Venture Spirits Pty Ltd v Adjudicate Today Pty Ltd
[2024] TASSC 12
•20 March 2024
[2024] TASSC 12
| COURT: | SUPREME COURT OF TASMANIA |
| CITATION: | Venture Spirits Pty Ltd v Adjudicate Today Pty Ltd [2024] TASSC 12 |
| PARTIES: | VENTURE SPIRITS PTY LTD |
| v | |
| ADJUDICATE TODAY PTY LTD | |
| O'BRIEN, John | |
| FILE NO: | 208/2024 |
| DELIVERED ON: | 20 March 2024 |
| DELIVERED AT: | Launceston |
| HEARING DATE: | 14 March 2024 |
| JUDGMENT OF: | Brett J |
| CATCHWORDS: |
Contracts – Building, engineering and related contracts – Remuneration – Statutory regulation of entitlement to and recovery of progress payments – Adjudication of payment claims – Registration of adjudicator's determination as judgement – Prosecutor seeking relief similar to certiorari to quash determination – Separate application to set aside statutory demand – Statutory requirement for payment into court of adjudicated amount – Impact of proceedings on legislative policy – Grant of stay of principal proceedings pending payment into court of adjudicated amount.
Aust Dig Contracts [279.6]
Legislation:
Building and Construction Industry Security of Payment Act 2009
Supreme Court Civil Procedure Act 1932
Cases cited:
Brodyn Pty Ltd v Davenport [2004] 61 NSWLR 421
Kirk v Industrial Relations Commission (NSW) [2010] HCA 1, 239 CLR 531
Nazero Group Pty Ltd v Top Quality Constructions Pty Ltd [2015] NSWSC 232
Probuild Constructions Aust Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4, 264 CLR 1
R v Pettersson; ex parte Fenshaw Pty Ltd [2015] TASSC 33
Surfabear Pty Ltd v G J Drainage and Concrete Construction Pty Ltd [2009] QSC 308
Tombleson v Dancorell Constructions Pty Ltd [2007] NSWSC 1169
REPRESENTATION:
Counsel:
Prosecutor: B McTaggart SC, S Wright Interested Party: C Street, A Sheehan
Solicitors:
Prosecutor: Bold Lawyers Interested Party: Ogilvie Jennings
| Judgment Number: | [2024] TASSC 12 |
| Number of paragraphs: | 25 |
Serial No 12/2024 File No 208/2024
VENTURE SPIRITS PTY LTD v
ADJUDICATE TODAY PTY LTD and JOHN O'BRIEN
| REASONS FOR JUDGMENT | BRETT J 20 March 2024 |
1 On 21 March 2021, the prosecutor, to whom I will refer as "Venture", entered into a building contract with a builder, Jayspec Builders Pty Ltd ("Jayspec"), for the construction of works at Venture's business premises in North Hobart. Predictably, the contract provided for progress payments pursuant to claims intended to be rendered on a monthly basis. Between the commencement of the contract and 28 April 2022, Jayspec made 22 progress claims, all of which were paid by Venture. The date on which Jayspec last performed work or rendered building materials pursuant to the contract is in dispute, but it is clear enough that it was sometime between April and June 2022. Jayspec claims that the work was practically completed on 8 June 2022, although this also is in dispute.
2 The next payment claim by Jayspec after 28 April 2022 was made on 24 February 2023. Jayspec asserted at the time and still does, that this was a final claim for payment under the contract. It was in the sum of $170,603.03. Venture has disputed this claim, and it is this dispute which has given rise to the issue which is the subject of these proceedings.
3 That issue arises under the Building and Construction Industry Security of Payment Act 2009 ("the Act"). This legislation sets up a system which mandates payment of progress claims under a building contract in accordance with strict and tight timeframes. The progress payments, although mandated, are made "on account" and without prejudice to the rights of the parties arising under the contract, which remain the subject of appropriate determination and adjustment at the conclusion of the contract. Section 10 specifically provides that nothing done under relevant provisions of the Act "affects any civil proceedings" arising in respect of the contract.
