Ace Structural Ltd v Green
[2019] NZHC 1558
•4 July 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-2555
[2019] NZHC 1558
UNDER the Judicial Review Procedure Act 2016 IN THE MATTER
of an application for judicial review
IN THE MATTER
of the Construction Contracts Act 2002
BETWEEN
ACE STRUCTURAL LIMITED
Applicant
AND
JOHN GREEN
First Respondent
FIRMA CONSTRUCTION LIMITED
Second Respondent
Hearing: 20 June 2019 Counsel:
B Martelli for the Applicant
No appearance by or on behalf of the First Respondent K A Badcock, K Badcock and L Badcock for the Second Respondent
Judgment:
4 July 2019
JUDGMENT OF GORDON J
This judgment was delivered by me on 4 July 2019 at 3.30 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Heaney & Partners
K A Badcock, Rotorua
ACE STRUCTURAL LTD v GREEN [2019] NZHC 1558 [4 July 2019]
Introduction
[1] Ace Structural Ltd (Ace) applies for judicial review of the decision of the first respondent, John Green, sitting as an adjudicator in the Building Disputes Tribunal (the BDT), not to award costs to Ace following Mr Green’s determination of disputes between Ace and the second respondent, Firma Construction Ltd (Firma), in favour of Ace.
[2] Firma opposes the application, which it says, in short, is an appeal dressed up as an application for judicial review.
[3] Mr Green was not represented at the hearing and he abides the decision of the Court.
Background
[4] Firma was the head contractor for the construction of commercial units at 18 Corinthian Drive, Albany, Auckland. It engaged Ace, by subcontract dated 2 November 2016, to supply and install fabricated steel for the project at Corinthian Drive.
[5]Between April and September 2017, disputes arose between Ace and Firma.
[6] On 28 September 2017, Firma cancelled the subcontract on the basis (it said) that Ace had repudiated the subcontract by serving a notice of intention to stop work. Ace’s position was that it served the notice as a last resort to be paid for steel supplied and installed. It said the notice was not a repudiation of the subcontract. In fact, before Firma cancelled the subcontract, Ace made it clear to Firma that it would continue to supply and install steel for Firma.
[7] On 16 May 2018, Firma served a notice of adjudication on Ace under the Construction Contracts Act 2002 (the CCA), initiating proceedings in the BDT. Firma claimed $107,598 from Ace for costs of rectifying alleged defective steel installation and to complete work after the subcontract was cancelled. Ace denied the allegations.
[8] On 4 July 2018, Ace served its own notice of adjudication on Firma in the BDT. Ace claimed $147,824 for alleged unpaid contract work, variations and interest. Firma denied all allegations.
[9] Ace and Firma agreed to Mr Green as adjudicator on both claims and that their claims be consolidated under s 40 of the CCA.
[10]The issues for determination by Mr Green were:
(a)Whether Firma lawfully cancelled the subcontract and, if so, whether Ace was liable to Firma for the costs of completion and rectification of allegedly incomplete and defective work;
(b)Whether Ace was entitled to recover in respect of unpaid progress claims and variations and, if so, in what amount;
(c)What amount of interest should be paid; and
(d)Whether costs should be ordered and, if so, in what amount.
[11]Mr Green, in his decision of 6 September 2018, determined that:1
(a)Firma unlawfully cancelled the subcontract as Ace had not repudiated it. Therefore, Ace was not liable for the costs of completion and rectification;
(b)Firma was liable to pay Ace for unpaid progress claims and variations in the sum of $105,737.12 (GST-inclusive)2 and interest up to and including the date of the determination, within two working days of receipt of the determination;
1 Firma Construction Ltd v Ace Structural Ltd BDT 18-05958 (6 September 2018).
2 As is apparent by reference to [8] above, this is not the total amount recorded as claimed by Ace. The discrepancy was not satisfactorily explained by counsel for Ace. However, I accept that there were no deductions from the claimed amount made by Mr Green, at least as expressed in his decision.
