Modscape Pty Ltd v Francis

[2017] TASSC 55

[2017] TASSC 55

COURT:  SUPREME COURT OF TASMANIA

CITATION:                 Modscape Pty Ltd v Francis [2017] TASSC 55

PARTIES:  MODSCAPE PTY LTD
  v
  FRANCIS, David

FILE NO:  1273/2017
DELIVERED ON:  20 September 2017
DELIVERED AT:  Hobart
HEARING DATE:  6 September 2017
JUDGMENT OF:  Blow CJ

CATCHWORDS:

Contracts – Building, engineering and related contracts – Remuneration – Statutory regulation of entitlement to and recovery of progress payments – Adjudication of payment claims – Natural justice – Whether duty to invite further submissions for a second time.

Building and Construction Industry Security of Payment Act 2009 (Tas), s 24(2).
Musico v Davenport [2003] NSWSC 977, referred to.
Aust Dig Contracts [279.6]

REPRESENTATION:

Counsel:
             Applicant:  C Groves
             Stowe Australia Pty Ltd:                P Zeeman
Solicitors:
             Applicant:  Dobson Mitchell Allport
             Stowe Australia Pty Ltd:                 Simmons Wolfhagen

Judgment Number:  [2017] TASSC 55
Number of paragraphs:  27

Serial No 55/2017

File No 1273/2017

MODSCAPE PTY LTD v DAVID FRANCIS

REASONS FOR JUDGMENT  BLOW CJ

20 September 2017

1. In Kuligowski v Metrobus [2004] HCA 34, 220 CLR 363, the High Court considered aspects of the law relating to issue estoppel. In April of this year David Francis, the respondent to this application, formed a view about that case in his capacity as an adjudicator appointed under the Building and Construction Industry Security of Payment Act 2009 ("the Act"). He had invited and received submissions from the parties to the adjudication about issue estoppel, but not about that case. He formed his own view as to one aspect of the law of issue estoppel, and went wrong. The parties to the adjudication were Modscape Pty Ltd, the applicant in these proceedings, and another company named Stowe Australia Pty Ltd. Modscape contends that the adjudicator, by not seeking submissions about Kuligowski v Metrobus, denied the parties natural justice, and that his adjudication determination should therefore be quashed.  Stowe contends that there was no denial of natural justice, and that this application should be dismissed.

2. The background can be summarised as follows:

   ·Some years ago the Tasmanian Government decided to redevelop the Royal Hobart Hospital. 

   ·The State engaged Fairbrother Pty Ltd as the head contractor for the redevelopment work. 

   ·Fairbrother entered into a subcontract with Modscape.  That subcontract required Modscape to construct and install certain modules, including electrical works.

   ·Modscape entered into a sub-subcontract with Stowe.  That sub-subcontract required Stowe to undertake the electrical works.

   ·Mould was found on the site.  A dispute arose between Fairbrother and Modscape about the mould and its remediation.  On 26 May 2016 Fairbrother, relying on a provision in its subcontract with Modscape, elected to carry out some of the work that Modscape had contracted to carry out.

   ·Fairbrother then dealt with Stowe directly, entering into a subcontract with Stowe. That subcontract required Stowe to perform electrical work that was part of the work that Fairbrother had elected to carry out. 

   ·Stowe subsequently completed all the electrical work covered by its sub-subcontract with Modscape.  Modscape contended that all of the work undertaken by Stowe after 26 May 2016 was undertaken pursuant to Stowe's subcontract with Fairbrother.  However Stowe contended that only some of its work after 26 May 2016 was undertaken pursuant to its subcontract with Fairbrother, and that the balance was undertaken pursuant to its sub-subcontract with Modscape.

   ·On 19 September 2016 Stowe served on Modscape a payment claim under the Act, or at least a purported payment claim, claiming payment for electrical works performed after 26 May 2016. Subsequently Stowe applied for adjudication of that payment claim. A nominating authority appointed a Mr Martin as the adjudicator. In those adjudication proceedings, Modscape contended that the work to which the payment claim related was work undertaken pursuant to Stowe's subcontract with Fairbrother, and that the payment claim was therefore not validly made under the Act.

   ·On 1 November 2016 Mr Martin made an adjudication determination.  In that determination he made findings that the subcontract between Modscape and Stowe remained in force; that Stowe's obligation to carry out work under that subcontract remained in force; and that Modscape remained "responsible for that contract work and the costs expended to carry out that work".  He determined that Stowe was entitled to a progress payment of the amount it had claimed. 

