SUPREME COURT OF QUEENSLAND
CITATION: Hansen Yuncken Pty Ltd v Ian James Ericson trading as Flea’s Concreting & Anor [2011] QSC 327
PARTIES: HANSEN YUNCKEN PTY LTD
ACN 063 384 056
(Applicant)
v
IAN JAMES ERICSON TRADING AS FLEA’S
CONCRETING
ABN 86 016 599 870
(First Respondent)
and
PHILIP DAVENPORT
(Second Respondent)
FILE NO: BS 7864 of 2009
DIVISION: Trial Division
PROCEEDING: Originating Application
ORIGINATING
COURT: Supreme Court at Brisbane
DELIVERED ON: 4 November 2011
DELIVERED AT: Brisbane
HEARING DATE: 22-24 March, 11-15, 18-21 April and 11-13 May 2011
Further written submissions received on 10 June 2011
JUDGE: McMurdo J
ORDER: 1. Upon the applicant paying to the first respondent by 25 November 2011 an amount which is the total of $2,363,619.29 and interest on that sum from 13 June 2009 at the rate according to s 67P of the Queensland Building Services Authority Act 1991 (Qld):
(a) the first respondent will be restrained thereafter permanently from taking any steps to obtain an adjudication certificate or to otherwise enforce the adjudication decision of the second respondent;
(b) the Registrar will unconditionally release to the applicant any bank guarantee provided under the orders of 23 July 2009 or 6 December 2010.
2. If payment of that total sum is not made by 25 November 2011:
(a) the order within paragraph 1 of the orders made on 23 July 2009 will be set aside;
(b) the first respondent will be restrained from recovering more than an amount which is the total of $2,363,619.29 together with interest on that sum from 13 June 2009 until the date of recovery at that rate of interest, by recourse to one or more of the said bank guarantees or otherwise;
(c) upon the recovery of that total, the first respondent will thereafter be restrained from taking any further steps to enforce the adjudication decision of the second respondent and such of the bank guarantees which then remain in place will be unconditionally released to the Registrar and any moneys paid under any bank guarantee which are surplus to the funds recovered by the first respondent in accordance with these orders will be paid to the applicant.
3. Liberty to apply.
CATCHWORDS: ADMINISTRATIVE LAW – JUDICIAL REVIEW – GROUNDS OF REVIEW – ERROR OF LAW – where the applicant was a head contractor and the first respondent a subcontractor – where the first respondent made an adjudication application under the Building and Construction Industry Payments Act 2004 (Qld) – where the adjudicator accepted the first respondent’s claim in full – where the applicant obtained an injunction restraining the first respondent from enforcing the adjudication decision until trial or further order – whether the applicant was denied natural justice – whether a denial of natural justice must be substantial or material for relief to be granted
EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INJUNCTIONS FOR PARTICULAR PURPOSES – OTHER CASES – whether the first respondent’s claim was fraudulent – whether the adjudication decision should be set aside where the fraud affected only part of the claim
ADMINISTRATIVE LAW – JUDICIAL REVIEW – POWERS OF COURTS UNDER JUDICIAL REVIEW LEGISLATION – GENERALLY – whether s 18 of the Judicial Review Act 1991 (Qld) displaces judicial review on the grounds of fraud
CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – REMUNERATION – STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS – OTHER MATTERS – whether the decision of an adjudicator should be set aside upon the basis of evidence which was discovered after, but discoverable before, the decision – whether an adjudicator could be said to have not decided an adjudication application under s 32(1)(b) of the Act because the application was affected by the applicant’s fraud
Building and Construction Industry Payments Act 2004 (Qld), s 21(3)(c), s 25(3), s 32(1)(b), s 100 Building and Construction Industry Security of Payment Act 1999 (NSW), s 26(1)(b) Judicial Review Act 1991 (Qld), s 18, Sch 1, Pt 2 Queensland Building Services Authority Act 1991 (Qld), s 67P(3)(a)
Akerhielm v De Mare [1959] AC 789, applied
Angus v Clifford [1891] 2 Ch 449, cited
Arnison v Smith (1889) 41 Ch D 348, cited
Bezzina Developers Pty Ltd v Deemah Stone (Qld) Pty Ltd [2008] 2 Qd R 495, cited
Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421, considered
Cardinal Project Services Pty Ltd v Hanave Pty Ltd [2010] NSWSC 1367, considered
Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 272 ALR 750, considered
Colonial Bank of Australasia v Willan (1874) LR 5 PC 417, considered
Derry v Peek (1889) 14 App Cas 337, cited
Emergency Services Superannuation Board v Sundercombe [2004] NSWSC 405, considered
Fifty Property Investments Pty Ltd v O’Mara [2006] NSWSC 428, considered
Hansen Yuncken Pty Ltd v Ericson [2010] QSC 156, cited
Hansen Yuncken Pty Ltd v Ericson (No 2) [2010] QSC 457, cited
HML v The Queen (2008) 235 CLR 334, cited
John Holland Pty Ltd v Made Contracting Pty Ltd [2008] NSWSC 374, considered
John Holland Pty Ltd v TAC Pacific Pty Ltd [2010] 1 Qd R 302, considered
Johns v Cosgrove [2002] 1 Qd R 57, distinguished
Jones v Dunkel (1959) 101 CLR 298, cited
Kirk v Industrial Court of New South Wales (2009) 239 CLR 531, considered
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, applied
Lees v Tod (1882) 9 Rettie 807, cited
McDonald v McDonald (1965) 113 CLR 529, applied
Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2) (1992) 37 FCR 234, considered
Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140, considered
Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors [2011] QCA 022, considered
Owens Bank Ltd v Bracco [1992] 2 AC 443, considered
Owens Bank Ltd v Etoile Commerciale SA [1995] 1 WLR 44, cited, considered
Quasar Constructions NSW Pty Ltd v Demtech Pty Ltd [2004] NSWSC 116, considered
R J Neller Building Pty Ltd v Ainsworth [2009] 1 Qd R 390, applied
Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1, cited
Re Refugee Review Tribunal; ex parte Aala (2000) 204 CLR 82, considered
Spankie v James Trowse Constructions Pty Ltd [2010] QCA 355, considered
Stead v State Government Insurance Commission (1986) 161 CLR 141, cited
SZFDE v Minister for Immigration and Citizenship (2007) 232 CLR 189, cited
Toubia v Schwenke (2002) 54 NSWLR 46, applied
Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2008] NSWSC 399, applied
Wentworth v Rogers (No 5) (1986) 6 NSWLR 534, considered
COUNSEL: TP Sullivan SC with T Duggan for the applicant
GW Walsh for the first respondent
SOLICITORS: Hopgood Ganim acting as town agent for Crawford Legal for the applicant
No appearance for the first respondent
[1] In August 2007, the applicant (‘Hansen Yuncken’) was engaged as the head contractor for the redevelopment of Cairns Airport. About a month later, it engaged the first respondent, Mr Ericson, as the subcontractor for all concreting works. As I will discuss, the basis upon which Mr Ericson was engaged is controversial. But clearly he was the subcontractor for the concreting works from then until about the middle of 2008 when, a dispute having developed between the parties, he left the site.
[2] On 29 May 2009, Mr Ericson caused to be served on Hansen Yuncken a payment claim tunder the Building and Construction Industry Payments Act 2004 (Qld) (‘the Act’). The amount claimed was $4,803,866.60, calculated as follows:
Total value (before GST) of work carried out $7,530,901.91
Less payments made to Mr Ericson $2,886,299.46
Less payment by others $81,553.50
Less allowed deduction for rectification $47,822.50
Less retention moneys $148,075.00
Balance $4,367,151.45
Plus GST $436,715.15
Total claimed $4,803,866.60
[3] Hansen Yuncken delivered a payment schedule dated 5 June 2009, stating that it proposed to pay nothing of the claim.
[4] On 22 June 2009, Mr Ericson made an adjudication application. On 30 June 2009, Hansen Yuncken delivered its adjudication response, again saying that it should pay nothing.
[5] The second respondent was the adjudicator. By a decision dated 2 July 2009, he accepted Mr Ericson’s claim in full. The sum of $4,803,866.60 became the adjudicated amount, and the due date for payment was fixed at 13 June 2009.
[6] On 23 July 2009, Byrne SJA was persuaded to order that Mr Ericson be restrained, until trial or further order, from taking any step to enforce the adjudication decision. Accordingly, he has not filed an adjudication certificate. The order was made upon condition that Hansen Yuncken lodged bank guarantees to secure the adjudicated amount. Those guarantees were lodged with the Court, and pursuant to a subsequent order, Hansen Yuncken lodged another guarantee to secure interest accruing on the adjudicated amount.
[7] In essence, the adjudicator’s decision is challenged by Hansen Yuncken upon two bases. The first is that there was a denial of natural justice, because the adjudicator had what is said to have been an important letter from Mr Ericson, which Hansen Yuncken alleges was not within the copy of the adjudication application which was served upon it.
[8] Secondly, Hansen Yuncken alleges that Mr Ericson defrauded it and the adjudicator. The fraud was in respect of what the adjudication application put forward as Mr Ericson’s labour costs. Hansen Yuncken alleges that some of Mr Ericson’s employees, for whom he claims some amounts against Hansen Yuncken, were not working on the airport project but instead were on other sites. The amount claimed for these employees was, in total, $108,244.88. Further, Mr Ericson claimed that the “actual cost” of the labour which he employed on this site was of the order of $3.7 million (to which he added increments of 5 per cent for overheads and 7 per cent for profit), when the true costs of that labour was approximately $1.8 million.
[9] In Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors , the Court of Appeal held that adjudication decisions made under the Act are subject to judicial review for jurisdictional error. Hansen Yuncken says that the denial of natural justice would entitle it to an order setting aside the adjudicator’s decision. But it says that upon that ground the decision is already devoid of effect, because the provision of natural justice is an essential condition of a valid adjudication, relying upon Brodyn Pty Ltd v Davenport . It argues that judicial review is available upon the fraud ground, just as a writ of certiorari would have been available to quash a decision of an inferior tribunal which was procured by fraud.
Alternatively, it argues that the fraud ground warrants the same relief in the exercise of an equitable jurisdiction to prevent the enforcement of a judgment obtained by fraud: Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2) ; Toubia v Schwenke .
[10] The availability of the fraud ground to challenge an adjudicator’s decision was originally disputed by Mr Ericson. He unsuccessfully applied to strike out those parts of the Statement of Claim. But ultimately his case accepted that if it is proved that he defrauded the adjudicator in either of the ways claimed, there would be at least a discretionary power to set aside the decision or to prevent its enforcement.
The payment claim
[11] The claim was in the form of a tax invoice, which was numbered 65, together with several attachments. Within the invoice it was described as a “[c]laim for cost of structural goods, services and labour, hire of machinery, supplied to the abovementioned project… ”. The sum of $7,530,901.91 was described as the “[t]otal project cost to date”. That was particularised in the attachments. One of the attachments was a table described as “Summary of Cost of Works”, on which there was the note “Below are Direct Costs where applicable”. It contained totals for machinery hire, transport, materials (broken up between types of formwork, consumables, steel and concrete), other items and, most significantly, on site labour, where there was a claim for $3,756,884. That was said to be the result of applying an hourly rate of $73.44 to 51,159 hours. There were also claims for offsite personnel and site management, again expressed to be the result of a certain number of hours by certain hourly rates, for amounts of $122,760 and $197,120. It is the onsite labour claim which is now relevant. The number of man hours were there described as further particularised in other attachments.
[12] This “Summary of Cost of Works” also contained an item:
“Overheads (5%) and Margin (7%) 12% Of Above $806,882.35 Includes Flea’s hours” Mr Ericson is known as “Flea”: hence the name of his business “Flea’s Concreting”.
[13] Another attachment was described as “Summary of Trade Labour Hours”, showing hours and “Sum Cost”, month by month from October 2007 through September 2008. The hours totalled 51,250 and the overall cost $3,764,814. That equates to an hourly rate of $73.46 (to the nearest cent). What that page shows is that the same hourly rate was not applied to all hours, because the cost of labour per hour varied month by month within this attachment, in a range between $71.32 and $99.99.
Neither this attachment nor the balance of Mr Ericson’s payment claim revealed the various hourly rates which had been applied. Nor did the claim reveal whether these hourly rates represented what had been paid by Mr Ericson to his employees or something else. However the overall claim was based upon what was said to be the “cost of works” and “direct costs where applicable”.
