Rhomberg Rail Australia Pty Ltd v Concrete Evidence Pty Ltd

[2019] NSWSC 755

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Rhomberg Rail Australia Pty Ltd v Concrete Evidence Pty Limited [2019] NSWSC 755

Hearing dates:

13 June 2019

Decision date:

21 June 2019

Jurisdiction:

Equity - Commercial List

Before:

Ball J

Decision:

(1)   The proceedings be dismissed;

 

(2)   The plaintiff pay the first defendant’s costs of the proceedings; and

 (3)   The sum of $1,191,549.67 paid into court on 8 January 2019, and any interest thereon, be paid to the first defendant.

Catchwords:

BUILDING AND CONSTRUCTION – adjudication determination under section 22 of Building and Construction Industry Security of Payment Act 1999 (NSW) – whether determination void – jurisdictional error – whether adjudicator failed to afford natural justice and procedural fairness in reaching determination – whether denial of procedural fairness was substantial – whether entitled to recover in respect of unaffected part of claim

Legislation Cited:

Building and Construction Industry Security of Payment Act 1999 (NSW)

Cases Cited:

Emergency Services Superannuation Board v Davenport [2004] NSWSC 697
Fulton Hogan Construction Pty Ltd v Cockram Construction Ltd [2018] NSWSC 264
JKC Australia LNG Pty Ltd v Inpex Operations Australia Pty Ltd (2018) 334 FLR 314; [2018] NTCA 6
Musico v Davenport [2003] NSWSC 977
Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82; [2017] NSWCA 151
YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2019] NSWCA 110

Category:

Principal judgment

Parties:

Rhomberg Rail Australia Pty Ltd (Plaintiff)
Concrete Evidence Pty Limited (First Defendant)
Philip Martin (Second Defendant) (Submitting Appearance)

Representation:

Counsel:
IG Roberts SC (Plaintiff)
D Hume (First Defendant)

  Solicitors:
Keystone Lawyers (Plaintiff)
Roberts Legal (First Defendant)

File Number(s):

2019/5846

Judgment

Introduction

1. By a summons filed on 7 January 2019, the plaintiff, Rhomberg Rail Australia Pty Ltd (RRA), seeks a declaration that an adjudication determination of the second defendant (the Adjudicator) made under s 22 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act) and dated 14 December 2018, is void, together with ancillary relief.

2. The determination relates to a payment claim dated 31 October 2018 made by the first defendant, Concrete Evidence Pty Ltd, under a subcontract expressed to commence on 17 October 2017 by which Concrete Evidence agreed for a total price of $3,146,278.36 (excluding GST) to lay reinforced concrete for the track slab in connection with the light rail project in Newcastle. The claim was the final progress claim under the subcontract and comprised an amount of $37,110.25, being the balance of the amount owing under the subcontract, together with a sum of $1,206,754.12 (excluding GST) claimed in respect of 119 variations. The adjudicated amount determined by the Adjudicator was $1,061,800.61 excluding GST. RRA has paid $1,191,549.67 into Court pending the determination of these proceedings. That amount represents the adjudicated amount, plus GST plus the Adjudicator’s fees plus interest up until the date the money was paid into Court.

3. RRA seeks a declaration that the determination is void on the ground that the Adjudicator failed to afford it natural justice in reaching his determination. In order to understand how that contention arises, it is necessary to set out some of the factual background.

Background

4. As I have said, the payment claim was served on 31 October 2018. It consisted of two schedules. The first sets out the claim in respect of the balance said to be owing under the subcontract. The second sets out the claim in respect of the variations.

5. RRA served a payment schedule on 14 November 2018 which consisted of the schedules served on it with additional columns showing the amount certified for payment and a column giving brief reasons for any difference between the amount claimed and the amount certified. In a number of cases the certified amount was negative, representing a claim that certain interim payments that had been made by RRA in respect of variations should be refunded. The reasons given in the schedule are not easy to understand. Sometimes, all that is said is ‘Assessment to follow”. It is apparent, however, that a substantial number of the claims for variations had been the subject of previous claims and correspondence and that the abbreviated reasons are intended to include a reference to that correspondence. The total amount certified for payment in respect of the variations was a refund of $55,161.86.

6. On 28 November 2018, Concrete Evidence lodged an adjudication application with Adjudicate Today. Relevantly, the adjudication application submission said:

35.   Progress Claim 10 includes 119 variation claims.

36.   For the purposes of this adjudication application, all variations that appear in Progress Claim 10 which have been approved by Rhomberg have been excluded.