   ·On 24 February 2017 Stowe served another payment claim on Modscape.

   ·On 9 March 2017 Modscape responded by filing and serving a payment schedule under s 18 of the Act.

   ·Stowe made a second adjudication application. A nominating authority appointed the respondent, Mr Francis, to be the adjudicator. Modscape lodged an adjudication response, again contending that the work to which the payment claim related was work undertaken pursuant to Stowe's subcontract with Fairbrother, and that the payment claim was therefore not validly made under the Act.

   ·On 12 April 2017, pursuant to s 24(2)(a) of the Act, the adjudicator requested submissions from both Stowe and Modscape in relation to issue estoppel. In his request he referred to various findings made by Mr Martin in his adjudication determination and to the New South Wales Court of Appeal's decision in Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69, 74 NSWLR 190. He requested submissions as to whether Modscape was "seeking to reagitate issues which were determined (in the ordinary English usage of that word, not as in s 25(5) of the Act) in the Previous Determination by Adjudicator Martin", and as to whether the decision in Dualcorp prevented it from doing so.

   ·Stowe and Modscape each provided written submissions to the adjudicator on 18 April 2017. In accordance with s 24(2)(b) of the Act, Stowe submitted comments on Modscape's submissions the next day. Modscape did not submit comments on Stowe's original submissions.

   ·The adjudicator did not request any further submissions. 

   ·On 26 April 2017 he made the determination that is challenged in these proceedings. He concluded that issue estoppel principles precluded Modscape from re-agitating the issues as to whether Fairbrother, not Modscape, was liable to pay for the work undertaken by Stowe.  He determined that Modscape was required to pay Stowe $345,121.57.

3. Thereafter Modscape filed an originating application seeking an order that the adjudicator show cause why relief in the nature of certiorari should not be granted to quash his "purported determination". On 21 June 2017 Holt AsJ, in accordance with r 624 of the Supreme Court Rules 2000, made a general order that the adjudicator show cause why such relief should not be granted. The adjudicator filed a notice of submission, indicating that he would submit to any order that might be made, except an order as to costs. The proceedings were defended by Stowe.

An error as to issue estoppel

1. When there are two or more adjudications under the Act between the same parties, a limited form of issue estoppel can arise: Dualcorp Pty Ltd v Remo Constructions Pty Ltd (above) at [68]. A party to the adjudications can be estopped from disputing in a later adjudication a fact that has been determined in an earlier adjudication. However a finding of fact in an adjudication determination does not affect any right that a party to the adjudication has under the general law, and cannot affect any civil proceedings arising under a building or construction contract because of the provisions of s 10 of the Act. As a result, an issue estoppel arising from adjudication proceedings under the Act can only operate in other adjudication proceedings under the Act.

2. Issue estoppel applies only to a fact "fundamental to the decision arrived at" or "legally indispensable to the conclusion", and not to findings of fact that are "subsidiary or collateral": Hoystead v Commissioner of Taxation [1926] AC 155 at 165; Blair v Curran (1939) 62 CLR 464, per Dixon J (as he then was) at 532.

3. In the second adjudication, Modscape contended in its adjudication response that Fairbrother denied it access to the site after 26 May 2016, the day when Fairbrother elected to carry out work that Modscape had contracted to carry out.  Modscape contended that thereafter Stowe did not do any work pursuant to its sub-subcontract with Modscape, and that any work done by Stowe after that date was done pursuant to Stowe's subcontract with Fairbrother.

4. It was after receiving submissions to that effect that the adjudicator invited submissions as to issue estoppel from both parties.  Modscape submitted that no issue estoppel arose because the first adjudicator's findings related only to work done before 26 May 2016.  It argued to the effect that any findings of the first adjudicator that extended to the situation after that date were not indispensable, fundamental or necessary to the conclusions reached in the first adjudication determination.  It relied on Blair v Curran (above), State Water Corporation v Civil Team Engineering Pty Ltd [2013] NSWSC 1879 at [77] and Caltex Refineries (Qld) Pty Ltd v Allstate Access (Australia) Pty Ltd [2014] QSC 223 at [45]. It did not mention Kuligowski v Metrobus (above). 

5. In its s 24(2)(a) submissions, Stowe simply argued to the effect that the re-agitation of issues by Modscape was impermissible having regard to the principles stated in Dualcorp Pty Ltd v Remo Constructions Pty Ltd. In its s 24(2)(b) comments the following day, it accepted that issue estoppel arose only if a decided issue of fact or law amounted to a "necessary component" of the reasoning process in the first adjudication determination. However it argued that the first adjudicator's findings were "necessary components" because some of the payments allowed in the first adjudication related to work done after 26 May 2016.