The payment schedule
[14] In its payment schedule for this claim, the main point sought to be made by Hansen Yuncken was that the claim had not been made in accordance with what it said was the true agreement between the parties. It said that the payment claim was “deficient in the detail required to enable an accurate assessment under the terms of the Subcontract Agreement and [the Act]”.
[15] As to the component of the claim which was for labour, the payment schedule advanced these reasons for rejecting the claim. The first was that “[t]he rates used in the Payment Claim are in excess of market rates and do not reflect the rates used in the compilation of the Claimant’s tender”. But that was not confined to the component which was labour costs. In his evidence, Hansen Yuncken’s Mr Reynolds, who was involved in the preparation of its payment schedule, conceded that there were no such rates which had been used in the compilation of Mr Ericson’s tender. So this assertion within the payment schedule seems to have been made without reference to Mr Ericson’s case, and instead was extracted from another document in an unrelated matter.
[16] The payment schedule also contained this:
“(m) The payment claim purports to include the Claimant’s actual costs for trade labour. Off site personnel and site management of some 55,183 hours. The Claimant has not provided any substantiation of the labour rate or any other substantiation that would verify that the quantum of labour was actually employed on the project. Furthermore the accounting of actual hours spent on the project does not consider any possible shortfalls contained in the Claimant’s tender submission, nor does it take into account inefficiencies and inadequate management by the Claimant of its labour resources. The works were undertaken under a fixed price contract and presentation of actual hours worked is not relevant or correct in the assessment of variations to changes in construction documents under Clause 40.”
In essence, Hansen Yuncken’s substantive response was to say that this was a fixed price contract, so that a number of hours or a rate for labour were irrelevant.
The adjudication application
[17] The adjudication application was a compilation of documents totalling about 600 pages. It included a 15 page document described as the Claimant’s Submissions. That document contained, relevantly, the following contentions. First it was said that the construction contract was one upon a ‘costs plus’ basis. As I will discuss, that argument was accepted by the adjudicator. There were alternative contentions, which were that the contract was for a fixed price but that there were substantial variations from the work which was the subject of that contract or that the contract was in the terms of a certain subcontract document (which had been sent to Mr Ericson but which he had declined to sign). Under that last alternative, he again claimed that there had been substantial variations.
[18] It was submitted that the adjudicator should determine “…the value of the works undertaken by the claimant, including the variations”. In the submissions under the heading “Valuation of Works” were these passages:
“8.1.2 The payment claim represents the actual costs to the claimant of the works carried. This includes substantial increases over the course of the contract not only of the costs of both labour and primarily steel faced by the claimant but also that of the increased amount of supply of such including concrete …
8.2 Given the matters raised by the respondent in its Payment Schedule it is important to note that the claimant’s claim is for his actual costs incurred plus a margin in regards to all works provided and is represented in the summary page of such attached to the claim along with that of all its workings. This summary consists of not only of accounts as paid by the claimant – Job Activity ‘Appendix 1b’ but also that of the actual mans hours spent on the project along with estimated costs for such items as Machinery Hire, Processed Bar and costs associated with deliveries along with minor costs allocated for maintenance personnel to ensure the up keep of such equipment… . In regards to valuation of works, the claimant has provided accurate information based upon actual time sheets, invoices and associated paper work available as of 29th May 2009.”
(original emphasis)
[19] The submissions went on to address the reasons given in Hansen Yuncken’s payment schedule for rejecting the claim, by reference, paragraph by paragraph, to that document. This section included the following:
“10.1.b Claim Deficient in Detail The respondent is well aware of the issues involved in this dispute. Information was provided to the respondent in August of 2008 of the claimant’s breakdown of costs including that of the provision of substantial backing material. In April 2009 the respondent was also provided with a 140 page ‘as Built BOQ’ in significant details (sic). If the respondent wished to resolve this matter prior to applying for adjudication and as per the details contained on the claim ‘ if Further information is required on the above please ask ’ a meeting would have been set up and under the implied conditions of the respondent’s contract and dispute resolution procedure would have been followed. The Payment Claim is valid in this case as the parties were in fact aware of the nature of the amounts claimed and how they are calculated … .
10.1.c Markets Rates The rates contained within the Payment Claim are costs actually incurred by the claimant as set out in the Appendix 1b. These rates represent market rates in fact facing the claimant plus the margin claimed.
10.1.d Variations claims The claimant contends that the Subcontract Agreement does not apply. In any event, the claimant in fact claims for the ‘price reasonably paid’ within the meaning of the clause as the claim here is for the actual costs incurred by the claimant plus a margin.
10.1.e Contingency Even if the Subcontract Agreement applies, the claimant is at least entitled to a 7% margin, and even if the other margins are not applicable, the claimant seeks in the alternative a determination of the application of a 7% margin.
10.1.f Margin For the information of the Adjudicator and respondent and the trade contractor usually experiences (and budgets for) figures of 25 to 35% on margin whilst between 8 and 12% for over heads.
Alternatively if the 5% limit applies the claimant repeats and relies upon 10.1.e above.
10.1.g Concrete Costs The respondent is incorrect. … Again it is important to note that the claimant seeks payment based on the actual costs incurred…
10.1.h Steel Costs The respondent is incorrect. The steel rate was in fact $1850 per tonne as per cost summary sheet. Differences between preliminary estimates and actual supply costs were subject to a quite abnormal industry increase in steel experienced in 2008 of approximately 45 to 75% - ‘refer Annexure L’
…
10.1.m Trade labour. H&Y have an effective Site Quality Control system along with that of reporting and recording. The basis of all commercial construction recording is that of a site diary as kept by H&Y Site supervisors, this diary records the daily activities along with that of the number of trade contractors on site and working on site. This information is summarised usually by Site Management and accessible by such. Further, the claimant has confirmed the matters set out in this application in his statutory declaration (Annexure A).” (again, original emphasis).
[20] The application enclosed a statutory declaration, made by Mr Van Diemen, an employee of Mr Ericson, which was towards proving the number of hours worked on this site. He said that to the best of his knowledge, what was enclosed contained “…an accurate summary of all man hours of employees spent on the Cairns Airport Redevelopment and represents a majority summary of ‘Worked Hours’ on the project …”. He said also that “[s]ome time sheets have been damaged or missing, however these items are cross checked against weekly wage sheets with that of employee’s”.
[21] There was also enclosed a one page document containing a table described as “Summary of Labour Rates”. The table contained amounts in three columns, respectively headed “$ Per Hr”, “Tool allow[ance]” and “Sum”. The figures in the first and second columns were added to reach the figure in the third column. Amounts were inserted against various descriptions of worker, such as labourers, carpenters and formworkers as well as a “Site Supervisor” and “Project & Site Manager”. The amount per hour varied from $55 to $120 and the tool allowance varied from zero to $4.50. The total sum varied from $58.50 to $120. There was a note underneath the table as follows:
“*Above rates include – Overtime and Applicable Penalty Rates and Basic site Allow”.
[22] The tables headed “Summary of Cost of Works” and “Summary of Trade Labour Hours Spnt on Site”, as attached to the payment claim, were again included here. But this time there were details of these amounts, within 27 pages of a table headed “Summary of Labour Hours”. This identified the specific employees, the job description of each (such as labourer or foreman), a number of hours for that employee by reference to a particular week and an amount for that employee for that week under the column heading “Cost/Hr”. Those hourly rates were the same as those (inclusive of the tool allowance) which were set out in the table “Summary of Labour Rates”.
[23] Included within the adjudication application was a form of contract. This was the contract document which Hansen Yuncken had proposed for the subject works. Although Mr Ericson had declined to sign that document, he appears to have included it in order to pursue his alternative arguments to which I have referred. Of present relevance were the provisions for valuing and thereby pricing a proposed variation. Clause 40.5.1(e) of that document provided that the value of a variation was to be determined by Hansen Yuncken according to any relevant reference in any bill of quantity or schedule of rates, but that if no unit rate could be reasonably applied, the works would be priced at the rates or prices payable by the subcontractor as reflected in any documents that comprised his tender. It further provided that if none of those means of valuation was applicable, the subcontractor’s “base cost” would be determined, as to labour, by “the wages reasonably paid or payable by the Subcontractor…”. There was provision for the inclusion of a component for “administration, supervision, off-site overheads and profit…” to be added to the base cost according to a rate in Annexure Part A of the document, where the rate of 5 per cent was specified. Therefore, if the terms of this document were at all relevant, Mr Ericson departed from them because he added a component of 5 per cent for overheads as well as a component of 7 per cent for profit.
[24] The adjudication application included a document in the form of a letter from Mr Ericson addressed “to whom it may concern”. Undoubtedly, this was within the application which the adjudicator received because he referred to it in his decision. However, this is the document which Hansen Yuncken says was not within the copy of the application served upon it so that it was thereby denied natural justice by being unable to address the case as put to the adjudicator. I will return to that question. At this point I will simply set out the terms of the letter:
“22nd June 2009
Re: Backing paperwork – Flea concreting claim
Dear Sir / Madam
In regards to the 24 to 30 odd folders of misc dockets such as included but not limited to the below we have not supplied (although can) primarily due to the effect on our environment along with that of the huge paper that would be consumed with three (3) copies required for such. We note that the information provided is a summary of such. We have provided stat decs to confirm the accuracy of such – and if requested we will be happy to provide.
• Concrete deliveries
• Steel schedules
• Accounts and relative invoices
• Labour time sheets and folders
• Machinery dockets
• Site Diaries and records
• Consumables and hardware invoices
It would be more economical and practical to fly you to Cairns to review such, and I take pleasure in offering such
Yours faithfully
Ian Flea Ericson”
The adjudication response
[25] Hansen Yuncken’s response was dated 26 June 2009 and ran to about 170 pages. It began with 20 pages of submissions.
[26] Hansen Yuncken accepted that the adjudication application had arisen from the payment claim. It accepted that there was a construction contract for the purposes of s 3(1) of the Act and that Mr Ericson was a licensed builder and otherwise a competent applicant. But it contended that the true agreement was for a fixed lump sum contract, evidenced by Mr Ericson’s tender form submitted to Hansen Yuncken, the minutes of a meeting which had been signed by Mr Ericson described as the “Pre Award Meeting Minutes”, a letter of acceptance signed by Hansen Yuncken and the form of subcontract which Mr Ericson had enclosed within his application.
[27] Much of its submissions were devoted to the subject of what constituted the contract (if any) between the parties. As I have noted, Mr Ericson had not signed the form of subcontract. Hansen Yuncken argued that nevertheless the parties had agreed to be bound in those terms. In particular, Hansen Yuncken submitted to the adjudicator that the parties had not entered into an agreement to carry out the work on a cost plus basis.
[28] On page 11 of this document, Hansen Yuncken referred to the payment claim. By a series of paragraphs, each of which commenced with the words “The Respondent accepts …”, it made several concessions. Most relevantly here, in paragraph 7.3, it wrote:
“7.3 The Respondent accepts that the payment claim represents the Claimant’s opinion of actual costs incurred for the work claimed.”
[29] Then followed a section headed “Valuation of Works”. That began with a contention that Mr Ericson’s payment claim had not been made according to cl 42 of the form of subcontract. There followed these contentions:
“8.1.1. The Claimant has submitted a payment claim for 25 areas, however the Claimant’s methodology in compiling the payment claim is severely flawed, the Claimant has done a complete re-measure of the works and has reflected a cost plus arrangement within the payment claim. This is not the agreement that exists between the Respondent and the Claimant all evidence shows that the nature of the agreement is a fixed lump sum agreement, therefore the Claimants costs associated with the Claimants re-measure are irrelevant.
8.1.2 The Respondent accepts that the Claimant’s payment claim Tax Invoice No 65 is representative of the Claimants opinion of actual costs incurred. The Claimant’s actual costs are irrelevant, as the contractual agreement between the parties is a lump sum contractual agreement not a cost plus agreement. (refer to annexure N, C & E)
8.1.3 (refer to annexure A.1) The Respondents independent Quantity Surveyors and Cost consultants Davis Langdon undertook an assessment of the Claimants variation number 52 AS01. Davis Langdon in their assessment have outlined rates which are not reflective of the Claimants tender pricing however the result of their assessment actually indicates that the variation is a credit to the Respondent for $5,209.00 as opposed to the Claimants claim for $358,927.24.
