(The Honourable Justice Blue, The Honourable Justice Lovell and The Honourable Justice Hinton)
8 February 2017
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - REMUNERATION - STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS - ADJUDICATION OF PAYMENT CLAIMS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - ILLEGAL AND VOID CONTRACTS - CONTRACTS ILLEGAL BY STATUTE
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - ILLEGAL AND VOID CONTRACTS - EFFECT OF ILLEGALITY OR INVALIDITY - SEVERANCE
BANKRUPTCY - OFFENCES - PARTICULAR OFFENCES - FAILURE TO DISCLOSE
ADMINISTRATIVE LAW - JUDICIAL REVIEW - PRIVATIVE CLAUSES - CERTIORARI
ADMINISTRATIVE LAW - PREROGATIVE WRITS AND ORDERS - CERTIORARI - GROUNDS FOR CERTIORARI TO QUASH - ERROR OF LAW ON THE FACE OF THE RECORD
Appeal against dismissal of action for judicial review.
The appellant entered into a contract with the first respondent to design and construct piling for an apartment building. It was a term of the contract that the builder retain 5% of the contract sum as a retention sum, to be released at defined times after issue of a certificate of occupancy for the building. The first respondent was at all material times an undischarged bankrupt.
The first respondent served on the appellant a payment claim under section 13 of the Building and Construction Industry Security of Payment Act 2009 for $204,864.55. The appellant served on the first respondent a responding payment schedule under section 14 showing a scheduled amount of $141,163.55. The appellant had deducted $38,999.40 by way of retention sum and $24,750 by way of setoff for administration charges.
The first respondent applied for adjudication of his payment claim and the second respondent appointed the third respondent as adjudicator.
The third respondent issued an adjudication determination determining that the adjudicated amount be $204,864.55. He held that the retention sum provisions in the contract were “pay when paid” provisions rendered void by section 12 of the Act; and rejected the administration charges setoff claim.
The appellant instituted the action seeking a declaration that the adjudication determination was a nullity. The appellant contended that the contract was rendered void as a result of breach by the first respondent of section 269(1)(b) of the Bankruptcy Act 1966 because he had not disclosed his bankruptcy to the appellant. The appellant contended in the alternative that the adjudicator’s decisions concerning the retention sum provisions and administration charges comprised jurisdictional errors or errors of law on the face of the record vitiating the determination.
A Judge of this Court dismissed the action. The Judge found that the first respondent had not disclosed his bankruptcy, but this did not result in the contract being void. The Judge held that there was no jurisdictional error or error of law made by the adjudicator on the face of the record.
Held:
1. (per Blue J at [66] and [70], Lovell and Hinton JJ agreeing) Section 269(1)(b)…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Maxcon Constructions Pty Ltd v Vadasz (No 2) [2017] SASCFC 2
Case
[2017] SASCFC 2
Decision Date
CaseChat Overview and Summary
This case concerned an appeal and a notice of contention arising from a building contract dispute between Maxcon Constructions Pty Ltd, the builder, and Mr Vadasz, a piling subcontractor trading as Australasian Piling Contractors (APC). Mr Vadasz was an undischarged bankrupt at the time the contract was entered into. The dispute centred on an adjudication determination made under the Building and Construction Industry Security of Payment Act 2009 (SA) (the Act), which Maxcon sought to have judicially reviewed. The Supreme Court of South Australia, comprising Blue, Lovell and Hinton JJ, considered multiple issues including the effect of a bankrupt entering into a contract without disclosing their status, and alleged errors by the adjudicator.
The court was required to determine several key legal issues. Firstly, whether a contract entered into by a bankrupt in the course of carrying on business under a firm name without disclosing their bankruptcy, in breach of subsection 269(2) of the Bankruptcy Act 1966 (Cth), was rendered void or unenforceable by that Act or at common law. Secondly, whether the primary judge erred in finding that Mr Vadasz had failed to disclose his bankruptcy, by not adequately considering the principles in *Briginshaw v Briginshaw* and whether the evidence lacked sufficient clarity. Thirdly, whether an error by the adjudicator in deeming contractual retention sum provisions void as "pay when paid" provisions constituted a jurisdictional error or an error of law on the face of the record, thereby vitiating the adjudication determination. Finally, the court considered whether certiorari for error of law on the face of the record was implicitly excluded by the Act, and if the adjudication determination was affected by error, whether it vitiated the entire determination or only the specific component relating to the retention sum.
The court found that a failure by a bankrupt to disclose their status when entering into a contract in the course of business under a firm name, in contravention of section 269(1)(b) of the Bankruptcy Act, did not render the contract void. The primary judge had found that Mr Vadasz had not disclosed his bankruptcy, a finding the court did not disturb. The court also held that the adjudicator had erred in law by concluding that the contractual retention provisions were "pay when paid" provisions rendered void by section 12 of the Act, as this conclusion was made without sufficient evidence. However, the court determined that this error did not constitute a jurisdictional error. Furthermore, the court found that the adjudicator's reasons, which disclosed the error, did not form part of the adjudication determination itself, meaning it was not an error of law on the face of the record. Consequently, the court concluded that the adjudication determination was not vitiated by the adjudicator's error.
The appeal was dismissed, and the notice of contention was also dismissed. The court upheld the primary judge's decision that the adjudication determination was not invalidated by the alleged errors.