(c)Firma was liable to pay Ace interest from the date of the determination to the date of actual payment at the per diem rate of $32.26;
(d)The parties were to bear their own costs and expenses of the adjudication. There was no bad faith on part of Firma, nor were its allegations and objections without substantial merit; and
(e)The parties were to meet the costs of the adjudicator ($70,254) in equal proportions ($35,127 each).
[12] Mr Green also made an order in relation to security paid by each of the parties. It is not necessary to detail that order for the purpose of this decision.
[13] It is the orders in [11](d) and (e) above, that each of the parties bear its own costs and that Mr Green’s costs be borne equally by the parties, that are the subject of Ace’s application for review.
The decision on costs
[14] Mr Green recorded that both parties sought a determination that the other was liable to pay its legal costs and expenses under s 56 of the CCA and his fees and expenses in full in accordance with s 57 of the CCA. He then stated:
164The power to determine liability for the costs and expenses of a party in adjudication proceedings is addressed at section 56 of the Act, which provides:
56 Costs of adjudication proceedings
(1)An adjudicator may determine the costs and expenses must be met by any of the parties to the adjudication (whether those parties are or are not, on the whole, successful in the adjudication) if the adjudicator considers that the party has caused those costs and expenses to be incurred unnecessarily by-
(a)bad faith on the part of that party; or
(b)allegations or objections by that party that are without substantial merit.
(2)If the adjudicator does not make a determination under subsection (1), the parties to the adjudication must meet their own costs and expenses.
165The power to determine the apportionment of the adjudicator’s fees and expenses is addressed at section 57 of the Act.
166Under section 57, the parties to an adjudication are jointly and severally liable to pay the adjudicator’s fees and expenses in equal proportions, or the proportions that the adjudicator may determine. An adjudicator may make a determination that a party pays all or bears a greater proportion of his or her fees if, in the adjudicator’s view, the claimant’s claim or the respondent’s response was without substantial merit, or a party to the adjudication acted in a contemptuous or improper manner during the adjudication.
167The legal position can be summarised by saying that an adjudicator has a limited discretion to determine liability for costs against any of the parties, which discretion should be exercised judicially not capriciously. There is clearly an overarching presumption that the parties will bear their own costs and an equal proportion of the adjudicator’s fees and expenses in adjudications under the Act, unless the particular circumstances dictate otherwise.
168Ace has advised that it has incurred costs of $74,750.00. I have not been advised as to Firma’s costs and expenses.
169I have carefully considered the parties’ claims for costs.
170I am not satisfied that there are any circumstances to warrant a conclusion under section 56(1)(b) that allegations or objections by either party were without substantial merit. In my view, both parties had a point to put forward, regardless of the actual determinations I have made on the matter at issue.
171Further, there are no grounds to consider there has been bad faith on the part of any party to these adjudication proceedings under section 56(1)(a).
172I therefore decline to make a determination under section 56 as between the parties. The result is that, pursuant to section 56(2), the parties will bear their own costs and expenses of this adjudication.
[15]The adjudicator then turned to address the position in relation to his expenses:
173I have fixed my fees and expenses of this my [sic] determination in respect of these two consolidated proceedings in the GST inclusive amount of $70,254.00.
…
178 I wish to record that my actual costs and expenses incurred in the execution of my duties in these two consolidated adjudication proceedings are in excess of $70,000.00. The reason for that outcome
is solely due to the manner in which the claims and response have been presented to me. Overall, the parties’ arguments lacked cogency and clarity in respect of the issues to be determined and the relevant evidence (which I suspect was borne of the contractual circumstances that gave rise to the disputes referred), and as a result the determination of these claims has been unduly complicated and time consuming. This is not meant as a criticism but is merely an observation to explain the costs of this determination which are somewhat higher than I might have expected.