8.1.4 …
8.2 The Respondent accepts that the Claimants payment claim Tax Invoice No 65 is in the Claimants opinion actual costs incurred, the Respondent does not accept that the costs incurred are an accurate reflection of the true market value. The Respondent does not accept that the Claimants payment claim for the Claimants alleged actual costs constitutes a valid payment claim due to the nature of the agreement between the Respondent and Claimant being a lump sum agreement. (refer to annexure N, C & E).”
[30] It can be seen that by this point in the document, Hansen Yuncken had stated its acceptance of the fact that the payment claim accorded with Mr Ericson’s opinion of what actual costs he had incurred. That was not an acceptance of the accuracy of the quantification of his claim as a cost plus claim. But in my view, it was unambiguously an acceptance of the honesty of the claim, insofar as what were represented to have been the actual costs to the claimant.
[31] Paragraph 10 was headed “Reasons for Non-Payment by the Respondent”. It began with the statement that these reasons had been provided in the payment schedule. Most importantly, Hansen Yuncken maintained that there was an agreement according to the form of subcontract. Under this heading these further contentions were included:
“10.1.c Market Rates The rates that the Claimant has articulated within payment claim Tax Invoice No 65 are not consistent with the rates that the Claimant included within the Claimant’s submitted and accepted tender. The Claimant submitted a tender price to undertake the subcontract works on a lump sum arrangement, as already stated this is evidence within the Tender Form submitted by the Claimant, the Pre Award Meeting Minutes signed by the Claimant, the Letter of Acceptance sent Claimant and the Subcontract agreement. The Claimant did not at time of tender and signing of the Pre Award negotiate into the agreement between the Claimant and the Respondent an allowance to adjust the Claimants rate to reflect market changes. To suggest that market rate applies and is relevant to each of the Claimants payment claims is a contradiction to the tender submitted by the Claimant and accepted by the Respondent.
…
10.1.g Concrete Costs The Respondent again reiterates the nature of the arrangement between the Respondent and the Claimant is a lump sum agreement not a cost plus arrangement. The Claimants alleged actual costs are irrelevant. …
10.1.h Steel Costs The Respondent again reiterates the nature of the arrangement between the Respondent and the Claimant is a lump sum agreement not a cost plus arrangement. The Claimants alleged actual costs are irrelevant. …
…
10.1.m Trade Labour As outlined in the payment schedule provided to the Claimant on 5th June 2009 the payment claim purports to include the Claimant’s actual costs for trade labour. Off site personnel and site management of some 55,183 hours. The Claimant has not provided any substantiation of the labour rate nor any substantiation that the quantum of labour was actually employed on the project. Furthermore the accounting of actual hours spent on the project does not consider any possible shortfalls contained in the Claimant’s tender submission, nor does it take into account inefficiencies and inadequate management by the Claimant of its labour resources. The works were undertaken under a fixed price contract and presentation of actual hours worked is not relevant or correct in the assessment of variations to changes in construction documents. …”
In those paragraphs, it was made clear that Hansen Yuncken was not admitting that either the number of hours worked or the hourly rates were in fact accurate. That can be reconciled with the repeated acceptance of the honesty of the claim in those respects, upon the basis that Hansen Yuncken was admitting that the quantification of actual costs was honest but not necessarily accurate.
[32] The further contention (contained within cl 12.1) was that Mr Ericson was claiming effectively “…the complete contract value of the agreement when [he] simply has not completed the subcontract works”. Its case was that only about one-half of the works had been completed. Again, this was not a challenge to his honesty, but was part of the broader point that this was a lump sum contract.
[33] In no part of the response did Hansen Yuncken attempt to challenge the quantification of the claim, at least insofar as labour costs were concerned, except as I have mentioned. That challenge went only as far as saying that the number of hours and the labour rates had not been “substantiated”. For example, there was no suggestion that the labour rates seemed to be too high to represent actual costs, because Mr Ericson could not have been paying such high rates to his employees.
The adjudicator’s decision
[34] The adjudicator’s reasons extended to 11 pages, much of which was occupied by the question of what constituted the relevant contract. The adjudicator rejected Hansen Yuncken’s case that there was a lump sum contract. He wrote:
“19] I am satisfied that the respondent and the claimant proceeded without a written contract. It appears that the respondent was anxious to have the claimant commence work and both parties were prepared to proceed without a written contract or agreement on just what work the claimant would carry out for what price. There was an arrangement between the parties which arrangement is a construction contract as defined in the Act. It is easier to decide what were not terms of the arrangement between the parties than to decide what were the terms of the arrangement. I am satisfied that the clauses of the so called Subcontract Agreement relied upon by the respondent in the payment schedule were not part of the arrangement under which the work was carried out. In particular, in the payment schedule the respondent relies upon clauses 40 (Variations) and 44 (Default). I am satisfied that these clauses were not part of the arrangement.”
[35] He then discussed the basis for the claim and the evidence in support of it. He wrote:
“24] In the payment claim the claimant provides details of the work, materials and labour for which payment is sought. Essentially it is a claim for alleged actual costs plus 5% for overheads and 7% ‘margin’. At [7.3] of the adjudication response the respondent says, ‘The Respondent accepts that payment claim Tax Invoice No 65 represents the Claimant’s opinion of the actual costs incurred for the work claimed’. The respondent does not contend that the claimant’s alleged actual costs were not truly actual costs incurred by the claimant. In the payment schedule the respondent does not provide any alternative valuation of the work carried out.…
27] The respondent says that the payment claim is deficient in the detail required to enable an accurate assessment under the terms of the Subcontract Agreement and the Act. It appears to me that the claim includes quite sufficient detail to allow an assessment under the Act. The Subcontract Agreement was not part of the construction contract. The claimant ceased work on 26/9/09. The respondent has had adequate time to make an accurate assessment of the value of the contraction work carried out by the claimant. …
28] The respondent says that the rates used in the payment claim are in excess of market rates and do not reflect the rates used in the compilation of the claimant’s tender. The claimant says that the rates represent the claimant’s actual costs. The claimant says that over the course of the contract there were substantial increases in the costs of labour and steel. I do not consider that rates used in the compilation of the claimant’s tender are relevant. That offer was not accepted. Consequently, the rates used are not binding. The respondent has not provided a valuation based upon alleged market rates or upon the rates used in tile compilation of the tender. …
…
31] The claim for 7% for ‘Margin’ is apparently a claim for profit. In the payment schedule the respondent relied upon the alleged 5% agreed in the alleged Subcontract Agreement but did not address what would be a reasonable profit in the absence of any agreement on profit. In the absence of any submission from the respondent on what would be a reasonable allowance for profit on actual costs, other than the argument that the 5% should apply to overheads and profit, I am satisfied that the 7% margin claimed is reasonable for the purposes of assessing a payment on account.
39] The respondent says that the claimant has not provided any substantiation of the labour rate or the number of hours. That is not strictly correct. For example, included in the adjudication application is a statutory declaration by Mr Nicolaas van Diemen, the claimant’s site manager and leading hand on the project. He says that he has correlated the summaries and checked the figures. The claimant says that there are 24 to 30 folders of dockets that the claimant has not included with the adjudication application ‘primarily due to the effect on our environment’. They included accounts and relevant invoices, labour time sheets, site diaries, etc. The claimant says that it would be more economical and practical to fly me to Cairns to review the documents. I don’t see that it would serve any purpose for me to inspect the documents. The respondent has apparently not bothered to inspect the material. It seems to me that the approach of the claimant in summarising the material is appropriate.
40] The respondent says that the accounting of actual hours does not consider any shortfalls contained in the Claimant’s tender. It does not have to. That tender was not accepted. The respondent says that the accounting of actual hours does not take into account inefficiencies and inadequate management by the claimant of its labour resources. However, the respondent fails to provide anything upon which I could decide the amount, if any, to be deducted for the alleged inefficiencies and inadequate management. What were the alleged inefficiencies and inadequate management? How many hours should be allowed for them? The respondent provides no answers. Instead the respondent submits that the actual hours worked are irrelevant because the works were undertaken under a fixed price contract. As I have said, I am not satisfied that the parties made a fixed price contract for the construction work.
…
50] …[H]aving decided that the alleged Subcontract Agreement is not the construction contract and that the construction work cannot be valued on the basis of a lump sum plus variations, the only evidence I have upon which to value the construction work for the purpose of a progress payment is that provided by the claimant. The claimant claims cost plus. I am satisfied that the costs claimed by the claimant are the claimant’s actual costs and the percentage added for offsite overheads and profit is reasonable. The respondent has not satisfied me that the costs or any of them were not reasonably incurred in the carrying out of the construction work. I am satisfied that the claimant is entitled to the whole amount claimed.”
[36] Several things must be noted about the adjudicator’s reasons. The first is that he interpreted Mr Ericson’s references to “actual costs” to be just that: the costs actually incurred by him. For the fraud case against Mr Ericson, it is what Mr Ericson believed was the effect of his representation which is relevant. But it is relevant that the adjudicator could see no ambiguity in the term “actual costs”.
[37] Secondly, the adjudicator noted the letter of 22 June 2009 and its reference to “24 to 30 odd folders”. Not surprisingly, the adjudicator assumed that Hansen Yuncken had been given a copy of that letter and he commented on its apparent lack of interest in looking at these documents. Similarly, he remarked that “the respondent has had adequate time to make an accurate assessment of the value of the construction work carried out by the claimant” and he noted the absence of any positive case as to what was that value.
The fraud case
[38] Hansen Yuncken was very surprised by the adjudicator’s decision. As I have mentioned, it promptly applied for an order that Mr Ericson be restrained until a trial from taking any step to enforce the decision. It then set about a thorough investigation of Mr Ericson’s documents, from which it built its fraud case.
[39] The fraud case has two parts, each relating to labour costs. The first is that Mr Ericson represented that these were his ‘actual labour costs’, whereas his actual costs were much lower, and he could not have believed the amounts he put forward in his claim were accurate or, at least, a reasonable estimate of his actual costs. Secondly, it is said that he claimed for the costs of some workers who did not work on this job at least on the relevant day or days, and that he must have known that this was the case.
Actual costs
[40] Hansen Yuncken prepared two spreadsheets, comparing Mr Ericson’s true labour costs and the amounts which he claimed. Ultimately, there was no contest as to the accuracy of these comparisons. The first of them results in a total for true costs of $1,838,788.67, as against the sum claimed for those employees which was $3,764,814.25 The second comparison excludes the tool allowance from the amounts claimed, resulting in a total of $3,655,449. against that same amount of estimated true costs of $1,838,788.67.
[41] Hansen Yuncken accepts the accuracy of the number of hours claimed to have been worked by each employee (apart from those employees whom it says were not on this job).
[42] The spreadsheets show the comparison between the amount claimed and the estimated true costs week by week, employee by employee. To take the example of the first line in each spreadsheet, the comparison there made is in relation to Mr Shane Heaven for the week ending 23 October 2007. He was a foreman and worked 43.5 hours. The amount claimed by Mr Ericson was $87 per hour, made up of $85 per hour plus a tool allowance of $2.00 per hour, according to the Summary of Labour Rates to which I have referred above at [21]. Net of the tool allowance, the sum thereby claimed for Mr Heaven for that week was $3,697.50. The hourly rates actually paid to employees have been derived mostly from Mr Ericson’s payroll documents, kept on a MYOB system. Those payroll records are not complete or, it would seem, completely accurate. In some instances within these spreadsheets then, Hansen Yuncken has estimated the likely cost by assuming that the relevant employees did work the number of hours as claimed and by applying an hourly rate for those employees from other weeks for which there are payroll records. Then there are some employees for which no payroll advice at all was disclosed by Mr Ericson, but they were shown on the Summary of Labour Hours as labourers. In those instances, Hansen Yuncken has averaged the amounts paid to labourers and applied the average to these employees. It has had to do the same with some steel fixers and form workers.
[43] I am satisfied that the amounts shown in each of these spreadsheets as “Wages Paid for Week” constitute, for the most part, an accurate statement of what in truth was paid and where it is an approximation, that it is a reasonable one. Overall, the extent to which the true wages paid have had to be approximated in this analysis, rather than being derived exactly from the payroll records, does not detract from the substantial accuracy of these spreadsheets in their comparisons of the costs claimed and what were in truth the actual costs.