Orders
Orders of the court
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Background
Background to the litigation
The appeal and notice of contention raise the following issues:1Is a contract entered into by a bankrupt in the course of carrying on business under a firm name without disclosing his or her bankrupt status in breach of subsection 269(2) of the Bankruptcy Act rendered void or unenforceable by section 269 or at common law?2In finding that Mr Vadasz did not disclose his bankruptcy to Maxcon, did the Judge fail to have regard to the considerations addressed in Briginshaw v Briginshaw and did the evidence on the issue lack sufficient clarity and cogency to support a finding of non-disclosure?3Did the error by the adjudicator in concluding that the retention sum provisions in the contract were “pay when paid” provisions rendered void by section 12 of the Act amount to a jurisdictional error vitiating the adjudication determination?4Did the error by the adjudicator in concluding that the retention sum provisions in the contract were “pay when paid” provisions rendered void by section 12 of the Act amount to an error of law on the face of the record of the adjudication determination?5Is certiorari for error of law on the face of the record of an adjudication determination implicitly excluded by the Act?[3]6If the adjudication determination is affected by jurisdictional error or error of law on the face of the record in respect of the $38,999.40 retention sum component, does it vitiate the entire determination or only the component addressing the sum of $38,999.40?[3] Maxcon contends that this issue does not arise on appeal. This contention is addressed below.Background Maxcon is a building contractor. Maxcon entered into a contract with the owner of 150 Wright Street Adelaide to construct a multi-storey apartment building to be known as Bohem Apartments. Vlad Gorsovski, Maxcon’s senior project manager, was responsible for the project and conducted the relevant dealings on its behalf. Mr Vadasz is a piling subcontractor who carries on business under the registered business name Australasian Piling Contractors (APC). He is an undischarged bankrupt, having been made bankrupt on 7 December 2010. On 15 December 2015, Maxcon (designated “the Builder”) entered into a contract (the Contract) with APC (designated “the Contractor”) to design and construct piling for the Bohem Apartments for $782,100, subsequently varied to $795,720.75 (the Contract Sum). The Contract provided for security to be given by the Contractor in the form of the retention by the Builder of five per cent of the Contract Sum (exclusive of GST).[4] Half of the retention sum was to be released to the Contractor 90 days after issue of a certificate of occupancy and any other regulatory approvals required for occupancy (CFO) and the remaining half was to be released 365 days after achievement of CFO. For ease of reference, I use the expression “certificate of occupancy” to encompass all regulatory approvals required for occupancy.[4] The retention sum was to be built up progressively by deducting ten per cent of progress claims until a total retention of five per cent of the Contract Sum was reached.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
On 9 September 2016, the Judge made an order pursuant to subsection 25(1) of the Act for registration of judgment for $215,030.85 based on the adjudication certificate. The decision of the Judge On 29 September 2016, the Judge delivered reasons for judgment.[5] On 30 September 2016, the Judge made final orders dismissing the application for judicial review. [5] Maxcon Constructions Pty Ltd v Vadasz (No 2) [2016] SASC 156. The Judge preferred the evidence of Mr Gorsovski over that of Mr Vadasz and found that Mr Vadasz did not disclose his bankruptcy to Maxcon before entry into the contract and thereby contravened section 269(1)(b) of the Bankruptcy Act. This finding is the subject of Mr Vadasz’s notice of contention. The Judge held that a failure by a bankrupt to disclose that he or she is an undischarged bankrupt to a person with whom he or she deals in the course of carrying on business under a firm name in breach of section 269(1)(b) of the Bankruptcy Act does not render void a contract entered into by the parties in the course of that business. This conclusion is the subject of the first ground of appeal. The Judge held that the adjudicator erred in law in concluding that the contractual retention provisions were “pay when paid” provisions rendered void by section 12 of the Act. The Judge held that the adjudicator was not entitled to assume, in the absence of evidence, that the requirement for achievement of a certificate of occupancy was grounded in the head contract between Maxcon and the principal. The Judge held that this error did not involve jurisdictional error. The Judge held that this error was not an error on the face of the record because the reasons of the adjudicator, which disclose the error, did not form part of the adjudication determination. There is a debate between the parties whether the Judge held that in any event an error of law on the face of the record would not have vitiated the adjudicator’s determination because this ground of review is excluded by the Act. The Judge’s conclusion that the error by the adjudicator did not vitiate the adjudication determination is the subject of the second ground of appeal. The Judge held that the adjudicator did not err in relation to the administration charges setoff and in any event the alleged errors would not have vitiated the adjudication determination. Maxcon does not appeal in relation to this conclusion.[6]The Bankruptcy Act ground[6] Maxcon abandoned its grounds of appeal in respect of this conclusion.Is the contract rendered void by statute? Maxcon’s first contention is that a contract entered into by a bankrupt in the course of carrying on a business under a firm name without disclosure of his or her bankruptcy in breach of section 269(1)(b) of the Bankruptcy Act is impliedly rendered void by section 269(1)(b) of the Bankruptcy Act as a matter of statutory construction. This contention proceeds on the premise that, if the Contract is void, there was no “construction contract” within the meaning of the Act, the Act has no application to the building work undertaken by Mr Vadasz and the adjudicator had no jurisdiction to make the adjudication determination. This premise may be accepted.