Judicial review in the context of the CCA
[16] The appropriate approach to judicial review of an adjudicator’s determination in CCA cases is well settled. It is grounded in the objective of the CCA which is to solve cash flow problems, which are common in the construction industry, by facilitating quick payments.3 The scheme of the CCA is to provide interim or provisional relief while the parties work through other, more formal, dispute resolution procedures (such as litigation or arbitration).4 For this purpose, a party with the benefit of a money determination in the BDT may still enforce it even where judicial review proceedings are afoot.5 Given the CCA’s “pay now, argue later” philosophy, the Court of Appeal in Rees v Firth observed that it will be very difficult to satisfy the courts that intervention is necessary:6
[27] The courts must be vigilant to ensure that judicial review of adjudicators’ determinations does not cut across the scheme of the CCA and undermine its objectives. But this does not mean that judicial review should be limited to instances of “jurisdictional error”. In principle, any ground of judicial review may be raised, but an applicant must demonstrate that the court should intervene in the particular circumstances, and that will not be easy given the purpose and scheme of the CCA. Indeed, we consider that it will be very difficult to satisfy a court that intervention is necessary. As an example, given that an important purpose of the CCA is to provide a mechanism to enable money flows to be maintained on the basis of preliminary and non- binding assessments of the merits, it is unlikely that errors of fact by adjudicators will give rise to successful applications for judicial review. In the great majority of cases where an adjudicator’s determination is to be challenged, the appropriate course will be for the parties to submit the merits of the dispute to binding resolution through arbitration or litigation (or, of course, to go to mediation).
…
3 See Construction Contracts Act 2002, s 3; and Willis Trust Company Ltd v Green HC Auckland CIV-2006-404-809, 25 May 2006 at [20].
4 Rees v Firth [2011] NZCA 668, [2012] 1 NZLR 408 at [25].
5 At [25]. See also the Construction Contracts Act, s 60.
6 See also Anderson v Swindells [2018] NZHC 1803 at [41]–[43]; and Chappell v Swindells [2018] NZHC 2982 at [16]–[18].
[31] … We do not see the English cases as limiting the availability of judicial review to instances of jurisdictional error; breach of the rules of natural justice and bias are also accepted as providing grounds for intervention. More importantly, however, these passages confirm that, given the scheme and purpose of the CCA and similar regimes, judicial review will be available as a means to challenge adjudicators’ determinations only rarely. It is important, we think, to focus on that point, thus allowing courts to consider what is appropriate in the circumstances of particular cases untrammelled by “jurisdictional error”, a concept which has been described as a “conclusory label”.
(citations omitted)
[17] The issue arises as to whether the same principles should apply to an adjudicator’s decision as to costs following a determination. In terms of s 48 of the CCA, an adjudicator’s substantive determination is a determination as to liability to make a payment under the contract and any questions about the rights and obligations of the parties under the contract. A decision on costs does not relate to the contract.
[18] Nevertheless, decisions on costs are part of the same regime. A decision on costs flows from the adjudicator’s determination. I therefore see no reason in principle why the same high bar should not apply to judicial review of a costs decision. I will therefore approach the issue on the basis that Ace faces a high legal hurdle. I record that Mr Martelli, for Ace, accepted that the threshold for Court intervention was high.
Preliminary matter
[19] As a preliminary matter, I must determine whether a previous BDT decision of Mr Green dated 10 February 2006 (the previous decision) annexed to the sworn affidavit of Christopher Barrett the sole director of Ace is admissible in this proceeding.
[20] Section 68 of the CCA provides that documents created for the purposes of an adjudication and information disclosed during an adjudication are confidential and may only be disclosed in certain situations, including with the consent of relevant parties.7 In Concrete Structures (NZ) Ltd v Inframax Construction Ltd, Lang J held
7 Construction Contracts Act, s 68(2)(a).
that the wording of s 68 was sufficiently wide to capture within their scope the determination itself.8 I adopt that position.
[21] Ace says it obtained consent from the relevant parties: Holmes Construction (which is the party that gave Ace a copy of the decision), the former directors of Willis Trust Company Ltd (which has been removed from the companies register) and Mr Green. I accept Ace’s submission that Mr Green, as the adjudicator, is not properly a party to the decision and therefore his consent is not required. He has nevertheless consented to disclosure. As to Willis Trust, Firma says it is the liquidator(s) that must consent. Removal from the register is the corporate equivalent of the death of an individual — the company no longer exits.9 Therefore, I do not consider that its consent is needed (nor is it possible to obtain). The relevant consents have therefore been obtained.