4 A key component of the legislative scheme is provision for dispute resolution in respect of a progress claim. The Act provides for referral of such disputes to an adjudicator. The determination of the adjudicator is final and binding on the parties, at least on the interlocutory basis contemplated by the Act. The respondent, the title used by the Act for the person upon whom the claim is served, is required to pay the adjudicated amount. Section 27 provides that the adjudication certificate may be filed "as a judgment for a debt in a court of competent jurisdiction". This provision is intended to facilitate prompt and efficient enforcement of the payment of the adjudicated amount. Both the parties and the adjudicator are held to extremely tight and strict time limits with respect to the adjudication process. This is consistent with the overall intention of the legislation, which has been described as a "pay now, argue later" scheme. Per Porter J in R v Pettersson; ex parte Fenshaw Pty Ltd [2015] TASSC 33.
5 As will become apparent, the legislative scheme assumes importance in the resolution of this case. In Probuild Constructions Aust Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4, 264 CLR 1, the High Court described the purpose and operation of the scheme implemented by "closely equivalent" legislation in New South Wales in these terms:
"First, it is to be recalled that the Security of Payment Act was enacted 'to reform payment behaviour in the construction industry' by seeking to ensure that a person who undertakes to carry out construction work under a construction contract is entitled to receive, and is able to recover, progress payments promptly in relation to the carrying out of that work. In particular, it was designed to 'stamp out the practice
2 No 12/2024
of developers and contractors delaying payment to subcontractors and suppliers'. And it achieves that objective by setting up a scheme, including a 'unique form of adjudication of disputes over the amount due for payment', which is, as Basten JA observed in the Court of Appeal, 'coherent, expeditious and self-contained'. The intended result is that 'each party knows precisely where they stand at any point of time'.
Second, it is important to appreciate the subject matter of the Security of Payment Act. The Security of Payment Act is not concerned with finally and conclusively determining the entitlements of parties to a construction contract. Section 8 confers an entitlement to a progress payment, which may be the final payment, a single or one- off payment or what is described as a 'milestone payment'. Part 3 of the Security of Payment Act creates a distinct procedure for enforcing that statutory entitlement, which includes the making of a payment claim, the provision of a payment schedule in response and the determination of a payment claim by an adjudicator (at the option of the claimant)." (Footnotes omitted.)
6 The dispute over the February 2023 claim was, in accordance with relevant provisions of the Act, referred to an adjudication firm (the first respondent), who appointed the second respondent as the adjudicator. On 19 April 2023, the second respondent determined that the claim was made under the Act and that Jayspec was entitled to payment of the full amount. An adjudication certificate giving effect to the determination was issued on 8 September 2023. The adjudicated amount included interest, fees and expenses, and was in the aggregate sum of $190,617.29. The certificate was registered as a judgment in this Court on 5 October 2023.
7 The judgment debt remains unpaid. There is no evidence that Jayspec has made any attempt to enforce or execute on the judgment pursuant to the procedures available to it in this Court. However, on 1 November 2023, Jayspec issued a creditors statutory demand pursuant to the Corporations Act 2001. The demand was served on Venture shortly after.
8 On 25 January 2024, Venture filed an originating application seeking relief similar to certiorari quashing the adjudicator's determination. At the same time, it filed a separate originating application seeking to set aside the statutory demand. The respondents have both filed a notice of submission in respect of the application seeking prerogative relief. Jayspec has joined as a party, and is the effective contradictor in respect of this application.
9 When the application for prerogative relief was filed, it did not, as it should have, specify the grounds upon which it sought relief. However, those grounds were provided at a directions hearing on 9 February 2024, and I issued a general order on that day. It is clear from those grounds that the claim for prerogative relief is based on asserted jurisdictional error on the part of the adjudicator.
10 The hearing of the originating application has been listed for 27 March 2024 and I have directed that the application relating to the statutory demand be heard at the same time. However, on 13 February 2024, Jayspec filed an interlocutory application seeking an order that "the hearing of the general order to show cause be stayed pending payment into Court of the amount owing under the adjudication certificate". It is that application to which this decision relates.
11 The basis of Jayspec's argument for the stay is that to permit Venture to seek to overturn the adjudication, undoubtedly with the eventual aim of either setting aside or at least preventing enforcement of the judgment, without paying the adjudication amount into Court as security, will subvert the policy underpinning the operation of the Act. The argument relies on provisions of s 27, which I set out in full below:
"27 Adjudication certificate may be filed as judgment for debt
(1) An adjudication certificate may be filed as a judgment for a debt in a court of
competent jurisdiction.3 No 12/2024
(2) An adjudication certificate that is filed as a judgment for a debt in a court of
competent jurisdiction is enforceable as a judgment for a debt.(3)
An adjudication certificate may only be filed under this section if it is accompanied by an affidavit by the claimant stating that a part of the adjudicated amount has not been paid at the time the certificate is filed.
