This decision has been amended. Please see the end of the decision for a list of the amendments.

Supreme Court New South Wales

Case Title: Power Serve v Powerline's Clearing Group

Medium Neutral Citation: [2011] NSWSC 1180

Hearing Date(s): 28/09/2011

Decision Date: 28 September 2011

Jurisdiction: Equity Division - Technology and

Construction List

Before: McDougall J

Decision: Plaintiff's notice of motion dismissed with costs.

Catchwords: BUILDING AND CONSTRUCTION - Building and Construction Industry Security of Payment Act 1999 (NSW) – whether adjudicator erred by concluding that s34 of the Act rendered void certain provisions of construction contract - nature of requirement to 'consider' pursuant to s22 (2) – no requirement for 'consideration' to lead to a legally or technically correct answer. Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW)

Cases Cited: Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421

Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190

Clyde Bergemann v Varley Power [2011] NSWSC 1039

Texts Cited:

Category: Procedural and other rulings

Parties: Power Serve Pty Ltd (ACN 060 977 513) (Plaintiff)

Powerline's Clearing Group Pty Limited (ACN 128 604 688) (First Defendant)

Daniel Massey (Second Defendant)

Representation-

Counsel: Counsel:

F Corsaro SC (Plaintiff)

J C Prowse (Solicitor) (First Defendant)

- Solicitors: Solicitors:

Keystone Lawyers (Plaintiff)

MCW Lawyers (First Defendant)

Daniel Massey Solicitor and Consultant (Second Defendant)

File number(s): 2011/309840

Publication Restriction:

Judgment (ex tempore)

1 HIS HONOUR: This is an application to prevent the first defendant (Powerline's) from enforcing an adjudication determination made in its favour by the second defendant (the adjudicator) on 16 September 2011. By that determination, the adjudicator determined that Powerline's was entitled to be paid an amount in excess of $2.2 million inclusive of GST for a payment claim served on 9 August 2011.

2 There is no doubt that the plaintiff (Power Serve) and Powerline's were parties to a construction contract as that term is defined in the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act). The subcontract between them was dated 13 January 2010. It came to an end, pursuant to an express contractual right given to Power Serve by cl 22 to terminate without default, on 25 November 2010.

3 The payment claim was in effect a "catch-up" claim. It sought what Powerline's said was the value of all work done pursuant to the subcontract less the value of all payments received. It is to be noted that some of the work that was the subject of the claim (said to total, in value, about $1.5 million) had not been made the subject of previous claims.

4 That fact is important because, by cl 8 of the subcontract, Powerline's was required to make written claims for payment at specified times, and if it did not do so, it released Power Serve from any claim not notified in accordance with that contractual provision. As to the $1.5 million, it was Power Serve's case that the claim was barred by operation of this particular paragraph of cl 8.

5 Power Serve also relied on another paragraph of cl 8 which provided in substance that any claim made after practical completion was barred unless it was made within twenty-eight days of notice of practical completion. It does not appear that any notice of practical completion was given. Indeed, it seems, the expression "Practical Completion" was not defined in the subcontract. Although it was said that work under the subcontract was effectively complete when it was terminated, it is hard to see how this particular paragraph of cl 8 might have been engaged.

6 Be all that as it may, Powerline's took the view that both paragraphs of cl 8 on which Power Serve placed reliance were, apart from anything else, void by operation of s 34 of the Act. Section 34 is headed "No contracting out".

However, its reach is far wider. I set it out:

34 No contracting out

(1) The provisions of this Act have effect despite any provision to the contrary in any contract.

(2) A provision of any agreement (whether in writing or not):

(a) under which the operation of this Act is, or is purported to be, excluded, modified or restricted (or that has the effect of excluding, modifying or restricting the operation of this Act), or

(b) that may reasonably be construed as an attempt to deter a person from taking action under this Act, is void.

7 It does not seem to be in doubt that the question, of the operation of s 34 of the Act on each of the paragraphs of cl 8 to which I have referred, was fairly and squarely before the adjudicator. Indeed, apparently because he found it a difficult question, he invited the parties to put submissions on the point, and they did.

8 The adjudicator dealt with the interaction between s 34 of the Act and cl 8 (to the extent that it was relied upon) in paras 69 to 87 of his reasons for coming to the determination that he did. Mr Corsaro SC, who appeared for Power Serve, accepted that the adjudicator had turned his mind to the particular aspect of the dispute that was put to him for consideration. There was no suggestion that the adjudicator had failed to deal with the question in good faith, as that is made relevant by decisions such as Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421 at 442-443.

9 Rather, the submission that Mr Corsaro put was that, in concluding that the operation of cl 8 was avoided by operation of s 34 of the Act, the adjudicator had acted beyond the jurisdiction given to him by the Act. At least, Mr Corsaro submitted, there was a serious question to be tried as to whether this was so.

10 I do not accept that submission. I can express, in a fairly brief way, why I do not. Given that the question is one of construction of the Act, and its application on the non-contentious facts with which I am presently faced, I express myself in final terms rather than looking simply at the question of whether or not there is a serious question to be tried.