[22] There is also the fact that the previous decision was the subject of an application for judicial review.10 That arguably brings into play s 68(2)(b) which provides that the prohibition on disclosure does not apply “to the extent that the information is already in the public domain”. The discussion on costs in the High Court decision is brief. The judgment does not set out the paragraphs of the adjudicator’s decision. It simply mentions them by reference to their paragraph numbers and makes a general comment about what was contained within those paragraphs. However, I am satisfied that, even though the relevant part of the adjudicator’s decision on costs was not set out in full, the High Court references were sufficient to bring the decision within s 68(2)(b). This provides a second reason why confidentiality does not apply to the previous decision.
[23] In the end, however, the previous decision is of limited assistance. In that case, the adjudicator concluded that the respondent’s allegations and objections were without substantial merit and he considered that it was a case where it was appropriate to depart from the general principle that the parties would bear their own costs.
8 Concrete Structures (NZ) Ltd v Inframax Construction Ltd HC Auckland CIV-2010-419-909, 9 November 2010 at [22].
9 Re Saxpack Foods Ltd [1994] 1 NZLR 605 (HC); Companies Act 1993, s 15; and Insolvency Law & Practice (online ed, Thomson Reuters) at [CA317.01(1)].
10 Willis Trust Company Ltd v Green, above n 3.
However, the decision was based on different facts in a different legal context: that case involved the “sudden death” liability provisions of the CCA (failure to provide a payment schedule in time) and was not “on the merits”.
The law - Costs awards
Construction Contracts Act 2002
[24] The default costs position in the BDT is that the parties must meet their own costs and expenses. However, the adjudicator has a discretion to award costs. Section 56 of the CCA sets out when the adjudicator may exercise his or her discretion. I have already set out s 56 as part of the adjudicator’s decision. I repeat it here for ease of reference:
56 Costs of adjudication proceedings
(1)An adjudicator may determine that costs and expenses must be met by any of the parties to the adjudication (whether those parties are or are not, on the whole, successful in the adjudication) if the adjudicator considers that the party has caused those costs and expenses to be incurred unnecessarily by—
(a)bad faith on part of that party; or
(b)allegations or objections by that party that are without substantial merit.
(2)If the adjudicator does not make a determination under subsection (1), the parties to the adjudication must meet their own costs and expenses.
…
(emphasis added)
[25] There is a paucity of cases discussing the meaning of bad faith and “without substantial merit” in the context of the CCA.11 There is, however, helpful case law on an identical provision in the Weathertight Homes Resolution Services Act 2006 (the WHRSA): namely, s 91. I consider the relevance of these cases in my analysis below.
11 In Canam Construction (1955) Ltd v LaHatte [2010] 1 NZLR 848 (HC) at [91], the statutory provision was simply mentioned. In Willis Trust Company Ltd v Green, above n 3, at [70]–[72], there was a brief discussion of the adjudicator’s decision but without a consideration of the meanings of the words “bad faith” or “without substantial merit”.
[26] As to the adjudicator’s fees: s 57 of the CCA provides that an adjudicator is entitled to be paid an amount that is agreed with the parties or, absent such agreement, an amount that is reasonable, having regard to the work done and expenses incurred by the adjudicator.12 The parties are jointly and severally liable for the adjudicator’s fees13 either in equal proportions or proportions as the adjudicator may determine.14 The adjudicator may determine that the parties pay unequal proportions if:15
(a)the claimant’s adjudication claim, or the respondent’s response, was without substantial merit; or
(b)a party to the adjudication acted in a contemptuous or improper manner during the adjudication.