6. The adjudicator rejected Modscape's submissions as to issue estoppel, relying on his own interpretation of Kuligowski v Metrobus. He treated that case as authority for the proposition that issue estoppel could operate in relation to a finding that was not indispensable to the original adjudication determination. His reasoning as to that point, at [23]-[27] of his determination, was as follows:

   "[23]     Notwithstanding that Modscape conceded the applicability of the Dualcorp principles to the Tasmanian Act, and that my request under section 24(2) of the Act specifically sought submissions on whether the NSW Court of Appeal decision in Dualcorp prevented it from reagitating issues determined by Adjudicator Martin in the Previous Determination, Modscape eschewed doing that.  Instead, its submissions focussed on issue estoppel as such and what it described as the 'classic formulation of issue estoppel' of Dixon J in Blair v Curran (1939) 62 CLR 464 (at pages 531 – 3). In support of that approach it relied on State Water Corporation v Civil Team Engineering Pty Ltd [2013] NSWSC 1879 at para [77] and Caltex Refineries (Qld) Pty Ltd v Allstate Access (Australia) Pty Ltd & Ors [2014] QSC 223 at para [45].

   [24] Given the specific terms of my request under section 24(2) of the Act I did not find that approach to be of assistance. There are two reasons for that. The main reason for that is that what Macfarlane JA had in mind in Dualcorp was something less than the operation of the common-law [sic] doctrine of issue estoppel as it is usually understood. [Footnote: as recognised by the decision of Philip McMurdo J in Caltex Refineries (Qld) Pty Ltd & Anor v Allstate Access (Australia) Pty Ltd & Ors [2014] QSC 223 at [54].] Secondly, the requirements for issue estoppel preferred by the Court of Appeal in Dualcorp were not those articulated in Blair v Curran, but those set out in of [sic] the High Court decision in Kuligowski v Metrobus [2004] HCA 34; (2004-2005) 220 CLR 363 at [21] in the following terms:

   '21  In his speech in Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2), Lord Guest, after noting that the doctrine of issue estoppel had been accepted by Australian courts for a number of years, indicated that, for the doctrine to apply in the second set of proceedings, the requirements were:

   "(1)    that the same question has been decided; (2) that the judicial decision which is said to create the estoppel was final; and, (3) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies".'"

   [25]     To the extent that State Water and Caltex v Allstate adopt the Blair v Curran approach they do not assist either, and, being decisions of single judges are not to be preferred over the decision of the Court of Appeal in Dualcorp and its reasoning.

   [26] Similarly, Stowe's agreement in its section 24(2) comments on Modscape's submissions as to the principles of issue estoppel applying in the adjudication context are similarly affected by Modscape's error.

   [27]     The enquiry as to what the previous adjudicator indispensably decided, as postulated by Modscape after Blair v Curran, is not one I am required to make."

7. At [30] he concluded:

   "I am not persuaded that in order to determine whether the same question has been decided that [sic] it is necessary for me to go beyond the text of the Previous Determination.  Indeed, in my view, to go into the parties' submissions in Previous Adjudication seems likely to me to engage in the very mischief which the Dualcorp principal [sic] seeks to eliminate, namely, reagitating issues which were determined in the previous adjudication."

8. Kuligowski v Metrobus was not a case about indispensability. The High Court had to decide whether a decision of a review officer under a workers compensation statute was a final decision and, if so, whether the issue determined by the review officer was the same issue that would have to be determined in an action for common law damages. No question of indispensability arose. In that case at [40], the High Court (Gleeson CJ, McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ) quoted with approval the following passage from the judgment of Barwick CJ in Ramsay v Pigram (1968) 118 CLR 272 at 276:

   "Long standing authorities, in my opinion, warrant the statement that, as a mechanism I the process of accumulating material for the determination of issues in a proceeding between parties, an estoppel is available to prevent the assertion in those proceedings of a matter of fact or law in a sense contrary to that in which that precise matter has already been necessarily and directly decided by a competent tribunal in resolving rights or obligations between the same parties in the same respective interests or capacities, or between a privy of each, or between one of them and a privy of the other in each instance in the same interest or capacity. The issue thus determined, as distinct from the cause of action in relation to which it arose, must have been identical in each case." [My emphasis.]

