will result in the contractor being deprived of the cashflow which is needed to sustain its operations. It is only when insolvency becomes inevitable, or at least highly probable, that the dynamics reverse because of the possibility that an interim payment will effectively become final. No doubt it was considerations such as this which caused Payne JA, in Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2018] NSWCA 33, to refuse a stay in a case where the contractor’s financial position was “precarious”.

344. Nothing like that is present here. I have been troubled by the fact that Martinus has failed to produce any updated accounts, and it is unclear what effect the partial failure of its claims in the adjudication proceedings, coupled with a reversal of any judgment which is enforced, would have on Martinus’ balance sheet. But the arbitration proceedings have not even begun, and it is not suggested that they will fall to be determined this year, or perhaps even next year.

345. In these circumstances, it simply becomes impossible to predict within pretence of accuracy what Martinus’ balance sheet will be at that point. Given that Martinus is trading profitably at present, and has a track record of profitability, I think the evidence falls far short of demonstrating that an order for payment of the money now would be likely to convert an interim payment into a final one because Martinus will be unable to pay if obliged to do so at some point in the future.

346. For these reasons, the application to stay enforcement of the judgments obtained by Martinus until completion of the arbitration proceedings fails and will be refused. This will not, of course, affect the existing stay which will remain in place until after this judgment is delivered.

Orders

358. On 26 September I provided a draft of the above reasons to the parties and listed the proceedings for the making of orders to reflect the conclusions reached so far. The parties agreed that it was open to me to make an order setting aside the affected adjudication and judgment to the extent that the challenges addressed in this judgment have succeeded, and that this would allow me to determine the other challenges later and then make further orders if warranted. I indicated that I would follow this course for the moment rather than dismiss the remaining challenges and leave them to the Court of Appeal, but the question will need to remain under review depending on the progress of the appellate proceedings.

359. The orders made on 26 September in the judicial review proceedings were:

1. Order pursuant to s 32A of the Building and Construction Industry Security of Payment Act 1999 (NSW):

1. that the adjudication determination dated 22 July 2024 (ABCDRS NSW 586) (INTS Determination) is set aside in the amount over and above $22,703,118.54 including GST and interest;

2. that the said adjudication determination be confirmed as the Adjudicated Amount of $22,703,118.54 including GST and interest.

2. Order that determination of the Second Defendant (Adjudicator) made on 22 July 2024 to the effect that the Plaintiff is liable for the whole of the Adjudicator’s fees and expenses for adjudicating the INTS Determination is set aside.

3. Order that the judgment entered in proceedings 2024/278963 on 31 July 2024 is varied by changing the “Claim amount” to $22,925,489.49 and the “TOTAL” amount to $22,925,711.49.

4. Reserve the question of what further or other orders, if any, should be made in respect of the components of the claim not resolved by the Court’s principal reasons.

5. Direct the Plaintiff, by 8 October 2024, to serve on the Defendant and deliver to the Associate to Parker J a notice of all components of the claim, if any, which it does not consider to have been resolved by the Court’s principal reasons.

6. Order that the unconditional bank guarantees provided to the Court in compliance with order 1(b) of the orders made on 9 August 2024 be provided to the Plaintiff on terms that the First Defendant may not make a demand under the unconditional bank guarantee provided to the Court in compliance with order 1(b)(ii) of the orders made on 9 August 2024 in an amount exceeding the amount owing under the judgment referred to in order 3 of these orders as amended by that order.

7. Upon the Plaintiff:

1. giving the usual undertaking as to damages; and

2. Qube continuing to pay one month’s interest at a daily rate of $16,942.76 on the last day of each month thereafter until this stay is dissolved or any appeal is determined,

order that:

3. order 6 of these orders is stayed;

4. the First Defendant is restrained from taking any steps by way of enforcement of the judgment referred to in order 3 of these orders (being the varied judgment entered in proceedings 2024/278983) or the judgment entered in proceedings 2024/278984,

until further order of this Court in this Division or by the Court of Appeal.

8. Costs be reserved.

360. The orders made on 26 September in the first enforcement proceedings were:

1. Order that the amended notice of motion filed 2 August 2024 is dismissed.

2. Costs be reserved.

3. Order that the judgment entered in these proceedings on 31 July 2024 is varied by changing the “Claim amount” to $22,925,489.49 and the “TOTAL” amount to $22,925,711.49.

361. The orders made on 26 September in the second enforcement proceedings were:

1. Order that the amended notice of motion filed 2 August 2024 is dismissed.

2. Costs be reserved.

**********

Amendments

15 November 2024 - [94] deletion of words.

21 November 2024 - [221] grammatical error

Decision last updated: 21 November 2024