Analysis
Weathertight Homes Resolution Service Act, s 91 cases
[27] I will address each of the s 56 limbs (bad faith and “without substantial merit”) in turn. However, first, I consider whether the s 91 WHRSA cases are relevant to the interpretation and application of s 56 of the CCA. Section 91 of the WHRSA provides, in identical words to s 56 of the CCA, a discretion to award costs where there is bad faith or allegations or objections without substantial merit.
[28] Mr Martelli, for Ace, referred the Court to the Weathertight Homes Tribunal’s (WHT) discussion on bad faith and “without substantial merit” (in the context of s 91 of the WHRSA) in Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council16 and to the decision of this Court on appeal from that decision.17
[29] Mr Badcock, for Firma, submits that the WHRSA cases are not relevant to the CCA as the two statutes have different purposes and mechanisms. Mr Badcock notes,
12 Construction Contracts Act, s 57(1).
13 Section 57(2).
14 Section 57(3).
15 Section 57(4).
16 Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council [2012] NZWHT Auckland 35.
17 Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council [2013] NZHC 2824.
for example, that adjudications in the WHT (under the WHRSA) are subject to appeal and binding on, and enforceable by, the parties. Additionally, WHT adjudicators are statutorily appointed, and the WHT’s decisions are public. In contrast, BDT adjudications (under the CCA) are confidential, not published, and the parties pay the fees of the adjudicator, much like an arbitration.
[30] I accept there are differences between the two schemes. However, there are also similarities. Most significantly, the costs provisions in each are identical. Both Acts were conceived as part of the same Bill, before being divided.18 Parliament did not see any reason to change the wording of the costs provisions in either Act. Therefore, given the shared legislative history and identical wording of the two provisions, for the limited purpose of costs, I consider that the WHRSA jurisprudence is instructive.
Bad faith
[31]In the Clearwater decision, Katz J stated:19
[48] As the Tribunal observed, the meaning of “bad faith” depends on the circumstances in which it is alleged to have occurred. The range of conduct constituting bad faith can range from dishonesty to a disregard of legislative intent. It is well established that a party alleging bad faith must discharge a heavy evidential burden, commensurate with the gravity of the allegations made.
[32]Mr Green concluded there was no bad faith.
[33] Ace pleads that the determination contained an error of fact, namely that Ace had not acted in bad faith and/or the determination failed to consider the following evidence of, what it says is, bad faith:
(a)Firma attempted to take advantage of its own breaches of contract;20
18 Schedule of Divided Bills, Forty-seventh Parliament (2002–2005) 2321 at 2322. Section 43 of the Weathertight Homes Services Resolution Act 2002 (now s 91 of the 2006 Act) used identical words to s 56 of the CCA.
19 Clearwater (HC), above n 17.
20 See Firma Construction Ltd v Ace Structural Ltd (BDT), above n 1, at [110].
(b)Firma’s variations defences were disingenuous;21 and
(c)Firma claimed costs that it had not incurred and which it knew it had not incurred. In particular:
(i)In relation to painting and steel repair costs, Firma did not provide proper evidence in support of the claim;
(ii)In relation to handrail costs, Firma filed evidence that it had paid
$37,619 to another stainless fabricator to install handrails after Firma dismissed Ace from site when in fact it had only paid
$22,571; and
(iii)Firma deducted $16,000 from Ace’s payment claim for alleged defective steel installations. Firma engaged another company to correct the alleged fault and paid it $4,375. Firma did not pay to Ace the balance of the deduction/retention of $11,625.22
[34] Ace pleads that, in failing to take the above matters into account, Mr Green’s determination did not comply with the principles of natural justice. Act also pleads that Mr Green failed to give coherent and adequate reasons for his decision not to order Firma to pay Ace’s costs and that he failed in his obligation to make a costs order that would be consistent with other orders regarding costs when broadly the same facts and circumstances applied.
[35] While not resiling from his submission that the Court should not consider WHRSA cases, Mr Badcock submitted that in any event, Firma did not act in any way which would fall within the range of bad faith conduct referred to in the Clearwater decision. He submits Firma merely pursued and defended adjudication proceedings in accordance with the CCA dispute resolution provisions as it was entitled to do. This gave effect to the legislative intent of the CCA.