9. Plainly the adjudicator erred in his interpretation of Kuligowski v Metrobus. 

The natural justice issue

1. As a general rule in any civil litigation, if a decision-maker contemplates making a determination on a different basis from that on which the parties have conducted the case, he or she must inform the parties of that prospect so that they have an opportunity to address any new or challenged issues that may arise, and a failure so to inform the parties will ordinarily result in a denial of procedural fairness: Seltsman Pty Ltd v Ghaleb [2005] NSWCA 208 per Ipp JA, with whom Mason P agreed, at [78]-[79].

2. That principle applies to decision-making by adjudicators under the Act and under its counterparts in other jurisdictions. The relevant principles are as summarised by McDougall J in Musico v Davenport [2003] NSWSC 977, where his Honour said the following at [107]-[108]:

   "107 … It may readily be accepted that the Act provides for a somewhat rough and ready way of assessing a builder’s entitlement to progress claims. It may also be accepted that the procedure is intended not only to be swift, but also to be carried out with the minimum amount of formality and expense. Nonetheless, what an adjudicator is required to do is to decide the dispute between the parties. Under the scheme of the Act, that dispute is advanced by the parties through their adjudication application and adjudication response (which, no doubt, will usually incorporate the antecedent payment claim and payment schedule). If an adjudicator is minded to come to a particular determination on a particular ground for which neither party has contended then, in my opinion, the requirements of natural justice require the adjudicator to give the parties notice of that intention so that they may put submissions on it. In my opinion, this is a purpose intended to be served by s 21(4) of the Act (although the functions of s 21(4) may not be limited to this).

   108 It follows, in my opinion, that where an adjudicator determines an adjudication application upon a basis that neither party has notified to the other or contended for, and that the adjudicator has not notified to the parties, there is a breach of the fundamental requirement of natural justice that a party to a dispute have 'a reasonable opportunity of learning what is alleged against him and of putting forward his own case in answer to it'. (See Lord Diplock in O’Reilly [O'Reilly v Mackman [1983] 2 AC 237] at 279.)"

3. The s 21(4) referred to by his Honour is the equivalent of Tasmania's s 24(2).

4. In Procorp Civil Pty Ltd v Napoli Excavations & Contracting Pty Ltd [2006] NSCWSC 205 at [10], Einstein J listed the principles relating to natural justice that apply to adjudications under the New South Wales equivalent of the Act. One of the principles listed by his Honour was as follows:

   "Musico v Davenport … is authority for the proposition that an adjudicator breaches the requirements of natural justice where an application is determined upon a basis not advanced by either party."

5. Counsel for Modscape relied on cases in other States in which adjudicators' determinations were quashed as a result of the adjudicator failing to request further submissions in relation to points not addressed by the parties.  The earliest of those cases was John Goss Projects Pty Ltd v Leighton Contractors [2006] NSWSC 798, 66 NSWLR 707. That case concerned a provision in the New South Wales legislation to the effect that if, in an adjudication application, an adjudicator has determined the value of any construction work, then the adjudicator in any subsequent adjudication that involves the determination of the value of that work must give the work the same value. In the first of two adjudications, the adjudicator had rejected claims in respect of additional wages, delay costs, and disruption costs. In an earlier case, Rothnere v Quasar [2004] NSWSC 1151, at [44], McDougall J had expressed the view that an adjudication application need not necessarily include the valuation of construction work, and that the relevant statutory provision only applied when there had been such a valuation. His Honour's comments were obiter. In the second adjudication, both parties made submissions on the basis that those comments were correct. However the second adjudicator, perhaps courageously, concluded that those comments were incorrect, concluded that the rejection of the earlier claims had involved the first adjudicator valuing certain construction work at nil, and rejected the claim. The claimant was aggrieved by that rejection and sought declaratory relief. The case came before McDougall J who held, following Musico v Davenport and Procorp Civil v Napoli Excavations & Contracting, that the second adjudicator had denied the claimant natural justice.

1. In Spankie v James Trowse Constructions Pty Ltd (No 2) [2010] QSC 166, the respondents in adjudication proceedings had asserted that they had a contractual right to liquidated damages in the sum of $49,000 which should be set off against their builder's claim. The relevant clause in their contract made provision for payment of liquidated damages at the rate of $1,000 per day after the date for practical completion. There was a dispute as to when time began to run for the purpose of the relevant clause. The adjudicator formed his own view as to that point, without either party having advanced that view, and without the adjudicator having invited submissions as to that view. McMurdo J held that the adjudicator had failed to provide the measure of natural justice that the Queensland legislation required.