[44] To that sum of “wages paid”, Hansen Yuncken has added superannuation (assumed at 9 per cent), payroll tax (at 4.75 per cent) and workers compensation premium (at 5 per cent). So in Mr Heaven’s case for that first week ending 23 October 2007, the estimated true costs per week is an amount of $1,925.40. On the basis of the number of hours for that week as claimed by Mr Ericson (43.5 hrs), it equates to an actual hourly rate of $44.26. The comparison for this employee is representative of the difference between the sum claimed and the true costs, week by week, for each employee. There is a difference of the same order in the respective totals, such that what was claimed as the total “actual cost” was about twice the cost actually incurred according to this analysis.
[45] As I have said, there is no challenge to the substantial accuracy of these spreadsheets. Hansen Yuncken says that Mr Ericson must have known that what he was claiming did not represent even a reasonable estimate of his actual costs. I turn to the various arguments for Mr Ericson.
[46] In order to establish fraudulent misrepresentation, it must be proved that the representor had no honest belief in the truth of the representation in the sense in which he intended it to be understood. In stating that proposition in Krakowski v Eurolynx Properties Ltd , Brennan, Deane, Gaudron and McHugh JJ cited this passage from the decision of the Privy Council in Akerhielm v De Mare :
“The question is not whether the defendant in any given case honestly believed the representation to be true in the sense assigned to it by the court on an objective consideration of its truth or falsity, but whether he honestly believed the representation to be true in the sense in which he understood it albeit erroneously when it was made. This general proposition is no doubt subject to limitations. For instance, the meaning placed by the defendant on the representation made may be so far removed from the sense in which it would be understood by any reasonable person as to make it impossible to hold that the defendant honestly understood the representation to bear the meaning claimed by him and honestly believed it in that sense to be true … (For the general proposition that regard must be had to the sense in which a representation is understood by the person making it, see Derry v Peek ; Angus v Clifford ; Lees v Tod , which authorities must, in their Lordships’ view, be preferred to Arnison v Smith so far as inconsistent with them.)”
[47] Mr Ericson says that he had a different understanding of the term “actual costs”. In his original Defence, Mr Ericson pleaded that:
“17.2 the hourly pay rates at which the first respondent employed his workers were less than the hourly rates applied to labour hours in the Adjudication Application by reason that the latter were estimates of the hourly cost of the relevant workers to the first respondent;
17.3 the Summary of Labour Rates and Summary of Labour Hours were an estimate of the costs that the first respondent actually incurred in engaging employees.”
Those paragraphs were deleted and replaced with the following in the ultimate Defence:
“16.4 the Adjudication Application in fact represented that hourly rates applied to labour hours was an estimate of the hourly cost to the first respondent, known as a ‘charge-out rate’, and not the actual wage rate at which first respondent employed the particular individuals;
16.5 the Adjudication Application did not purport to state the hourly pay rates of employees as alleged
16.6 the applicant knew or ought to have known that the Adjudication Application and the Payment Claim contained hourly rates for employees which represented actual chargeout rates and not amounts calculated as pled at paragraphs 35.1 and 35.2 of the Statement of Claim, and that the expression ‘actual costs’ referred to such charge-out rates, because:
(a) the Adjudication Application at Appendix K contained an extract from Rawlinsons Construction Costs Guide comprising ‘Contract Charge-Out Rate[s]’ which corresponded approximately to the hourly charge-out rates charged by the first respondent;
(b) the applicant’s own ‘back charge’ rates corresponded approximately to the hourly chargeout rates charged by the first respondent;
(c) no reasonable contractor in the position of the applicant could have believed that the hourly rates charged by the first respondent could have represented the actual wages and entitlements paid to the first respondent’s employees, because such rates would be fancifully high.”
Thus Mr Ericson’s case is that he estimated the labour costs by the use of market or “charge-out” rates because they represented the complete cost of employing a worker.
[48] It is convenient to discuss at this point the relevant events and circumstances out of which the payment claim was made. By the middle of 2008, the parties were in dispute as to variations. Mr Ericson claimed that as a result of variations, his costs had been greatly increased. Hansen Yuncken agreed that there had been substantial variations but denied that the costs had been increased. It obtained a quantity surveyor’s report which supported its case.
[49] Mr Ericson sent an email to Hansen Yuncken’s Mr Norton on 4 September 2008, saying that he had spent about $5.5 million on the project having been paid by Hansen Yuncken $3 million. He said that he was then “bankrolling this project to the tune of approx $3mil”. On 10 September 2008, Mr Ericson repeated those claims and said that the circumstances made it impossible for him to continue on the site. He left the site in late September 2008.
[50] At about this time Mr Ericson retained a Mr Darcy Ringland, who was an independent consultant offering the service of assisting in the submission of claims in construction matters. Mr Ringland became heavily involved in the preparation of the subject claim. But he did not give evidence.
[51] On 9 April 2009, Mr Ericson served five payment claims on Hansen Yuncken. They were within tax invoices respectively numbered 51, 54, 55, 56 and 57. The covering letter for invoice 51 was headed “Variation to ALL works up to Sept 2008”. The invoice claimed an amount of $1,733,449.23, which the letter explained was calculated as follows:
“Estimated and Surveyed Cost of Works Completed - As per Schedules – refer to attached $4,722,424.09
• Add Previously Approved Variations as of Sept 08 + $82,971.46
• Less retention held as of Sept 08 - $127,735.78
• Less outstanding defects as of 1st Sept 08 - $47,822.50
• Less Previous certified as of Sept 08 - $2,896,387.41
Total
Gross Cost of Variation No. 51 $1,733,449.23 ex [GST]”
An attached schedule sets out the calculations of this total cost of $4,722,424.09. But those calculations were not by reference to labour costs. Rather they involved the application of certain rates per cubic metre of concrete, certain rates per ton for steel and the costing of other components. Clearly, this total was less than the $5.5 million which Mr Ericson had claimed when he left the site, but was considerably less than the total project cost of $7,530,901.91, according to the subsequent claim which the adjudicator accepted. The other invoices issued at the same time need not be discussed. They were for relatively small amounts ranging from $4,801.50 to $70,254.68.
[52] At about this time, Mr Ericson was engaging a further consultant, which was an organisation called Building and Construction Payment Solutions (‘BCPS’). Upon Mr Ericson’s instructions, Mr Ringland requested Ms Wiles of BCPS to quote for the work of preparing an adjudication application, to which she responded on 2 April 2009. But it appears that these five payment claims were not prepared with the assistance of BCPS.
[53] Mr Ericson made a further payment claim on 20 April 2009, by a tax invoice numbered V57 which was for a particular variation and in an amount of $17,222.83. On the following day, he made yet a further payment claim, by a tax invoice number V58, for another particular variation, in an amount of $4,574.16.
[54] On 23 April 2009, Hansen Yuncken served payment schedules in respect of all seven payment claims. In each case, it said that nothing was payable. In response to tax invoice 51, Hansen Yuncken referred to the report of its quantity surveyor, which was to the effect that there had been no substantive increase in quantities of the magnitude asserted by Mr Ericson. It added that it was “prepared to review and assess any claim for a variation to the scope of the Subcontract however any claim must be presented having regard to documented quantities at time of tender versus the current construction drawings. The claim must also be prepared using equivalent rates to that used in the tender for the Subcontract works. Any claim is to be supported by a fully itemised and rated bill of quantities that totals to the Subcontract sum. Any subsequent determination made by [Hansen Yuncken] of any valid variation claims made by [Mr Ericson] in accordance with the terms of the Subcontract will be taken into consideration with the final reconciliation of the Subcontract works”.
[55] On 27 April 2009, Mr Ringland sent an email to Ms Wiles, referring to Hansen Yuncken’s response. Mr Ringland there wrote:
“The client has assured me his costs are around the $6m with $3m of approved payments to date – I can easily see $1.4 to $1.8m argument arising along with that of the further $1.2m being ‘negotiated’ and used as leverage to secure the $1.4/1.8m.”
That email is shown as having been copied to Mr Ericson. He agreed that he would have read it.
[56] On 29 April 2009, Mr Ringland sent an email to a number of Mr Ericson’s employees, including Mr Ericson’s wife who performed clerical and accounting work in the business. It was copied to Mr Ericson and Ms Wiles. Mr Ringland set out the various tasks for the employees in the preparation of an adjudication application. Part of that work involved the collection of all timesheets and records “of all weekly time spent on the job”. He stressed the urgency of the task because the Act permitted only a number of days from the service of the payment schedules (23 April) for the submission of an application.
[57] On 5 May 2009, Ms Wiles wrote to Mr Ericson, saying that BCPS had reviewed his “file” and that the best course of action was to serve a fresh payment claim for all outstanding moneys. She wrote that this would “…greatly enhance your prospects of convincing an adjudicator that you are entitled to the amount you have claimed…”.
[58] At the same time, Mr Megson, an employee of Mr Ericson, sent an email to Hansen Yuncken as follows:
“I am currently amending our Safety and Personnel files and request that you send us a copy of your records relating to the Site Induction of all our personnel who were involved on the Cairns Domestic Terminal Project during the period of our company’s involvement. (Request name of inductee, date of induction, inductee’s signature etc)”
He sent a follow-up email on 8 May 2009, again saying that the requested information was for workplace health and safety purposes. It is clear enough that the true purpose was to obtain information which was relevant to the preparation of an adjudication application or a new payment claim. Mr Ericson denied that purpose in his evidence. But Mr Van Diemen said that he was aware of the request but that its purpose was to find out “…when we had been inducted so we would establish when we actually started the job. We needed to get a start date”. That evidence supports what is in any case strongly indicated by the timing of this request. Mr Megson was not called, although he was available to give evidence. I infer that his evidence would not have assisted Mr Ericson’s case on this point. Mr Megson’s request was not answered by the time the relevant payment claim was made on 29 May 2009.
[59] On 6 May 2009, Mrs Ericson produced a document described as a “summary of hours”, which she sent to Ms Wiles and which was copied to Mr Ericson. It set out a number of hours for each of the months from October 2007 through September 2008, together with 213.5 hours described as “misc hours”. The total was 47,946.5 hours. The summary then showed additional hours for certain project managers, the project foreman, herself as the office manager and for delivery drivers and a boilermaker. Adding those resulted in a total number of hours of 53,945.7.
[60] On 8 May 2009, a Mr Barrell from BCPS sent a questionnaire to Mr Ericson. He asked that Mrs Ericson provide a breakdown of the “summary of hours” with a copy of all timesheets. On 11 May 2009, Mr Ericson emailed in response:
“Spread sheet finished today, need to put costs to men?
…
By itemising claim & doing this complete breakdown of costs it will end up between $4.5 to $5m.”
[61] On the same day, Mr Ringland emailed Mr Ericson a table showing hourly rates for various categories of workers. They were the same categories, for the most part, as those within the document described as Summary of Labour Rates, which was included in the adjudication application and to which I have referred above at [21]. Mr Ringland wrote that:
“Above figures based on COMMERCIAL project in far north Queensland.”
The table was incomplete. Against each category of worker, there were gaps to be completed under the headings “Buildcorp”, “Plaza”, “Airport” and “Rawlinsons”. The last of those was a reference to the publication “Rawlinsons Construction Costs Guide”. The others appear to have been references to other sites on which Mr Ericson had worked. Again on the same day, Mr Ringland sent an email to BCPS asking for hourly rates from the Rawlinsons Guide.
[62] On 12 May 2009, Mr Ringland emailed Mrs Ericson asking for “that summary”, which was an apparent reference to the incomplete table he had sent to Mr Ericson on the previous day. She responded saying: “don’t have rates answer yet from flea”. At the same time, she attached a schedule of the hours worked by each employee over the project. The total was 51,170.75 hours.
[63] Later on the same day, Mr Ringland emailed Mr Ericson with a draft of the summary of the claim, which showed an hourly rate of $67 against a total number of hours of 51,174. He then wrote to Mr Ericson:
“Rough calcs below – once time sheets rates and so forth get finished – can finalise and release.
What I DON’T understand: is [Ms Miles] is either doing a OVERALL cost claim or Going down the QS route – so WTF do we need all the Job QS’d? (as it will fall short of costs incurred) – don’t know where she is going with that??”
This draft can be seen as the model for the ultimate claim. It followed essentially the same form. It was described as “Cost of Works”. It added 12 per cent for overheads and margin.
[64] On 14 May 2009, BCPS emailed Mr Ringland, attaching a page from the Rawlinsons Guide with the information that the figure should be multiplied by 1.09, that being the regional index for Cairns according to the Guide. This extract was ultimately included in the adjudication application. It did not show amounts precisely according to the categories of workers in Mr Ringland’s draft. But it showed amounts for labourers of various subcategories. The figures were set out under two columns. One was the “Av. Tender (Costing) Rate Incl. Overheads and Profit”. The second column was headed “Av. Contract Charge-Out Rate Incl. Overheads and Profit”. Under the first column, the rates for a labourer varied from $54 to $66.50. Under the second column the variation was from $62 to $77. The Guide had a notation as follows:
“The Contract Charge-Out rate assumes a negotiated rate, this should not be confused with the usually much higher rate charged for noncontract works.”