(4) If the affidavit specifies that part of the adjudicated amount has not been paid,
the judgment is only for that part of that amount.(5) If the respondent commences proceedings to have the judgment set aside, the
respondent –(a) is not, in those proceedings, entitled – (i) to bring a cross-claim against the claimant; or
(ii) to raise a defence in relation to matters arising under, or relating
to the subject matter of, the building or construction contract; or
(iii) to challenge the adjudicator's determination; and
(b) must pay into the court as security the unpaid part of the adjudicated
amount, pending the final determination of those proceedings."
12 It is apparent from the terms of this section that its primary purpose is to give the adjudication determination the status of an enforceable court judgment. Section 27(5) is critical to Jayspec's argument. While Jayspec does not assert that the section is directly applicable, because the proceedings for prerogative relief cannot be described as "proceedings to have the judgment set aside", it is clearly a step which is antecedent to the commencement of such proceedings. The specific aspect of policy relied upon appears from s 27(5)(b), which mandates the payment of the adjudicated amount into Court, "pending the final determination of those proceedings". Jayspec argues that payment in as security is an important component of the overall scheme of the legislation. It is argued that the progress of the proceedings for prerogative relief without that payment would contradict and undermine that scheme.
13 This issue last came before this Court, at least in terms of reported decisions, in R v Pettersson; ex parte Fenshaw Pty Ltd. In that decision, Porter J (as he then was), faced with a similar issue and arguments, analysed a number of single judge decisions dealing with similar issues under comparable legislation in other Australian jurisdictions. His Honour concluded that relief in the nature of certiorari "is available in respect of adjudications under this form of legislation". Of course, this decision was handed down prior to the decision of the High Court in Probuild Constructions Aust Pty Ltd v Shade Systems Pty Ltd, in which it was held that similar legislation in New South Wales ousts the jurisdiction of the Supreme Court of New South Wales to use certiorari to quash an adjudicator's determination for error of law on the face of the record. The High Court specifically excluded from its consideration the availability of that relief in respect of jurisdictional error. It did, however, endorse the explanation in Kirk v Industrial Relations Commission (NSW) [2010] HCA 1, 239 CLR 531, that the jurisdiction to grant certiorari where jurisdictional error is found, is a supervisory jurisdiction that "is a defining characteristic of the State Supreme Courts". The High Court's reasoning distinguished the use of the supervisory jurisdiction in respect of errors of law on the face of the record. The implication, in my respectful view, is an endorsement of this Court's power to grant prerogative relief in respect of jurisdictional error by an adjudicator who conducts an adjudication purportedly under this Act.
14 In Fenshaw, Porter J considered in some detail the possible application, and relevance, of s 27(5)(b). His Honour's conclusion was that although the application for the grant of prerogative relief, if successful, "would no doubt form a proper basis for" an application to set aside the judgment, it did
4 No 12/2024
not fall within that description. His Honour concluded that the text of the provision was clear and specific and did not include a legal act which was preliminary to such proceedings. Accordingly, the issue of a stay was discretionary. The authority to make the order arose from the combination of the Court's inherent jurisdiction to control its proceedings and s 10(5)(a) of the Supreme Court Civil Procedure Act 1932. His Honour proceeded on the basis that the discretion was unfettered. All of this was in accordance with established authority.
15 I intend to follow his Honour's conclusion concerning the discretionary nature of the issue before me. However, before proceeding to the exercise of that discretion, I wish to make comment about the conclusion that the proceedings in question do not answer the description in s 27(5)(b) of "proceedings to have the judgment set aside". Of course, if they did, then the payment into Court would be mandatory. If I were construing the provision without the benefit of authority, I would apply a wide interpretation. In my view, it would be entirely consistent with the purpose of the legislation to interpret the relevant phrase as extending to proceedings commenced with the sole intention and purpose of preventing the judgment from having legal effect. Proceedings such as those before me which seek to quash the adjudication for invalidity can realistically and ultimately only be going to one place, the setting aside of the resulting judgment. Clearly, the judgment derives its existence from a valid adjudication. Further, the scope of the provision can only be concerned with proceedings of that nature. It is difficult to see that a judgment entered in accordance with s 27(1) could be set aside for any reason other than the invalidity of the underlying adjudication or the irregularity of its entry. Certainly, it can have nothing to do with the merits of the underlying contractual issue and this is made clear by the provisions of s 27(5)(a). It is also difficult to envisage the nature of an irregularity, apart from the invalidity of the adjudication, which would justify setting aside the judgment. The only one suggested in the cases that I have reviewed was that the adjudication certificate is a forgery. See Brodyn Pty Ltd v Davenport [2004] 61 NSWLR 421. The scarcity of any basis for setting aside the judgment other than the invalidity of the adjudication suggests that the latter is precisely what the legislature had in mind when enacting s 27(5).