37.   CE [Concrete Evidence] has elected to withdraw some of the remaining variations.

38.   CE has created a further Variations Register for the purposes of this adjudication which records the variation claims that remain outstanding and in respect of which CE wishes to pursue. That variations register is at Tab 7.

39.   The Variations Register details the date of the variation, the nature of the works and the amounts paid or admitted by Rhomberg.

40.   At Tab 8 of the application are supporting documents in respect of each of the remaining variations.

7. It turns out that the Variations Register at Tab 7 was incomplete. It is not entirely clear how that happened, but it appears that it resulted from a photocopying or printing error which resulted in only every other page of the register being included behind Tab 7. The supporting documents behind Tab 8 included the supporting documents for all variations claimed by Concrete Evidence. The first three pages of Tab 8 comprised a table of contents identifying a tab number, the variation to which the tab related and the page numbers of the material relevant to that variation. The Variations Register at Tab 7 included a column headed “RRA Assessment” which sets out against each listed variation a brief description of what Concrete Evidence understood to be RRA’s assessment of the claim. Someone who went through that column with reasonable care could not help but notice that the description at the bottom of at least one of the four pages comprising Tab 7 was incomplete and did not follow on on the next page. Specifically, the description in relation to Variation V41 appearing at the bottom of the second page states:

Claiming we have claimed 50% replacement of formboards over the whole distance. Stating we claimed GST. They have then gone on to value the assessment based from the …

The following page starts with a new comment on another variation.

8. Some of the text of the submission in support of the adjudication application referred to variations which were not listed in the Variations Register at Tab 7. So, for example, paragraphs 43 to 47 state:

43.   As noted above, CE were unable to complete its works within the time it had planned or in a sequential and efficient manner. There were a significant number of design changes and works programming defaults that forced CE (and other contractors) to work additional hours at day rates or re deploy workforce units in unanticipated ways.

44.   Rhomberg have previously certified acknowledged liability for amounts in respect of these claims. For instance, on the Variations Register at Tab 7, Variations marked V3, V6, V10 and V43 were initially provisioned at significant amounts. However, in response to Progress Claim 10, amounts in respect of V3, V6, V10 and V43, the amounts payable to CE are $0.

45.   Rhomberg rely on Clause 7 of the Subcontract to deny liability for any delay claims. It is not accepted that this clause provides a blanket prohibition or disentitlement to make delay claims during the course of the works.

46.   Further, the large majority of these claims arise from disruption events and day works claims. Clause 7 of the Subcontract does not appear to support any assertion that CE cannot make claims arising from disruption events and day works during the project.

47.   The variations claims that relate to disruption events and day works are V3, V6, V10, V16, V27 and V43. Individual breakdowns of each of those claims are at Tab 8.

Variations 10 and 43 were not referred to in the copy of the register behind Tab 7.

9. The copy of Tab 7 included with RRA’s copy of the adjudication application was illegible. On 4 December 2018, Mr Bryce Richards, a solicitor with Keystone Lawyers, who acted for RRA, sent Ms Janine Wilson, a solicitor with Baker Love, who acted for Concrete Evidence, an email requesting “a legible copy of Tab 7 of the Adjudication Application being pages 57 to 61 of the attached”. Later that day, Ms Casey Junge, a legal secretary with Baker Love, supplied a legible copy of the same document as the document included in the adjudication application at Tab 7.

10. RRA served its adjudication response on 7 December 2018. Relevantly, it said:

53.   The Claimant submits at paragraphs 36 to 40, that for the purpose of the adjudication, some variations are agreed, excluded and/or not pressed.

54.   The variations that the Claimant wishes to pursue are found at the Claimant’s Tab 7.

55.   Given the Claimant’s withdrawal of all variations which do not appear in Tab 7, the Respondent has not addressed those variations in this Adjudication Response.

56.   The following table sets out the agreed variations: …

11. The following table was divided into three columns. The first listed the variation number. The second listed what was said to be the agreed amount. The third contained notes which, for the most part, gave the following explanation for acceptance of the scheduled amount:

Not in tab 7, therefore withdrawn and scheduled amount is accepted.

12. Dealing with the statement that variations not listed in the Variations Register behind Tab 7 had been withdrawn, the Adjudicator said:

5.7   Variation Valuation

The Claimant has included what it considers the outstanding variations in tab 7 and tab 8 of the adjudication application. The variations included at tab 7 are less in number than those in tab 8 being the supporting documents for the variations claimed. The Respondent considers that the variations not shown in tab 7 have been withdrawn by the Claimant. I do not agree. The adjudication application is to be read as a whole including the amounts included in the payment claim, those disputed in the payment schedule and the submissions made.