2. In St Hilliers Contracting Pty Ltd v Dualcorp Civil Pty Ltd [2010] NSWSC 1468, 27 BCL 437, an adjudicator was obliged by a provision in the New South Wales legislation to determine the date upon which the adjudicated amount became payable. A clause in the relevant contract provided that payment claims were to be paid within 31 days after the last day of the month in which they were served. The contract did not include a definition of "month". Without receiving or inviting submissions from the parties on the point, the adjudicator determined that, because "month" was not defined, the clause in the contract was void, and made a determination on that point. Hammerschlag J held that the parties had been denied natural justice, that her error was a material one, and that it was an error warranting the quashing of the adjudication.

3. In Matrix Projects (Qld) Pty Ltd v Luscombe [2013] QSC 4, a builder had made a payment claim for work completed up to 30 August 2012. The respondent to the proceedings had terminated the contract on 31 August 2012. The adjudicator assessed the amount payable on the basis that the respondent was liable to pay for the work that the contract required to be done after the date of its termination. Neither party had submitted that the amount payable should be assessed on that basis, nor had the adjudicator invited submissions as to that proposition. Douglas J held that the adjudicator's decision was void.

4. In Caltex Refineries (Qld) Pty Ltd v Allstate Access (Australia) Pty Ltd (above), the adjudicator had incorrectly held that certain payments that Caltex had agreed to make in respect of damaged equipment constituted payment as the price of the supply of the equipment for the purposes of the Queensland legislation.  Neither party had suggested that their contract should be interpreted on that basis, and the adjudicator had not sought submissions as to that interpretation.  McMurdo J held that the parties had been denied natural justice.

5. Significantly, the adjudicator in this case did request further written submissions from each party pursuant to s 24(2)(a) as to whether Modscape was seeking to re-agitate issues when it was prevented from doing so. The question I have to decide is whether, after receiving further written submissions from each party and comments from Stowe on Modscape's further submissions, the adjudicator should have made a second s 24(2)(a) request relating to Kuligowski v Metrobus.

6. Ordinarily, procedural fairness does not require a decision-maker to disclose his or her provisional conclusions: Sinnathambi v Minister for Immigration and Ethnic Affairs (1986) 66 ALR 502 at 506. As Lord Diplock said in F Hoffman-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 at 369:

   "… the rules of natural justice do not require the decision maker to disclose what he is minded to decide so that the parties may have a further opportunity of criticising his mental processes before he reaches a final decision.  If this were a rule of natural justice only the most talkative of judges would satisfy it and trial by jury would have to be abolished."

7. Before the adjudicator made his determination, he identified the need for him to decide whether Modscape was permitted to re-agitate issues that were determined in the first adjudication.  Modscape contended that no issue estoppel arose, and that it could therefore again contend that it was not liable for work done by Stowe after 26 May 2016.  Stowe contended that Modscape was precluded from re-agitating issues determined in the first adjudication because issue estoppel operated.

8. In my view the duty to afford the parties natural justice did not require the adjudicator to invite further submissions as to matters of detail relating to the case law as to issue estoppel.  In the words of McDougall J in Musico v Davenport (above) at [107], he did not "come to a … determination on a particular ground for which neither party … contended". He accepted Stowe's submission that Modscape was precluded from re-agitating the issue as to whether it could have any liability to Stowe at all. In the words of Einstein J in Procorp Civil (above), he determined the matter on a basis that had been advanced by a party.

9. It is important to bear in mind the limitations of the "rough and ready" procedures provided for in the Act. As Vickery J said in Grocon Constructors Pty Ltd v Planit Cocciardi Joint Venture (No 2) [2009] VSC 426, 26 VR 172 at [143]:

   "… in approaching the question of procedural fairness in the decision-making of an adjudicator under the Act, not too fine a point should be taken in relation to what is done. The shortcomings of the statutory procedure provided for in the Act point to the need for a large measure of practicality, flexibility and common sense being observed to make it work. The procedures will call for adaptation in each case in the light of the clear legislative intention of the Act, namely that an adjudicator's determinations are to be carried out informally … and speedily … and 'on the papers' … and bearing in mind that there is always the facility for erroneous determinations to be corrected upon a final hearing of the issues in dispute between the parties …".

10. In my view the adjudicator did not deny the parties natural justice.  He made an error which does not go to the validity of his determination, and which may be corrected upon a final hearing of the issues in dispute between the parties.  For these reasons I have decided to discharge the general order to show cause.