16 However, I accept that this view is inconsistent with the opinion expressed by numerous judges sitting at first instance, in the cases to which I have been referred. This, of course, includes Porter J in Fenshaw. See also Surfabear Pty Ltd v G J Drainage and Concrete Construction Pty Ltd
[2009] QSC 308. Those judicial views favour a narrow literal interpretation, where the application of
the section, and its mandatory effect, is limited to the actual application to set aside the judgment. It is appropriate to follow and apply these judicial opinions. However, as will become apparent, "the degree of proximity of proceedings to proceedings to set aside a judgment under the Act" is a relevant factor in the exercise of the discretion. See Fenshaw at [19].
17 The starting point with respect to the exercise of the discretion is that it is unfettered. However, it is clear from Porter J's analysis in Fenshaw that where the obvious purpose of the proceedings is to undermine the enforceability of the judgment and to pave the way, if necessary, for an application to set aside the judgment, the focus of the exercise of discretion in respect of a stay is on the intersection between the proceedings and the underlying policy of the legislation. In coming to this conclusion, his Honour adopted "the approach of Hammerschlag J" in Nazero Group Pty Ltd v Top Quality Constructions Pty Ltd [2015] NSWSC 232. That case was concerned with the New South Wales legislation. The proceedings are analogous to those in this case. The application was for declaratory and injunctive relief quashing and preventing the enforcement of the adjudication determination, although the builder had not yet registered the determination as a judgment. The builder sought to stay the proceedings pending payment in of the adjudicated amount as security. Hammerschlag J took the view that the "general policy aims" of the Act was a significant factor in the exercise of discretion concerning the stay. His Honour said:
"The policy of the Act, as reflected in s 25(4)(b), is that a claimant is to be given protection of payment into Court when a respondent seeks, whether by injunction or
5 No 12/2024
otherwise, to inhibit the claimant's enforcement of an adjudication in its favour. Pendente lite, Top Quality is being held out of payment, with the risk attendant on delay, notwithstanding the statutory obligation on Nazero to pay. It is open to Top Quality to file the adjudication certificate, in which event Nazero would have little option but to seek to have the judgment set aside to protect its position, in which event, s 25(4)(b) of the Act would mandate payment into Court. Here, by happenstance, the section does not apply because the further step has not yet occurred. Top Quality would have to take that step to enforce its statutory right to payment. The only difference is that these proceedings have intervened. The policy of the Act is not served by removing Top Quality's protection pending determination of Nazero's challenge even though s 25(4)(b) of the Act does not apply in terms."
18 I agree with both Hammerschlag J and Porter J that the impact of the proceedings on the underlying legislative policy reflected in s 27(5) is a powerful factor affecting the exercise of discretion.
19 However, because the discretion is unfettered, each case will depend on its own circumstances. Other factors can be relevant to the exercise of the discretion. For example, it will always be the case that the payment in will be "purely interlocutory and procedural" (see Nazero at [29]) with all rights reserved. Hence, the court need not be concerned that the payment in will affect the underlying contractual rights and obligations of the parties. Further, in a number of cases, the court's view that a party has utilised a form of proceedings with the deliberate intention of avoiding the mandatory operation of the equivalent of s 27(5) has affected the exercise of discretion. An example is where the principal seeks to stay the operation of the judgment rather than embark on proceedings that will ultimately, if successful, result in setting aside the judgment. See for example Tombleson v Dancorell Constructions Pty Ltd [2007] NSWSC 1169. It is clear also that the financial position of the principal can be a relevant factor. In Fenshaw, Porter J considered that the fact that the builder had attempted unsuccessfully to execute on the judgment, and that in respect of a related stay application on the part of the principal, which did not proceed, the principal had indicated that it was prepared to pay the money into court to support those proceedings, were factors relevant to the exercise of discretion. Further, in Nazero, Hammerschlag J said this:
"It is not apt to describe a requirement to pay into Court an amount the subject of a statutory obligation to pay, pending a challenge to that obligation, as a fetter on the right to make the challenge. It may be a practical inhibition, depending on the specific financial circumstances of the challenger. This could be a factor relevant to the exercise of discretion, but in the present case, Nazero leads no evidence of hardship."