I have assessed the variations included in tab 8 as these variations are included in the payment claim and the Claimant has provided submissions for these variations in the adjudication application. I summarise my findings and determined amounts below …

13. RRA submits that in adopting that approach the Adjudicator denied it procedural fairness because he proceeded to deal with the variations without giving RRA an opportunity to make submissions in relation to them. It submits that the Adjudicator ought to have exercised his power under s 21(4)(a) of the SOP Act to “request further written submissions from either party”.

14. Concrete Evidence makes three submissions in response. First, it submits that RRA was not denied procedural fairness because it was evident that the Adjudicator might proceed to deal with the claims referred to in Tab 8. Second, it submits that any denial of procedural fairness was not substantial because there were no further submissions of substance that RRA could have made. Thirdly, it submits that, if there was a denial of procedural fairness, it did not affect the whole determination and Concrete Evidence should be entitled to recover the unaffected portion of its claim.

Was RRA denied procedural fairness?

15. It is common ground that a denial of natural justice, of which a denial of procedural fairness is a species, may give rise to jurisdictional error on the part of an adjudicator determining a payment claim under the SOP Act, with the result that the determination may be subject to relief in the nature of prerogative relief.

16. It is also common ground that the content of the requirement of procedural fairness is determined by the nature of the adjudication process. As the Northern Territory Court of Appeal said in JKC Australia LNG Pty Ltd v Inpex Operations Australia Pty Ltd (2018) 334 FLR 314; [2018] NTCA 6 at [38] in respect of similar legislation:

The legislative scheme operates in a “rough and ready” way by imposing a mandatory regime regardless of the terms of the contract; extremely abbreviated time frames for the exchange of payment claims and adjudication applications; and a very limited time frame within which adjudicators are required to make decisions on what can often be extremely complex claims involving very substantial volumes of documents. The tight time limits the Act imposes on an adjudicator, the possibility that the adjudicator may have no legal qualifications, and the interim nature of an adjudication inform the content of the requirements of procedural fairness in any adjudication.

17. After pointing out that in those circumstances the requirement of procedural fairness requires an adjudicator “to notify the parties of proposed conclusions that were not put forward by the parties and could not be easily anticipated” and that “generally speaking the parties must anticipate possible findings and make submissions on potential findings” (at [40]) the Court of Appeal said (at [41]):

The test is an objective one, and resolves to whether the party asserting the breach of procedural fairness received express notice, or should reasonably have anticipated, that either the adjudicator or the other party would rely upon the issue or principle concerned …

See also Musico v Davenport [2003] NSWSC 977 at [108] per McDougall J; Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82; [2017] NSWCA 151 at [107]-[108], [130] per McColl JA (with whom Beazley ACJ and Macfarlan JA agreed).

18. In the present context the parties accepted that these principles raised the question whether RRA ought reasonably have anticipated that the Adjudicator might deal with the claims for variations listed in Tab 8, notwithstanding what Concrete Evidence said in para 38 of its submissions in support of its adjudication application and the contents of Tab 7. The answer to that question turns on whether RRA ought reasonably to have concluded that Tab 7 was incomplete and that the Adjudicator might deal with all the claims set out in Tab 8.

19. In my opinion, the answer to that question is in the affirmative. I accept that RRA did not in fact appreciate that Tab 7 was incomplete. It appears that it took Tab 7 on its face and identified the claims it had to deal with from that Tab consistently with what was said in para 38 of the submissions. However, as I have said, anyone reading Tab 7 reasonably carefully would have appreciated that the document was incomplete because a comment on the foot of at least one page (of a table that was only four pages in length) was obviously incomplete.