[65] Although this extract was included in the adjudication application, its connection with the calculation of the claim is far from clear. The categories of workers do not correspond with those in the claim and different rates were provided by Rawlinsons for different categories of labourers, without it being apparent that one in particular of these categories was appropriate to Mr Ericson’s labourers on this job. And importantly, the Rawlinsons figures were inclusive of overheads and profit, whereas a total of 12 per cent was added to the hourly rates in the payment claim.
[66] Late on 13 May 2009, Mr Ringland emailed Mr Ericson, attaching a number of documents “for your review”. One was a table in the form of the Summary of Labour Rates, which was ultimately included in the adjudication application. The rates in the draft were the same as those which appeared ultimately in the application, except that $65 per hour was shown for a carpenter ($70 in the application), $65 per hour and $2.50 per hour for a tool allowance was shown for a formworker (compared with $68 and $4.50 in the application) and $90 was shown for a crane operator (as compared with $80 in the application). In addition, the draft also contained this notation:
“above rates are DIRECT COST.”
[67] On 14 May 2009, Mr Ringland emailed BCPS, with a copy to Mr Ericson. There were attachments in forms similar to those subsequently used in the payment claim. The Summary of Labour Rates was attached, but the amounts had been altered to those which ultimately appeared in the adjudication application. But for that notation referring to the rates being a “direct cost”, the document was identical to that which was within the adjudication application. In the email to BCPS, Mr Ringland said that the labour rates were “direct costs to engage personnel”, and that he believed that the summary of the claim provided “...evidence/support for the total cost incurred by Flea’s Concreting for this project …”.
[68] On the following day, Ms Wiles wrote to Mr Ericson and Mr Ringland. She strongly recommended that he engage an independent quantity surveyor to go through each plan and drawing revision, identify the variations and “evaluate all costs”. Mr Ericson replied immediately, rejecting that advice.
[69] From that point the relationship between Mr Ringland and Mr Ericson on the one hand and BCPS on the other became strained. Mr Ringland was critical that BCPS had not met certain deadlines. Ms Wiles replied with a query as to how the amount of the claim had grown so much in the past two weeks. That was followed by an acrimonious response from Mr Ericson.
[70] On 16 May 2009, Mr Ringland emailed Mr Ericson and Ms Wiles. He complained that the proposed date for a claim had been postponed several times and that there were “indecisions and changing of directions”. As to the suggestion of a quantity surveyor’s report, Mr Ringland wrote:
“As for the QS he/she will never be able to calculate the true cost of the project compared to actual costs, and the simple argument of A Cost Claim vs a QS claim needs to be finalised and planed [sic] accordingly. I also note that there will be around a $2m discrepancy between such. Ie the cost claim is approx $7.5m whilst indicative estimates of plans to date are $4.8 to $5m. ”
On the same day, BCPS withdrew and made no further contribution.
[71] The payment claim was delivered on 29 May 2009. As I have mentioned, it claimed for labour at a “price” of $73.44 per hour. But the Summary of Labour Rates was not included in the payment claim.
[72] At this time Mr Ericson was facing large demands from his creditors. In November 2008, the Deputy Commissioner of Taxation filed a claim in this Court seeking to recover $2,885,882.40 from Mr Ericson. In addition, a company called Cemex Australia Pty Ltd filed a claim on 7 October 2008, seeking to recover from Mr Ericson a sum of $928,033.65 as money said to be owed for unpaid concrete. Mr Ericson agreed that by the end of March 2009 his obligations to the Australian Tax Office and to Cemex Australia were together in an approximate amount of $3,813,000 together with accruing interest. From this evidence, Hansen Yuncken contends that Mr Ericson’s circumstances made it necessary for him to recover more than something which was calculated according to his true costs with an appropriate margin for overheads and profit. That submission has some force. I do not have a complete picture of Mr Ericson’s financial position at the time. But clearly he was under particular pressure from creditors with large claims. And it is significant that those claims, in aggregate, exceeded any amount which he had previously alleged was the difference between his costs and what he had been paid for this job.
[73] In Mr Ericson’s favour, it can be said that the labour rates which he claimed did have some connection with labour charge-out rates. In preparing his draft, Mr Ringland had reference to the Rawlinsons Guide. But that would have provided limited assistance because, as I have explained, there was no close correlation between it and either the form or content of the Summary of Labour Rates as prepared by Mr Ringland.
[74] As the sequence of emails demonstrates, Mr Ericson was closely involved in the quantification of this claim, specifically as to the labour rates. In his evidence, he claimed that he was conservative in providing labour rates to be used for the claim, because he wanted to enhance his prospects of a successful claim, albeit through an adjudication. However, I infer that he instructed Mr Ringland to make the changes to Mr Ringland’s draft Summary of Labour Rates of 13 May, which I have discussed above at [66] to [67]. Four changes were there made, but three of them involved increases to the figures shown in that draft.
[75] It can also be said in his favour that the process of compiling this claim was far from ideal and a priority was put on expedition rather than precision. Of course, a reckless indifference as to the accuracy of what was put forward could constitute fraud, because it would represent the absence of a genuine belief in the truth of that case. On the other hand, the process involved here was also conducive to mere carelessness and some misconception of the nature of the claim. At least in the early stages, Mr Ericson and Mr Ringland were relying upon BCPS for advice in the formulation, as well as the ultimate presentation, of his case. Mr Ringland, and I would infer, Mr Ericson, seemed to be uncertain as to what BCPS had in mind.
Even as late as 12 May 2009, Mr Ringland expressed his lack of understanding as to whether BCPS was proposing an “overall cost claim” or one which would use the opinion of a quantity surveyor.
[76] The email from Mr Ringland of 16 May shows something of that confusion. His suggested comparison of “the true cost of the project” with “actual costs” is difficult to understand. But what Mr Ringland was saying, with the apparent endorsement, if not the direction, of Mr Ericson, was that a quantity surveyor would not provide an accurate picture of the real cost of this work. The point he was trying to make was that it was Mr Ericson, with his experience of this job and his knowledge of his own costs, who would be best equipped to assess the cost.
[77] But it appears Mr Ericson did not go to his own wage records to check what were his costs of employing the relevant workers. Instead, he provided figures which had some similarity to labour charge-out rates. Even then, there was no correlation between the rates in this claim and what Mr Ericson claims were his usual chargeout rates because he said that to some extent he discounted his usual rates by being conservative in the exercise.
[78] In his evidence, he sought to explain the connection between his charge-out rates with his own costs, by reference to a publication of the Building Services Authority. He referred to a page which contained, under a heading which warned builders “Ensure you’re covered!”, a labour costing rate calculation together with some explanation. The text included the following:
“This rate will only recoup the net cost of employing the Carpenter. It makes no allowance for any overhead costs or profit, and only makes minimum allowances for lost productivity. You must allow for overhead costs, profit and any productivity losses (other than the minimum 30 minutes a day) separately in the estimate for the work.
Smaller projects incur proportionally high overhead costs and a higher proportion of non-productive time. Where overheads costs are not separately calculated, you can use a rate of 2 – 2.5 times the hourly labour rate. For example, where overhead costs have not been separately calculated, an hourly charge out rate on a small job could be quoted based on: 2 to 2.5 x $33/hr = $66 to $85 per hour.
At first glance, $66 to $85 per hour might seem excessive. If so, take some time to calculate the reduced productivity, overhead costs and profit that would be applicable to this type of small job. Start with the $33/hr, add in any time lost due to poor productivity associated with the small job (eg travelling) then add on all overhead costs associated with the work and an appropriate amount to cover your office overhead costs. Finally add on a suitable percentage for profit and risk. You may find the $66 to $85 per hour is not so unrealistic after all!”
This publication was a guide to builders in calculating a labour charge-out rate for “smaller projects”. On no view could this job be put in that category. The calculation in this publication showed the components of the cost of employing a carpenter. They were the carpenter’s wage, site allowance (if any), leave loading, travelling allowance and other allowances including, if applicable, a tool allowance. Those components showed the totals paid to the employee. There were further components then added, described as “statutory on costs”, which were payroll tax, compulsory superannuation, workers’ compensation, long service leave and provision for severance pay. The total was then divided by the number of hours over a year to reach a calculated $33 per hour as “total labour cost per hour”. That explains the reference to $33/hr in the text I have extracted. It can be seen that the components of that calculation are substantially those which make up the true actual costs incurred by Mr Ericson, as I have explained above at [44]. The particular point made by this publication was that on smaller jobs, the charge-out rate had to be at least double the actual cost of the employee to allow for overheads and profit.
[79] In the present case, Mr Ericson used labour rates which were equivalent to about double his actual costs. He sought to justify that multiple by this BSA publication. But Mr Ericson added 12 per cent again for overheads and profit. And the publication’s suggestion of a multiple of 2 – 2.5 was for the case of a “smaller project”. I do not accept that he used the BSA publication as he claimed in his evidence.
[80] Mr Ericson’s case did not attempt to establish that there were specific costs within his business, which could be attributed to the employment of his workers, from which there could be calculated the overall costs of labour in amounts even approximating those charged by his payment claim. This non-specific aspect of his case arose upon an interlocutory application, when Hansen Yuncken sought further particulars of what was then paragraph 17 of Mr Ericson’s Defence, which I have set out above at [47]. Hansen Yuncken sought particulars as to the basis upon which he alleged that the hourly rates as claimed had been his estimates of his hourly costs. I declined to order particulars, because I held that Mr Ericson was entitled to advance the case, based merely on his say so, that these had been his genuine estimates of the relevant hourly costs. For the same reason, I did not order particulars of paragraph 20 of the Defence, in which Mr Ericson pleaded at 20.7 that “[h]e knew that the Adjudication Application did not set out actual wage rates for his employees, but he honestly intended to convey and did in fact convey by the Adjudication Application that the rates applied to labour hours [were] his estimate of the hourly cost to [him] of the particular employees”. Consistently with the absence of a particular explanation for the quantification of these rates, his case at the trial did not seek to show any calculation by which he went from what he paid to or for his employees to something equivalent to a discounted charge-out rate.
[81] At one point in his examination in chief he gave this evidence:
“If I can take you back to actual costs. What was your belief or definition of what actual costs were or included?—My understanding of actual costs was – is that it includes the costs associated for me to produce that – the men on that – that job.
Now, how would you describe costs like the hourly rate that you paid and – with the statutory – like superannuation, WorkCover and payroll tax?-- Direct cost.
Now, you’ve explained the general term for actual costs. What, in your interpretation of actual costs, is included in actual costs?—It includes direct costs like we just explained. It then has the other costs that are associated with running a business. In – it’s – you’ve got a lot of contingencies and – like when you discuss like direct cost of WorkCover, it’s not just that cost of the four to four and a half or five per cent, you have also a lot - continuing liability that continues on for years in relation to claims and then potentially pushing up your other WorkCover rates, and also - so that one, and you’ve got all your – there’s different insurances, there’s - sorry, your Honour, I’m trying to - thinking about it too much.
Well, the Gordonvale yard --?-- Yes.
---- did you own that?-- No.
So how were you occupying it? On what basis were you there?—It was a leased yard.
Where was that in your costs?-- That’s part of my costs to my men.
Did you have any other offices?-- We had an office in town that we moved into when we took over this project. When we commenced this project, we had to move into a bigger office.
And did you buy that or was it some other basis that you occupied it?-- No, it was leased.
And where was the cost for that?-- Cost for that was attributed some into the overheads and some into the men.
In producing the steel that went into the job, how was that done?-- That was done out at the Gordonvale yard.
Where did the steel come from, the actual steel bars or----?—Come from Brisbane or Sydney.
And how did it arrive?-- We’d freight it up.
And after it arrived, what was done with it?-- It was then stored in our yard, then processed, then transported to site.
How was it processed?-- It was processed by my own men in our processing facility at Gordonvale.
How many men did you have working there?-- Four, sometimes five in the steel shed.
And how many of them were working on this job?-- Actually on site, none.
No, in the shed?-- Probably 50 per cent of their time was towards this job.”