20 In this case, there is an assertion in submissions on behalf of Venture that it is presently unable to meet a condition for payment of the adjudication sum. I understand Venture's position to be that, as discussed in Nazero, its inability to meet the payment sum is a practical inhibition which will have the effect of fettering its right to challenge the validity of the underlying order. Venture's point is that the heavy emphasis in favour of early payment, and the considerable adjustment of risk which follows from that, is only justified in the case of a valid adjudication. It is submitted that it should not be restricted from challenging that validity by a requirement to pay in which it cannot afford. On the other hand, Jayspec argues that any concern about Venture's capacity to pay the adjudicated sum is an argument in favour of requiring the payment into court. It submits that it should not be forced to bear the expense of defending the adjudication without the security provided by that requirement.
21 Both arguments carry weight. However, the simple fact of the matter is that I do not have sufficient evidence to properly assess Venture's financial position. There is a general suggestion in correspondence between the parties, placed in evidence, that Venture is in difficult financial circumstances. In his affidavit, Jarod Laan, the sole director of Jayspec, asserts that Venture "does not own any real property in Tasmania" and offers the absence of any result from a search enquiry of the Land Titles Office as evidence of this. His affidavit also annexes results of a company search which suggest that there are "security interests registered on the personal property and security register" of
6 No 12/2024
Venture. However, that is the extent of the evidence I have concerning Venture's financial position. I do not consider that evidence sufficient to support a finding that Venture is unable to pay the adjudication sum, whether into court or otherwise.
22 In any event, the mandatory nature of the payment in if s 27(5)(b) is triggered suggests that the weight that should be placed on this consideration as a discretionary factor is limited. The proceedings for prerogative relief are only one step away from setting aside the judgment. If these proceedings are successful, then the setting aside of the judgment will follow as a matter of course. The legislative emphasis is on the mandatory provision of security if there is a challenge to the interlocutory finality of the adjudicator's determination. This is all consistent with the "pay now, argue later" nature of the legislative scheme.
23 A further matter raised by Venture concerns the relevance of the merits of the application for prerogative relief. In my view, in the normal course, the merits of the proceedings will carry little weight. I reiterate that the policy of the legislation focusses on acceptance of the adjudication. It is difficult to see how any assessment of the merits of a challenge to it as a discretionary factor can sit easily with the mandatory operation of s 27(5). Even in the case of an application to set aside the judgment based on forgery of the adjudication certificate or some other form of fraud, the Act mandates payment in of the adjudication amount pending determination of the application. If the section operates in that way in such a clear cut case, it is difficult to see how an assessment of the merits of the application for prerogative relief, given the proximity of those proceedings to an application to set aside the judgment, can have any significant effect on the exercise of discretion.
24 The final matter raised in this case concerns the prospect of early determination of the application. Although I accept that this is a matter which can affect the exercise of discretion, I note that in both Nazero and Fenshaw the determination proceedings were not expected to involve significant delay. Indeed in Fenshaw, Porter J granted the conditional stay on the same day that the final hearing of the application for prerogative relief was expected to take place. In this case, the originating application is set for hearing on 27 March. However, as with all court listings, it is possible to envisage circumstances in which the hearing may not proceed on that day and, in any event, it is impossible to predict the timing of the outcome. Once again, I think that this factor carries little weight in the circumstances of this case.
25 I agree with Porter J that "ordering a stay is a step not lightly taken". However, having regard to all the circumstances of this matter, and placing considerable weight, as I do, on the close relationship between these proceedings and an application to set aside the judgment, and taking into account all other matters affecting discretion as discussed, I am of the view that the interlocutory application should be granted. I order that the proceedings brought on originating application 208/2024 be stayed unless and until the prosecutor pays into Court the amount owing under the adjudication certificate as it stood at the date of commencement of that proceeding.
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