21 At [116].
22 There was some confusion as to the precise figures. The stated figures reflect the amounts claimed in Ace’s statement of claim. The exact figure is immaterial for present purposes; what is important is that Firma is alleged to have failed to pay Ace the balance of the deduction/retention.
[36] Mr Badcock further submitted that Firma’s conduct can be distinguished from the relevant conduct in the Clearwater case in which the Court held that the claimant had been aware of undisclosed documents and had failed to produce them or comply with discovery orders. Mr Badcock submitted that the adjudicator clearly stated that he had carefully considered the parties’ claims for costs and that he found there were no grounds to consider that there had been bad faith on the part of any party to the proceedings.
[37] In his determination, Mr Green baldly asserted that “there are no grounds to consider there has been bad faith”.23 He did not give any reasons. Mr Martelli submits that Mr Green’s costs decision runs contrary to the tone and momentum of his substantive determinations as well as the evidence before him. For example, Mr Green noted, “A clearer example of a party [Firma] attempting to take advantage of its own breaches is difficult to imagine.”24 He further observed “on the evidence that it was naïve if not disingenuous on part of Firma to suggest that little or nothing should be allowed in respect of Ace’s claimed variations”.25 Mr Green did not address these comments, or the evidence on which the comments were based, in concluding that there was no bad faith.
[38] In Lewis v Wilson & Horton Ltd, the Court of Appeal held that, absent specific legislation, there is no invariable rule that courts must give reasons for their decisions.26 But it is best practice for a judicial or quasi-judicial body to include reasons.27
[39] The Court of Appeal recently noted the importance of giving reasons: if reasons are not given, it is not possible to know whether there has been an error made by the decision-maker.28 Although the aspect of public scrutiny is absent in decisions of the BDT, in the absence of reasons a party cannot be sure why it was unsuccessful on this issue.
23 At [171] as set out in [14] above.
24 At [110].
25 At [116] (emphasis added).
26 Lewis v Wilson & Horton Ltd [2000] 3 NZLR 546 (CA) at [75] as cited in Belgiorno-Nettis v Auckland Unitary Plan Independent Hearings Panel [2019] NZCA 175 at [46].
27 R v Awatere [1982] 1 NZLR 644 (CA) at 648 as cited in at Belgiorno-Nettis, above n 26, at [47].
28 Belgiorno-Nettis, above n 26, at [48].
[40] This is precisely the case here. I accept that reasons may be abbreviated but on this issue of bad faith there were no reasons given at all.
[41] In any event, there is a mandatory legislative requirement to give reasons for determinations in s 47(1)(b)(ii) of the CCA. I have determined that costs are integrally related to the determination. Although s 47(2) provides that a failure to comply with subs (1) does not affect the validity of an adjudicator’s determination, nevertheless the statutory provision to give reasons underlines the importance of a reasoned decision.
[42] Given the failure in this case to give any reasons, I am satisfied that Ace has surmounted the “significant hurdle” required in an application for review on this ground. Absent any reasons, it is not apparent (or I cannot be satisfied) that Mr Green considered all relevant information.
[43] Ace also pleads error of fact, namely the finding that Firma had not acted in bad faith.
[44] A question of law based on an insupportable factual finding will only be considered in rare cases.29 The Supreme Court stated in Vodafone New Zealand Ltd v Telecom New Zealand Ltd:
[52] … But that will be the position only in the rare case described by Lord Radcliffe in Edwards v Bairstow. Lord Radcliffe gave three alternative descriptions: a state of affairs “in which there is no evidence to support the determination”, or “one in which the evidence is inconsistent with and contradictory of the determination”, or “one in which the true and only reasonable conclusion contradicts the determination”. Lord Radcliffe preferred the last of them. …
(citation omitted)
[45] I do not consider that this is one of those rare cases. Ace has not demonstrated a state of affairs in which the true and only reasonable conclusion contradicts the determination. There may well be legitimate explanations other than bad faith. I therefore do not uphold Ace’s claim on this ground. In the end, the issue of bad faith will be for the adjudicator to further consider. As will be apparent from the section of
29 Bryson v Three Foot Six Ltd [2005] NZSC 34, [2005] 3 NZLR 721 at [25]–[26]; and Vodafone New Zealand Ltd v Telecom New Zealand Ltd [2011] NZSC 138, [2012] 3 NZLR 153.
this judgment on relief, I propose to remit the case back to him for reconsideration on the basis of the ground on which I have found in favour of Ace in [42] above.