At this point counsel for Hansen Yuncken objected that the case was being expanded beyond the unparticularised one which had been pleaded. That was as far as the evidence went in Mr Ericson’s attempts to identify other sources of costs which, at least as he would contend, were relevant for the calculation of labour costs. That passage of evidence was of no assistance to Mr Ericson’s case. He identified costs which were either overheads (for which he separately charged in the payment claim) or the costs of other workers, who supposedly were inexplicably omitted from the group upon which he had made his claim for labour costs. If Mr Ericson did advert to these areas of costs within his business, when quantifying the labour rates for this claim, it would be extraordinary that he would be able to properly bring them into account without creating any document in the exercise. No such document was disclosed. Nor was there disclosure of documents which would be relevant to the costs of things mentioned in that passage of evidence, such as the Gordonvale plant.
[82] I have referred to the Summary of Cost of Works within the payment claim, and to the notation on that document which was: “Below are Direct Costs where applicable”. That represented that the labour costs were “direct costs”, which Mr Ericson, in his evidence, said was a description of the types of costs which can be attributed to a particular employee, namely wages, allowances, superannuation, payroll tax and workers’ compensation. His case is that he had to claim on the basis of charge-out rates because he needed to recover also his costs which were not direct costs. Yet he represented there that these were direct costs.
[83] It is of some significance that he did not include within the payment claim the Summary of Labour Rates nor the Summary of Labour Hours, both of which had been prepared by then. This gives the impression that he had decided to save these documents for the adjudication application. Then when he did use the Summary of Labour Rates, the reference to “direct costs” was deleted. The apparent explanation is that by this stage, he had decided to use the expression “actual costs”, one which he had not used in the payment claim but which Hansen Yuncken had used in its payment schedule. In particular, it had there said that “[t]he payment claim purports to include the Claimant’s actual costs for trade labour. Off-site personnel and site management …”.
[84] Although the inspiration for his use of the term “actual costs” may have been that reference by Hansen Yuncken, Mr Ericson could have been under no misunderstanding as to what he was representing by the use of that term. He must have understood that he was referring to costs in fact incurred by him. He must have realised that this was different from claiming, for example, a fair charge for the use of his employees. There are several references within his adjudication application which demonstrate that he meant to have these figures understood by the adjudicator as being what in fact the relevant labour had cost him. For example, in paragraph 8.1.2, he wrote:
“The payment claim represents the actual costs to the claimant of the works carried out. This includes substantial increases over the course of the contract not only of the costs of both labour and primarily steel faced by the claimant …”
This was not a representation that his charge-out rates had substantially increased over the course of the contract. Then in 10.1c, he said that “[t]he rates contained within the Payment Claim are costs actually incurred by the claimant … [t]hese rates represent market rates in fact facing the claimant plus the margin claimed”. The “market rates” to which he referred were those “facing” him, rather than his own charge-out rates. In paragraph 10.1d, he wrote that the claim was for “ the actual costs incurred by the claimant plus a margin”. In each of those passages he emphasised, by italics and bold type, the references to actual costs.
[85] He could not maintain that he innocently misrepresented the actual costs by misconceiving what was involved in that expression. Ultimately, his case seems to recognise that he believed that labour charge-out rates, discounted as he claimed that they were here, were a reasonable estimate of his actual costs in the true sense of that term. I am unable to accept that evidence. I find to the contrary.
[86] There are three principal reasons for that conclusion. The first is that he seemed to understand that ordinarily a charge-out rate included components for profit and overheads. Yet he added profit and overheads to these labour rates. In theory, it is possible that in the apparent urgency of presenting this claim, he overlooked that difference. But that is quite unlikely. He had been operating this large enterprise for some years. He impresses as an intelligent businessman who would have a detailed knowledge of his overheads and profit margins.
[87] Secondly, there is no process of calculation which he can claim to have undertaken in order to relate what he would describe as the direct costs of employing these men to these so-called charge-out rates. Put another way, he provides no evidence of the correlation between what he claimed were his costs overall and his so-called chargeout rates.
[88] Thirdly, his claim was very substantially more than what he had previously asserted were his costs upon this job. In his email to Mr Norton on 27 August 2008, on the subject of “cost”, the amount shown for labour was “55,000 man hours = $2,750,000”, an equivalent of $50 per hour. And as I have discussed, he sent another email to Mr Norton on 4 September 2008, saying that he had spent all up about $5.5 million on the project, a claim which he repeated on 10 September 2008. The claim which was upheld by the adjudicator was upon the premise of a total project cost of more than $7.5 million. It may be observed that had he claimed as his actual costs what were in truth his actual costs, his claim would have been quite close to that estimate of $5.5 million. It is very difficult to accept that when he left the site in September 2008, he could have been so seriously mistaken in underestimating his costs. As appears from the course of the preparation of this claim in April and May 2009, it was only at the eleventh hour that it became a claim of this order.
[89] Hansen Yuncken submitted that I should draw a Jones v Dunkel inference from the fact that Mr Ringland was not called as a witness in Mr Ericson’s case. It is said that it is Mr Ringland with whom Mr Ericson would have discussed his understanding of the terms “actual costs”, “direct costs” and “charge-out rate”, so that he was a witness capable of saying something about Mr Ericson’s understanding of the meaning of those terms. However, if an inference is to be drawn, it would be that the evidence of Mr Ringland would not have assisted Mr Ericson’s case rather than an inference that it would in fact have been damaging to it. Secondly, it is far from clear that Mr Ringland would have been able to give relevant evidence. It may be the case that Mr Ericson said things to Mr Ringland, which Mr Ringland could remember, which were relevant to these issues. It may also be the case that their discussions failed to reveal Mr Ericson’s true state of mind. As I have said, the payment claim was compiled in circumstances of urgency and with a degree of confusion and misconception. I am not prepared to draw an inference that Mr Ringland’s evidence would have been relevant but of no assistance to Mr Ericson’s case. But as it happens, this has not affected my conclusion as to the fraudulent nature of the adjudication application in this respect. Hansen Yuncken has proved that Mr Ericson fraudulently represented that the amounts claimed for on site labour were his actual costs.
The Appendix C Workers
[90] Appendix C is a reference to that part of the Statement of Claim where Hansen Yuncken identifies the workers whom it says did not work at the Airport site, but for whom there is a claim for labour costs. There are 26 workers listed in Appendix C. The amounts claimed for their labour costs (including margins for overhead and profits) was $108,244.88. On the amount which should have been claimed as the “actual costs”, the total amount from these workers would be $54,694.89.
[91] There can be little doubt that none of these 26 men worked on the Airport site. Hansen Yuncken maintained a Site Induction Register, to record the identity of those workers who had completed the induction process, which was required for people working on the site, including Mr Ericson’s workers. None of these 26 names appears in that register. Mr Ericson maintained a daily Site Diary, on which these workers were required to sign in and sign out for every day on the Airport site. It was kept in Mr Ericson’s site office. Again, none of these 26 names appears on any day within that diary.
[92] Each employee completed timesheets. But in respect of these 26 workers, there was nothing written by the employee on the face of his timesheets to indicate on which of Mr Ericson’s jobs he had worked. Mr Moody, an employee of Mr Ericson, wrote “A” on the timesheets for these employees, to designate that they had worked at the Airport site, for the purpose of the compilation of Mr Ericson’s claim. He admitted to having some doubt as to whether these workers had worked at the Airport. But it was by that designation that the relevant timesheets were used by other staff so as to include these workers within the claim.
[93] Therefore, there is no contemporaneous record of any of these men being on the airport job and there are contemporaneous documents which evidence that none of them was there. Hansen Yuncken’s case was then further strengthened by the evidence of three of these 26 men, Mr McCarthy, Mr Ryan and Mr Christensen, each of whom gave evidence that he worked for Mr Ericson on the days in question, but at another of Mr Ericson’s jobs. Each was able to say this upon the basis that he had never worked at the Airport site. I accept their evidence.
[94] Mr Ericson’s foreman at the Airport site was Mr Van Diemen. He was shown the list of names in Appendix C and recognised only four of them. One was Mr Christensen, whom I have just mentioned. Mr Van Diemen was unable to say whether any of these four had worked on the Airport site. It is likely that he recognised the names from other jobs.
[95] Mr Ericson suggested that one of the Appendix C group, a Mr Franklin, worked at the site. He said he recalled that this employee had difficulty getting to work at Mr Ericson’s Gordonvale premises which made Mr Ericson think that he had been sent to the Airport site. He also recalled that another of the list, Mr Black, was sent to the Airport site to do some work. But in neither case did Mr Ericson say that he saw this man on the site. Significantly, there was no employee from this list who was called in Mr Ericson’s case.
[96] Therefore, I find that none of the Appendix C workers worked at all on the subject site. The question then is whether the representation that they each worked there was fraudulently made.
[97] The case in this respect seems to be that Mr Ericson was recklessly indifferent as to the truth of the matter. It is said that he was aware of a doubt as to whether these men had worked on the site, but made the claim for them anyway. I have mentioned that Mr Moody had a doubt of that kind when he was writing “A” on the timesheets. But he said that it was his decision to do so. Hansen Yuncken questions that evidence, given Mr Moody’s statement that, in preparing this claim, he acted under the instruction of Mr Ringland. But that general statement does not detract from his specific evidence that he made these notes on the timesheets of his own volition. Mr Moody also told Mr Ringland that he had this doubt. I accept that evidence and find therefore that Mr Ringland was aware of the doubt.
[98] I have referred to an enquiry made by Mr Megson of Mr Ericson’s office on 5 May 2009, when he sent an email to Mr Norton seeking the site induction records of all of Mr Ericson’s employees at the Airport site. Mr Megson sent a further email and facsimile making effectively the same request on 9 June 2009. Again, I infer that the purpose of this request was to obtain documents which would show whether particular workers were on the site.
[99] Mr Megson’s emails were copied to Mr Ericson. I infer that Mr Ericson was aware of some uncertainty as to who had worked on the site.
[100] But it is not demonstrated that Mr Ericson was aware of a particular uncertainty as to these 26 employees. Further, the proof of some uncertainty is not sufficient to establish a reckless indifference constituting fraud. It must be proved that Mr Ericson made the claim, and in turn the adjudication application, without believing that it was true, insofar as it set out details of who had worked on the site and when they had done so.
[101] Each of the 26 workers was in fact an employee of Mr Ericson. Remarkably, what was claimed was not a large part of the employee’s work history. The highest claim amongst this list was for a Mr Nicholls, for whom was claimed a total of 206 hours over five weeks. In another case, the claim in total for a worker was only 3.5 hours and in another, it was for four hours. The small size of these amounts as components of the overall claim indicates that these were not fraudulent claims. There would be a different impression from a claim that these employees had worked on the airport site for at least many months at a time. Here the claim has included only a small (and sometimes minute) fraction of their time. It was not as if there was a doubt about whether over a substantial period a worker had been on the airport job or instead upon some other site, and a claim was made for all of his hours as being at the airport. Instead the odd time sheet here and there seems to have found itself in the wrong bundle. Mr Ericson did not do all of this work himself. The specific task of allocating timesheets to his various work sites seems to have been done by Mr Moody. As I have said, he claimed to have allocated these timesheets to the airport site of his own volition. As I will discuss in relation to the next question, Mr Moody’s evidence was not entirely reliable. Nevertheless, he did this exercise and it is not particularly suggested that Mr Ericson directed him to allocate these workers as he did. As I have said, the case here is put upon the basis of recklessness.
[102] Ultimately, I am not persuaded that recklessness in the relevant sense is a more probable explanation for these errors than simple carelessness. The compilation of this claim was a substantial and detailed exercise, performed by people with no special training and in circumstances of urgency. It would be remarkable if no innocent error was made. It is not so unlikely that Mr Ericson would have left it to others, particularly Mr Moody, to perform the detailed clerical task by which these items were included.
Denial of natural justice – the missing letter
[103] The letter to which I refer was that included in the adjudication application but which Hansen Yuncken says it did not receive.
[104] The copy of the adjudication application, as served upon Hansen Yuncken, was compiled by Mr Moody at Mr Ericson’s Gordonvale premises. That work took some time. He says that this letter was the last of the documents which he added to the compilation. That is consistent with the fact that the letter was sent by an email from Mr Ringland only late on the morning of 22 June, which was the day the application was lodged and a copy was served upon Hansen Yuncken. Mr Norton acknowledged receipt of the application at 1.45pm on that day. It was delivered by Mr Van Diemen to Mr Norton at the airport, some distance from Gordonvale. Nevertheless, there would have been time for Mr Moody to have included a paper copy of the letter within the documents which were served.