11 By s 22(2) of the Act, the adjudicator is to consider ("only") the five specified matters. The first of those (para (a)) is "the provisions of the Act".

The second (paragraph (b)) is "the provisions of the construction contract from which the application arose".

12 I dealt with the requirement to "consider" most recently in my decision in Clyde Bergemann v Varley Power [2011] NSWSC 1039. See in particular at [60] to [64]. I will not repeat in detail what I there said, and will not summarise it beyond saying that, in my view, the obligation to act in good faith requires that adjudicators deal intellectually with the disputes that parties have framed, and deal with those disputes in a way that is reasoned, not perverse, arbitrary or capricious.

13 I mention those matters not because good faith is raised expressly but because, in my view, they throw light on what is required by the obligation to "consider" something. In my view, what is required is that the adjudicator should turn his or her mind to the specified matters, and grapple with them in a reasoned way.

14 It is to be noted that the consideration of the matters specified in s 22(2) of the Act is the central part of the adjudicator's performance of the statutory function, given by s 22(1) to determine, among other things, the amount (if any) of the progress payment to which the claimant is entitled. That is significant because it shows that s 22(2) refers to matters that occur within the performance of the adjudicative function. To put it another way, it refers to matters that arise to be performed during the course of the decision-making process itself.

15 In Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [ 2010] NSWCA 190 Spigelman CJ dealt with this characteristic of jurisdiction at [43]. His Honour had said, earlier, that one needed to look at the language used by parliament, to see if it was expressed in what is traditionally called mandatory form. Next, his Honour said, one had to take into account the structure of the legislative scheme. His Honour said at [42] that this was important for two purposes. One was to identify the point of time in the decision making process at which the element under consideration occurs.

The second was to see how the legislative scheme as a whole treated time limits. This latter point was of key significance in Chase . It is not relevant here.

16 As to the first of those matters - the point of time in the decision making process at which the element occurs - his Honour noted, at [43], in relation to the element under consideration in Chase that "it is particularly relevant that the element occurs at the application stage of the decision-making process". It was not a matter of a sort "which can arise during the course of the decision-making process itself". His Honour referred, again at [43], to authorities which had formulated the distinction between jurisdictional and non-jurisdictional as being something "essential preliminary to the decision-making process" or "a fact to be adjudicated upon in the course of inquiry".

17 His Honour dealt further with that point at [44] and [45].

18 What is given to adjudicators is the power and duty to decide the amount of the progress payment, if any, to which the claimant is entitled. In reaching that conclusion - "in determining an adjudication application" - adjudicators are to consider the five matters set out in s 22(2). In my view, the jurisdiction that is given to adjudicators not only empowers but requires them to consider each of those matters. Unless the obligation to "consider" something involves not only turning one's mind to it and engaging with it in an intellectual way, but also getting it right as a result of that process, then there can be no jurisdictional element in s 22(2). Its place, as an ingredient of the decision making process rather than as a preliminary to the requirement to undertake that process, confirms this.

19 In my view, bearing in mind that the matters to be considered as listed in s 22(2) include not only the provisions of the Act but also the provisions of the contract and the submissions made by the parties, it cannot be said that the jurisdiction is only exercised if they are considered in a way which leads to the legally, or technically, correct answer. At least insofar as the provisions of the contract are concerned, that is inconsistent with the authorities to which I referred in Clyde Bergemann , in particular at [35] to [53]. I see no reason why any different answer should be returned where what is to be considered is the Act itself rather than the contract. Both are essential ingredients of the right given. Both are required to be considered as part of the determinative process. In each case, in my view, absent any statutory indication to the contrary, the jurisdiction given to adjudicators, which requires them to consider those matters, contemplates or permits that from time to time they may get it wrong when they do so.

20 It is thus unnecessary to express a view as to whether or not the adjudicator's consideration of the particular paragraphs of cl 8, and their interaction with s 34, was correct. I will, however, say that, at least in respect of the second of the two paragraphs to which I referred earlier, it is strongly arguable, in my view, that the adjudicator's view was correct.

21 It is also unnecessary to turn to considerations of balance of convenience. In the ordinary way, if (contrary to what I have said) I considered this to be a case that warranted the grant of injunctive relief, I would have granted relief on terms that the amount in question, together with something to cover interest and the costs of the determination, should be brought into court. Mr Corsaro submitted, based on his client's evidence, that two to four weeks should be allowed for his client to do this. Mr Prowse, the solicitor for Powerline's, accepted that if I were to grant injunctive relief it would be appropriate to allow up to four weeks for the security to be given. Whilst I would not have done so apart from that concession, because in my view it is entirely inconsistent with the scheme of the Act that a delay in providing security of that magnitude should be countenanced whilst the successful claimant is kept out of its money, it is unnecessary to give further consideration to the point.

22 For the reasons I have given, the notice of motion is dismissed with costs.

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Amendments

10 Oct 2011 Wrong date Paragraphs: Date