Without substantial merit
[46] The High Court in Clearwater also considered the meaning of “without substantial merit” as follows:
[24] In Trustees Executors Ltd v Wellington City Council Simon France J considered what the Legislature intended by the phrase “without substantial merit” in s 91 of the WHRS Act. The issues he saw as important were whether the appellants should have known about the weakness of their case and whether they pursued litigation “in defiance of common sense”. Further, in determining the question of substantial merit it was impermissible to apply hindsight.
(citations omitted)
[47] The fact that a claim is unsuccessful does not necessarily mean that it lacked substantial merit from the outset.30
[48] Mr Green concluded that Firma’s allegations and objections were not “without substantial merit”.
[49] Ace pleads that the determination contained an error of fact that Firma had not made allegations or objections that were without substantial merit and/or Mr Green failed to consider evidence that Firma had made allegations or objections that were without substantial merit. Ace says that Mr Green summarily and unreservedly dismissed all of Firma’s allegations and objections, including claims that:31
(a)The intituling error in Mr Barrett’s statement prohibited Mr Green from reading that statement in either party’s claim;
(b)Ace repudiated the contract;
(c)Firma had validly cancelled the contract;
30 Clearwater (HC), above n 17, at [42].
31 Allegations “without substantial merit” may apply in both advancing and defending a claim.
(d)After Firma cancelled the contract, it was entitled to engage third parties to complete works left unfinished by Ace, and that Firma could claim the cost of that work from Ace;
(e)Firma was not liable for variations based on the variation defences; and
(f)Ace damaged the drainage stubs at the site.
[50] Ace pleads that having regard to Mr Green’s dismissal of the above allegations and/or objections the decision regarding “without substantial merit” was not one that complied with the principles of natural justice. Ace also pleads that Mr Green failed to give coherent and adequate reasons for his decision not to order Firma to pay Ace’s costs and he failed to make orders regarding costs that would be consistent with other orders regarding costs when broadly the same facts and circumstances applied.
[51] Mr Badcock refers to the adjudicator’s statement that in his view both parties had a point to put forward regardless of the actual determination he made on the matters at issue. He also notes the adjudicator’s statement that he had carefully considered the parties’ claims for costs.
[52] Unlike the bad faith issue, Mr Green does give reasons, albeit brief, for not finding that the allegations or objections were “without substantial merit”. He observed that “both parties had a point to put forward regardless of the actual determinations [he] made on the matters at issue”.32 Reasons may be expressed briefly or in an abbreviated manner. However, they must nevertheless be expressed in sufficient detail as to enable the parties affected by the determination to understand the basis for the adjudicator’s decisions.33
[53] I consider Mr Green’s reasons are inadequate. He made strong findings in favour of Ace. I acknowledge the principle that the fact that a claim was unsuccessful does not mean that it lacked substantial merit from the outset. However, given those
32 Firma Construction Ltd v Ace Structural Ltd (BDT), above n 1, at [170].
33 Anderson v Swindells, above n 6, at [66]–[68] and [76]; and Chappell v Swindells, above n 6, at [30]–[33].
strong findings Ace was entitled to have adequate reasons provided. The findings included:
80[In relation to cancellation/repudiation] … the immediate difficulty for Firma is that it is not at all apparent on the evidence that Ace had in fact suspended work. …
81I have the overwhelming impression that the management of the Project by Firma/Mr Johnson was a complete mess from the outset.
…
84Taken overall, I do not accept that the evidence establishes, even hesitantly, that by words or conduct, Ace irrevocably indicated that it would take no further steps to perform its obligations under the Subcontract.