[105] Ms MacGregor then worked for Hansen Yuncken as a contracts administrator. She now works for an unrelated building company. At the time she had some years of experience in building contracts administration. She was also a law graduate. She was given the task of responding to any payment claim that came from Mr Ericson and of preparing the adjudication response.
[106] She recalls being at her desk when the adjudication application was served, and that it was within “an A4 photocopier [paper] box”. The box was put on her desk and she was immediately given instructions by Mr Norton on what to do with the application. She was told to give this task every priority. For the next week she worked on nothing else. At one stage, she took the documents home with her but she says they were kept secure in her home office.
[107] She recalls taking the documents out of the box. They were in bundles of various sizes, all separately bound by bulldog clips. The documents remained with her until they were handed to Mr Reynolds, another Hansen Yuncken employee. Mr Reynolds had been involved with this dispute, but he was on holiday when the adjudication application was served. He returned to the office on the following Monday, 29 June 2009. By that stage, she had prepared a draft response to the application. During that day the application and her draft were with Mr Reynolds in his office. It was only after the adjudication response was delivered that Hansen Yuncken made a photocopy of the application. Ms MacGregor did the photocopying herself.
[108] She said that she could not recall any loose pages, such as a single sheet, in the box which was delivered by Mr Van Diemen. Over that week as she drafted the response, she reviewed the documents a few times, going through all of the bundles. In her evidence in chief, she was taken to several parts of the application, asking whether she could recall seeing them at this time. She recalled seeing some parts of the application, and had no specific recollection of seeing other parts. She was shown the subject letter. Her evidence was that the first time she saw this document was when lawyers for Hansen Yuncken had shown it to her in about January 2010. She was adamant that she did not see the document at the time that she prepared the Adjudication response. She said that had it been with the documents, she would have seen it and she would have “taken it to Ross Norton and sought direction as to what he wanted to do with it”.
[109] Ms MacGregor was an apparently independent and reliable witness. She gave considered responses to all questions and her evidence was not entirely helpful to Hansen Yuncken on all issues. There is nothing about her evidence, including the manner in which it was given, which suggests some reason to doubt its accuracy.
[110] Mr Norton said that he did not see the letter and that the first time he saw any reference to 24 to 30 folders of material was when he read the adjudicator’s reasons. Similarly, Mr Reynolds said that he was unaware of any reference to 24 to 30 folders until a day or two after the adjudicator’s decision was delivered.
[111] At the same time as the hard copy of the adjudication application was served, Hansen Yuncken was served with an electronic copy on a disc. The letter was not included on the disc.
[112] Mr Moody claimed to have an extraordinary recollection of his particular work in compiling documents as the hard copy of the application to be served on Hansen Yuncken. He said that he recalled the precise number of bulldog clips which he used, although he offered no explanation as to how he had that recollection. He purported to have a recollection of the order in which the documents had been arranged by him. He said that this was different from the order of the documents in the compilation which had been shown to him, in the preparation for this trial, as Hansen Yuncken’s copy. He referred to the fact that in that copy, Annexure R was out of place (i.e. it was not behind Annexure Q). However, within the email from Mr Ringland to him which had attached this material, (for the purposes of his compiling the service copy of the application), there was the same misplacement in the order of attachments.
[113] Similarly, he referred to an error in the page order of a document of Davis Langdon. He said that this error was not in the compilation as served by him. That he would have a specific recollection about that matter is difficult to accept. But as it happens, the disc which was served with the hard copy of the application contains the Davis Langdon document, which is a single PDF document, out of order in the same way. All of this made Mr Moody a somewhat unreliable witness, at least on this point. In fairness to him, he was not an office worker. He was a steel fixer. He had to compile a large amount of material which came to him in a largely unassembled form.
[114] On the day in question, Mr Ringland sent many emails to Mr Moody about the documents to be delivered to Hansen Yuncken. Over the previous week, he had Seen sending various parts of the adjudication application to Mr Moody by emails attaching PDF files with instructions as to how they were to be compiled. But as of that morning, Mr Ringland was still preparing parts of the application. Mr Ringland was on the Sunshine Coast and he was proposing to leave late that morning to go to Brisbane to deliver the application to the adjudicator. In an email sent at 8.30 that morning, he told Mr Moody:
“I am still working on application – will be done in say 2 hrs and will be the LAST document sent.
Ensure you have everything by say 10am and that you use check sheets to confirm.”
He sent another email at 8.47am with several attachments. Then at 10.05am, he emailed two further documents for the application, saying:
“Two annexures to be put in annexure files – Last ones.
Plus application.
Put in application files/directories.”
Mr Moody may well have thought that this was the last of the documents to be printed and included in the compilation.
[115] Then there was this further email, with the draft letter set out in the body of the message rather than as an attachment. Above the draft Mr Ringland wrote simply “Please put this as page 16 on the adjudication”. Mr Moody says that when he received this email, he cut and pasted that part which was the draft letter into a new electronic file, from which he printed the hard copy which he included in Hansen Yuncken’s copy of the application. But there is no electronic file which has been tendered to show that Mr Moody did just that. Mr Moody says that he did not save a copy of this electronic file.
[116] In my conclusion, it is more probable that the letter was not included in the box which went to Hansen Yuncken. There is no reason to reject Ms MacGregor’s evidence. There is no realistic possibility that the document was lost from the box before Ms McGregor had begun to study its contents. It is possible, of course, that the document became misplaced in the course of her work and before she had reached it. But against that, it is more than merely possible that Mr Moody neglected to include the letter, either because he did not open the email until after the documents had been packed and given to Mr Van Diemen or because having opened the email, he neglected to do what was necessary to convert part of it into a paper document. He had been told by Mr Ringland in the email at about 10.00am that the attachments to that email were the last documents for inclusion in the application. It is quite likely that he was not looking for any further documents and rather than checking his emails, he was applying himself to the task of compiling the application. And as I have discussed, there are aspects about his purported recollection of this process which make his evidence about it less than entirely persuasive.
The missing letter – consequences
[117] Hansen Yuncken said that it was denied procedural fairness because the missing letter was important for the adjudicator’s decision. Clearly it was relevant in his reasoning although that is not to say that the decision would have been different had the letter not been included.
[118] There was no unfairness merely in putting the letter before the adjudicator. The potential unfairness, if any, was putting the document before the adjudicator without Hansen Yuncken’s knowledge, so that it was deprived of the chance to make whatever would have been its response to the document (if any).
[119] Hansen Yuncken says that its response would have been to demand access to the 24 to 30 odd folders. It says also that it might have submitted to the adjudicator simply that he should not accept the claimant’s quantification of his actual costs unless the adjudicator inspected the 24 to 30 folders, as he could have done under s 25(4) of the Act. As to that possibility, it is clear that the adjudicator would have found that submission quite unpersuasive. In his reasons, the adjudicator said that he saw no reason for him to inspect the documents and he remarked that, in effect, his view about that matter was fortified by the fact that Hansen Yuncken had not bothered to inspect the material. So had Hansen Yuncken told the adjudicator that it should took at the documents although it would not do so, this would have been a point of irritation rather than persuasion.
[120] In truth, the inclusion of the missing letter in Hansen Yuncken’s copy of the application would not have made any difference to its response. I accept Ms MacGregor’s evidence that she would have referred the matter to Mr Norton. But I do not accept Mr Norton’s evidence that Hansen Yuncken would then have taken steps to look at the documents in the course of preparing its response. Because of the very limited time allowed for an adjudication response under the Act, there would not have been sufficient time for any study of such extensive material. According to Ms MacGregor’s evidence, she was occupied full time in preparing the response and it is clear that she had little or no time to spare before it was due to be delivered. Mr Reynolds, who may have assisted had he been there, returned to work only on the day on which it was thought that the response was due. Perhaps an organisation such as Hansen Yuncken could have found other people to undertake this work, but they would have required extensive briefing on the dispute in order to know what to look for in the 24 to 30 folders.
[121] Hansen Yuncken had decided to contest the application by other arguments. It had decided that it had a complete answer to the application which was that the payment claim had not been made according to what it said was its contract. Had its case as to what constituted the contract been upheld, the claim would have failed. For that reason it did not investigate the apparent evidentiary basis for the claim. Most significantly, in its adjudication response, it volunteered that the claim had been quantified by Mr Ericson honestly, according to what he believed had been his actual costs. The inclusion of the letter could not have made it think otherwise because there was nothing in the missing letter which suggested that Mr Ericson’s estimates or calculations of his costs were other than genuine. In these circumstances, there was no real possibility that the inclusion of the letter would have made Hansen Yuncken attempt to go through the documents to check the substantial accuracy of the calculations.
[122] Accordingly, the omission of the missing letter had no practical consequence for the adjudication response. In this case it can be said that a denial of natural justice, by the respondent being deprived of an opportunity to address a piece of the evidence presented to the adjudicator, could not possibly have produced a different result. In these circumstances, it is said that a denial of natural justice still renders a decision void but that, as a matter of discretion, relief might be declined: see, in particular in relation to the New South Wales equivalent of this Act, Fifty Property Investments Pty Ltd v O’Mara . Similarly in this Court, Applegarth J said in John Holland Pty Ltd v TAC Pacific Pty Ltd :
“In addition, the Court’s concern is with the practical effect of the alleged denial of natural justice. Reference to the High Court’s decisions in Stead v State Government Insurance Commission and Ex parte Aala supports the proposition that even if the Court is satisfied that there has been a denial of natural justice, relief may be denied if it can be shown that compliance with the requirements of natural justice could have made no difference to the outcome.”
In Re Refugee Review Tribunal; ex parte Aala , Kirby J said that relief would be withheld only where an affirmative conclusion is reached that compliance with the requirements of procedural fairness could have made no difference to the result, and that such an outcome will be a rarity. In Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd , McDougall J noted that in Brodyn Pty Ltd v Davenport , Hodgson JA had said that an essential condition of a valid adjudication was the absence of a “... substantial denial of the measure of natural justice that the Act requires to be given”. McDougall J referred also to Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam , where Gleeson CJ had said that procedural fairness was not abstract but practical and that “[w]hether one talks in terms of procedural fairness or natural justice, the concern of the law is to avoid practical injustice”. Accordingly, McDougall J said, there must be a “material” denial of natural justice, requiring some analysis of the importance or otherwise of the relevant subject matter and, in particular, its significance to the actual determination.
[123] Accordingly, I would refuse relief to Hansen Yuncken if its case was limited to the missing letter.
Fraud – the consequences
[124] I will first discuss the consequences in fact of this fraud. The immediate and obvious consequence was that the adjudicator was induced to accept that Mr Ericson’s actual labour costs were in the amounts which he had claimed. That appears to have been critical for the outcome. However, the argument for Mr Ericson is that this was inconsequential. The first submission in that respect was based upon Hansen Yuncken’s decision to contest the claim upon essentially one basis, which was that the entire claim was inconsistent with what was said to have been a lump sum contract. It was submitted for Mr Ericson that this involved an implied admission of the facts which were relevant to the quantification of his claim and reference was made to Bezzina Developers Pty Ltd v Deemah Stone (Qld) Pty Ltd . It was said that “accordingly, the judgment was not obtained or tainted by fraud, because it was the inevitable consequence of the rejection of Hansen Yuncken’s Subcontract Document argument”.
[125] The present question is not whether the adjudicator was entitled to reason as he did. Rather, Hansen Yuncken’s case is that he was induced to do so by Mr Ericson’s fraud. Undoubtedly the adjudicator was entitled to accept Mr Ericson’s case. But the question is whether the fraudulent element of that case should disturb the outcome.
[126] There was a related argument for Mr Ericson, which also came from Hansen Yuncken’s confining its response to the contractual issue. It was that the decision of the adjudicator should not be set aside upon the basis of evidence which was discovered after, but discoverable before, the decision. In Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2) , the Full Court of the Federal Court (Spender, Gummow and Lee JJ) appeared to accept that a final judgment could be set aside on this ground only where the truth could not have been found by the time of the trial by the exercise of reasonable diligence. Hansen Yuncken submits that this is not an essential condition for which it cites McDonald v McDonald , and Toubia v Schwenke .