20. More significantly, para 40 of Concrete Evidence’s submissions states that “At Tab 8 of the application are supporting documents in respect of each of the remaining variations”. The “remaining variations” were plainly those in respect of which there was still a dispute. As I have said, Tab 8 contained at the front a table of contents setting out each remaining variation. Behind the table were several hundred pages of supporting documents, many of which would have been irrelevant if the only claims for variation that were still being pursued were those set out in Tab 7. There was a clear inconsistency between what was said in para 38 of the submissions and what was said in para 40. The material behind Tab 8 did not relate to all the variations the subject of the original payment claim. It had been carefully selected and organised to correspond to the table of contents. No one considering the table with reasonable care could have failed to notice that it did not correspond to Tab 7. And no one could have reasonably concluded that the inclusion of the material was accidental or that Concrete Evidence had simply chosen to include all the material relevant to the payment claim. In my opinion, a person acting reasonably would at least have appreciated that there was an inconsistency between Tab 7 and Tab 8 and therefore appreciated that there was at least a risk that the Adjudicator would proceed with his adjudication by reference to Tab 8 rather than Tab 7. That conclusion is reinforced by the fact that some of Concrete Evidence’s submissions specifically included references to variations that were not referred to in the Tab 7 schedule. It follows that RRA ought reasonably to have appreciated that the Adjudicator might deal with all the Tab 8 variations. That is what the Adjudicator did. Consequently, RRA was not denied procedural fairness.

Was any denial of procedural fairness substantial?

21. On the conclusion I have reached, this question does not arise. However, I should deal with it in the event that I am wrong.

22. Concrete Evidence submits any denial of procedural fairness was not substantial because there were no submissions or no additional submissions of substance RRA could have made in relation to the additional variations consistently with the requirements of s 20(2B) of the SOP Act, which provides:

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

23. Concrete Evidence points out that in the payment schedule, RRA provided two main reasons for rejecting the variations in question. One reason was “Assessment to follow”. The other was “Reduced amount assessed in accordance with clause 7”. The first reason is not a reason at all. It is a statement that reasons will be provided later. Whether reasons were provided later or not, RRA was prevented from relying on those reasons in its adjudication response by s 20(2B). The second reason is to be understood as a reference to a view of cl 7 of the contract advanced by RRA. According to that view, cl 7 (dealing with delay) prevented Concrete Evidence from making variation claims arising from delays. It rejected a number of variation claims on that basis; and it relied on cl 7 in its adjudication response as a reason for rejecting a number of variations it did deal with. The Adjudicator dealt with RRA’s argument based on cl 7 and rejected it. Concrete Evidence submits that there was nothing more RRA could have said in relation to its cl 7 argument in respect of the variations it did not address in its adjudication response.

24. I accept Concrete Evidence’s argument so far as it goes. In particular, I accept that s 20(2B) restricted RRA to the reasons, if any, identified in its payment schedule. I also accept that the onus was on RRA to establish that there were substantive submissions it could have made consistently with what it said in its payment schedule if it had been invited to make submissions in relation to the variation claims that appeared in Tab 8 but not in Tab 7. That may have prevented RRA from making additional substantive submissions in relation to a number of variations. However, in the case of some variations included in Tab 8 but not in Tab 7, the reasons given in the payment schedule went beyond those identified by Concrete Evidence. For example, other reasons given in relation to some variations falling into that category were “Interim Assessment” and “”Paid in line with assessment”. As I have said, the evidence is that many of the variations had been the subject of previous claims and correspondence and abbreviated reasons referring to “assessments” must be understood as referring back to what had previously been said in relation to those variations. It would have been open to RRA to rely on those reasons in its adjudication response. RRA was able to advance reasons in relation to other individual variations for why the claims in respect of those variations should be rejected that were accepted by the Adjudicator. It may well have been able to do the same in relation to some of the variations in respect of which it advanced no submissions. Consequently, had it been necessary, I would have concluded that any denial of procedural fairness was substantial.

Would Concrete Evidence have been entitled to recover in respect of the unaffected part of its claim?

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

26. In all, there were 11 variations in respect of which RRA did not make submissions. Three of those (V89, V120 and V121) appear to have been determined in RRA’s favour in any event. Four (V10, V11, V12 and V43) appear to depend on reasons that were to follow the payment schedule or the interpretation advanced by RRA concerning the correct construction of cl 7 of the subcontract. For the reasons I have given, there was no substantive denial of procedural fairness in respect of those variations. On the other hand, it appears to have been open to RRA to make substantive submissions in relation to the balance (V44, V45, V80, V81). Consequently, had RRA otherwise made out its case, it is the amount awarded by the Adjudicator in respect of those variations that Concrete Evidence would not be entitled to recover. That amount totals $227,598.91.

Orders

27. It follows from what I have said that the orders of the Court are:

1. The proceedings be dismissed;

2. The plaintiff pay the first defendant’s costs of the proceedings.

3. The sum of $1,191,549.67 paid into court on 8 January 2019, and any interest thereon, be paid to the first defendant.

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Amendments

09 August 2019 - First defendant's legal representation corrected

Decision last updated: 09 August 2019