85Furthermore, I do not accept that this is a case where the date for performance had even yet arrived. There is no credible evidence that Ace had failed or refused to perform its works …
86There is further difficulty for Firma. … Plainly [its argument] is not correct. On the evidence … it is beyond argument in my view that Firma left the contract open and on foot …
…
93 … There is a complete lack of credible supporting detail that does not inspire confidence or enable me to engage closely with [the] evidence on this point. I do not find their evidence helpful or persuasive. Firma’s evidence falls short in my view.
…
120 [In relation to variations] The difficulties for Firma with that argument
are obvious. … (emphasis added)
[54] I recognise that, in some occasions, the reasons will be evident without express reference.34 That is not so here. It is not apparent from Mr Green’s determination what his reasons were for concluding that both parties had a point to put forward.
[55] It is also not apparent from his brief reasons that Mr Green did, in fact, consider the evidence (allegedly) demonstrating that the claims were without substantial merit. I do not consider that Mr Green’s reasons adequately convey to the parties the basis of
34 Lewis v Wilson & Horton Ltd, above n 26, at [81] as cited in Belgiorno-Nettis, above n 26, at [51].
his determination nor whether he considered relevant information. Accordingly, I find for Ace on this ground also.
[56] As to mistake of fact giving rise to a question of law, I reach the same view as I reached above in relation to bad faith. Ace has not brought itself within that category of rare cases in which the true and only reasonable conclusion contradicts the determination. That will be for Mr Green to address.
Mr Green’s fees
[57] Finally, Ace submits that Mr Green’s fees were unreasonable. It seeks judicial review on the grounds of procedural impropriety. Ace submits there should have been economies from the matters being joined and says the adjudicator’s fees were too high.
[58] Mr Green is entitled to be paid, by way of fees and expenses, an amount that is reasonable, having regard to the work done and expenses incurred by him.35 He charged $70,254. His reasons for this fee are set out in his determination at [178] as recorded in [15] above.
[59] I do not consider that this is a proper ground for judicial review. This is more appropriately a matter of appeal, not judicial review.
Relief
[60]Ace seeks an order quashing the following findings:
(a)There were no grounds to consider there had been bad faith on the part of Firma under s 56(1)(a);
(b)There were no circumstances to warrant a conclusion that Firma had made allegations or objections that were without substantial merit under s 56(1)(b); and
35 Construction Contracts Act, s 57(1)(b).
(c)Ace and Firma should bear their own costs and expenses of the adjudication.
[61] It further seeks an order that this Court set costs for the BDT adjudication in favour of Ace on an indemnity basis.
[62] Any finding of bad faith or “without substantial merit”, only triggers the adjudicator’s discretion; it does not mandate the awarding of costs. The adjudicator’s role as to costs has three steps: first, he must consider whether there is bad faith or “without substantial merit”; second, if so, he must decide whether to exercise his discretion to award costs; and third, he must determine the quantum and type of costs (for example, indemnity costs). It is not for this Court to make such assessments. That would be usurping the adjudicator’s legislatively-conferred role.
[63] I acknowledge Ace’s concern that, in sending the matter back to Mr Green, it will incur additional costs and delay, but that cannot be avoided.
[64] Accordingly, I make an order quashing Mr Green’s findings as to costs as set out in [60](a) to (c) above and remit the matter back to Mr Green to re-determine costs with reasons to be given.
Costs (in this court)
[65] While the relief sought includes an order that Firma pay Ace’s costs in this Court, at the hearing both counsel agreed that costs should be reserved. Accordingly, I reserve leave for memoranda to be filed in relation to costs on this application for review. In the first instance I encourage the parties to agree costs and file a joint memorandum no later than 20 working days from the date of this judgment.
[66] In the event that costs cannot be agreed, Ace may file its memorandum five working days after the date for the joint memorandum and Firma may file its
memorandum within a further five working days. Memoranda should not exceed four pages (excluding any attachments).
Gordon J
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