[127] In McDonald v McDonald , there were several references in the judgments to the difference between setting aside a judgment upon the basis of fresh evidence and doing so upon the fraud ground. It was there said that a condition of the existence of the “fresh evidence” ground of appeal is that the evidence was not known notwithstanding the exercise of reasonable diligence prior to the trial. But it was also said that it is not a condition of the power to set aside a judgment which is shown to have been procured by fraud.
[128] Toubia v Schwenke was a decision of the New South Wales Court of Appeal about the application of s 66 of the Motor Accidents Act 1988 (NSW), which provided a statutory remedy to a person who had paid an amount to a claimant (including under a judgment) where the claim was fraudulent. However, Handley JA saw fit to extensively discuss the authorities as to the general law affecting the setting aside of a judgment obtained by fraud. In particular, he discussed whether it was necessary for the innocent party to prove that the truth had not been able to be discovered prior to the trial with reasonable diligence. Handley JA referred to the obiter dicta in Monroe Schneider and in Owens Bank Ltd v Bracco and in Owens Bank Ltd v Etoile Commerciale SA , to the effect there is such a condition. However, Handley JA concluded, the issue was foreclosed by the judgments in McDonald v McDonald . I respectfully agree.
[129] In Wentworth v Rogers (No 5) , Kirby P defined the essential conditions for the exercise of the equitable jurisdiction to set aside a judgment which was obtained by fraud. But he did not say that one of those conditions was the non-discoverability of the truth with the exercise of reasonable diligence prior to the trial.
[130] I accept then the submission for Hansen Yuncken that the equitable jurisdiction does not depend upon this “reasonable diligence”. But the legal issue here is probably irrelevant, because in the circumstances of this case, it is difficult to see that Hansen Yuncken could have discovered the truth by the exercise of reasonable diligence. Unlike the course of civil litigation, where there are procedures by which a party can learn of the other’s case, most notably that of discovery or disclosure of documents, there was no such procedure available to Hansen Yuncken. It had no entitlement to see Mr Ericson’s documents prior to the adjudication application being made. And it is far from apparent that it had any right to see Mr Ericson’s documents after the application was made, albeit with its reference to the 24 to 30 folders of documents. Had the adjudicator looked at the documents, Hansen Yuncken would have been entitled to see them, because of the requirement for procedural fairness. But that did not occur. Perhaps more importantly, within the very short time available under this statutory scheme, there was no opportunity to investigate the claimant’s case as there would be in civil litigation.
[131] Mr Ericson also pleaded that Hansen Yuncken knew or ought to have known that the hourly rates which he advanced in the payment claim and the adjudication application represented charge-out rates rather than amounts paid to or in respect of his employees. That factual allegation is not established. Mr Reynolds’s evidence was that he thought at the time that the rates were high but said that he did not know that they were other than the actual costs. Ms MacGregor also regarded the rates as high but believed that the so-called actual costs were what Mr Ericson had paid out. As she put it, she thought the amounts represented “...what he’s paid out of his pocket for that person to attend site and to undertake the work...”. I accept her evidence in that respect also. It is consistent with the terms of the adjudication response which she drafted. And her evidence and that of Mr Reynolds is consistent with the terms of the payment schedule. In each of these documents, Hansen Yuncken referred to what were claimed as Mr Ericson’s actual costs. With the benefit of hindsight and a very extensive factual enquiry within this litigation, the extent of the disparity between actual costs and charge-out rates (if these labour rates were in any sense derived from charge-out rates) is clear. But in the circumstances in which Hansen Yuncken had to respond so quickly not only to the claim for labour, but to the whole of the claim, the truth would not have been obvious. It is likely that, as Mr Reynolds and Ms MacGregor testified, the labour rates were thought to be high. It is another thing to say that the truth was known to Hansen Yuncken.
Relief
[132] Previously in this proceeding, I dismissed an application to strike out part of Hansen Yuncken’s Statement of Claim which pleaded the fraud case. The argument then made for Mr Ericson was that relief in the nature of certiorari was unavailable to quash a determination of an adjudicator, and that the Court’s jurisdiction was limited to cases where an adjudicator’s determination was void rather than voidable. That argument was largely based upon the decision of the New South Wales Court of Appeal in Brodyn Pty Ltd v Davenport . Reliance was also placed upon judgments in this Court which were to the effect that by s 18 of the Judicial Review Act 1991 (Qld), no relief in the nature of or to the effect of certiorari could be made under Part 5 of that Act (‘the JR Act’). I referred to the apparent impact of Kirk v Industrial Court of New South Wales upon those arguments. But I said that the impact of Kirk need not be decided within that strike-out application because of the equitable jurisdiction to set aside a judgment obtained by fraud. I noted that although a judgment had not yet been obtained upon this adjudication, it was apparently accepted in the argument for Mr Ericson that there would be a like jurisdiction to give relief against the consequences of an adjudication decision obtained by fraud, such as by setting it aside or restraining any step to enforce it. That remained the case in the ultimate argument for Mr Ericson at this trial.
[133] In Brodyn , Hodgson JA was inclined to the view that a decision of an adjudicator which was obtained by fraud, but with no fraud on the part of the adjudicator, was voidable and was “...liable to be set aside by proceedings of the kind appropriate to judgments obtained by fraud”.
[134] The impact of Kirk upon the review of an adjudication under the Act has now been considered by the Court of Appeal in this State in Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd and by the Court of Appeal in New South Wales in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd . To the extent that the JR Act would purport to remove this Court’s power to grant relief for jurisdictional error on the part of an adjudicator, it is invalid as beyond State legislative power. Certiorari may be granted where a relevant decision has been obtained through fraud, including where the fraud is that of a party which is subject to the decision: SZFDE v Minister for Immigration and Citizenship . In Kirk , the joint judgment quoted this passage from Colonial Bank of Australasia v Willan where the Privy Council said:
“It is, however, scarcely necessary to observe that the effect of [such a privative provision] is not absolutely to deprive the Supreme Court of its power to issue a writ of certiorari to bring up the proceedings of the inferior Court, but to control and limit its action on such writ. There are numerous cases in the books which establish that, notwithstanding the privative clause in a statute, the Court of Queen’s Bench will grant a certiorari; but some of those authorities establish, and none are inconsistent with, the proposition that in any such case that Court will not quash the order removed, except upon the ground either of a manifest defect of jurisdiction in the tribunal that made it, or of manifest fraud in the party procuring it.”
So whilst certiorari could be granted for the “manifest fraud in the party procuring [the decision]”, that was a distinct ground from jurisdictional error. The same distinction was made in Kirk , where in the joint judgment, fraud as a ground for certiorari was expressly put aside from consideration. Neither Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd nor Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd involved the fraud ground. Therefore, on the present authorities, the expressed exclusion of judicial review of an adjudicator’s decision, according to s 18 of the JR Act (and its Schedule 1, Part 2), may still be in place so far as the fraud ground is concerned.
[135] Accordingly, I consider that the established jurisdictional basis for the relief which is sought by Hansen Yuncken is the equitable one.
[136] Hansen Yuncken argues that the appropriate relief is simply to set aside the adjudicator’s decision and to restrain Mr Ericson from making another payment claim. For Mr Ericson, it is argued that if I concluded that there should be relief on account of fraud but not for a denial of natural justice, then I should quash or set aside the decision but also require the adjudicator to reconsider the matter. His argument is that it would be unjust for the fraud to affect the entirety of the adjudication, when it was confined to a discrete component of the claim.
[137] Hansen Yuncken submits that there is no power for the matter to be sent back to the adjudicator because he would have no power to reconsider the application. It says that it is not unjust that Mr Ericson should lose the benefit of the adjudication and he should be left to his rights under the general law.
[138] Section 25(3) of the Act provides that except where the parties agree otherwise, an adjudicator must decide an adjudication application within 10 business days from the receipt of the adjudication response. Section 32(1)(b) permits a claimant to make a new application if the adjudicator does not decide the application within the time allowed by s 25(3). In that circumstance, a claimant may withdraw the application and make a new application under s 21. Section 32(3) provides that any new adjudication application may be made at any time within five business days after the claimant becomes entitled to withdraw the previous application. Section 32(1)(a) also permits a new application to be made where a claimant does not receive an adjudicator’s notice of acceptance of an adjudication application within four business days after it is made.
[139] Other than in the circumstances within s 32, the Act makes no provision for an adjudication application to be made outside the time period prescribed by s 21(3)(c). There is a question here as to whether the setting aside of the adjudicator’s decision would have the result that s 32 was engaged upon the basis that the adjudicator would not have decided the application within the time allowed. The arguments here referred to several cases in New South Wales dealing with an apparently equivalent provision, although there is some difference in the language. Section 32(1)(b) of the Act applies where an adjudicator accepts an adjudication application but “...does not decide the application within the time allowed...”. The New South Wales provision applies where the adjudicator accepts an application but “...fails to determine the application within the time allowed …”. The difference in wording seems immaterial.
[140] The first of these judgments is Multiplex Constructions Pty Ltd v Luiens , where an adjudicator’s decision was quashed for jurisdictional error. In obiter dictum , Palmer J said that this circumstance would be within the requirement of (the equivalent of) s 32, entitling the claimant to withdraw its application and make a fresh application within five days of the quashing order. That was referred to with apparent approval by Barrett J in Quasar Constructions NSW Pty Ltd v Demtech Pty Ltd . It was followed by Bergin J (as she then was) in Emergency Services Superannuation Board v Sundercombe and by Nicholas J in John Holland Pty Ltd v Made Contracting Pty Ltd .
[141] In Cardinal Project Services Pty Ltd v Hanave Pty Ltd , there had been a consent declaration to the effect that a prior adjudication decision was “void and of no effect”. McDougall J held that the declaration simply described what had always been the absence of any legal effect in the purported determination of the adjudicator. So whilst there had been a failure to determine the application, that had occurred at the expiry of the time limit fixed for an adjudicator to reach a decision, rather than at the (later) date of the making of the Court’s declaration. Therefore, it was too late for the application to be withdrawn and a fresh application made.
[142] In Spankie v James Trowse Constructions Pty Ltd , these cases (with the exception of Cardinal Project Services which was decided after this case was heard), were said to support the view that the respondent there was entitled to make a new application under s 32 of the Act where the decision upon the previous application was declared to be void for a denial of natural justice. The remarks there were obiter dictum and, as I have mentioned, the conflict in the New South Wales cases as a result Cardinal Project Services was not considered.
[143] Each of these cases was one where the adjudicator’s determination was affected by the adjudicator’s failure to decide the application according to the rules of natural justice or otherwise according to law. In that way, the adjudicator could be regarded as not having decided the application. In the present case, I have held that relief should be refused upon the natural justice ground. The question then is whether the adjudicator here could be said to have not decided the application, because unknown to him, the application was affected by the applicant’s fraud. The fraud provides a basis for setting aside the decision. But it is straining the language of s 32(1)(b) to say that the adjudicator has not decided this application, because there has been no act or omission by the adjudicator by which he has failed to discharge his duty in any respect. I am not persuaded that s 32(1)(b) would be engaged if this decision were set aside.
[144] For Mr Ericson, it was submitted that there was an alternative to a fresh application under s 32, which was that the matter be referred back to the adjudicator with an order, in the nature of mandamus, that he consider the application according to law. That submission is supported by obiter dictum of McDougall J in Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd . Hansen Yuncken does not dispute that, in theory, such an order could be made. But again, the availability of relief in the nature of the prerogative remedies remains at least in doubt, notwithstanding Kirk , where the basis for disturbing the relevant decision is the fraud ground. The position is different from that in New South Wales, because in this jurisdiction (subject to Kirk ) the availability of relief in the nature of mandamus, prohibition or certiorari has been apparently precluded in the present context by s 18 of the JR Act and the inclusion of decisions of adjudicators within Schedule 1, Part 2 of that Act. It is preferable that the matter not be sent back to the adjudicator if the validity of his further determination could be in doubt.
[145] For Mr Ericson it was submitted that, as an alternative to mandamus, equitable relief could be granted upon conditions. It was said that the Court should order, as a condition of setting aside the decision, that Hansen Yuncken pay Mr Ericson “the undisputed portion” of the adjudication sum. Hansen Yuncken correctly takes issue with the term “undisputed portion”. All of the payment claim was disputed, upon the threshold argument that there was a lump sum contract according to written terms, which did not permit any of the claim which was made. The adjudicator decided that issue adversely to Hansen Yuncken. But because of the provisional nature of an adjudication, it remains an issue which can be litigated, and in that way all of Mr Ericson’s claim remains in dispute.
[146] In the present case, the fraud which was alleged and proved relates to a discrete component of the claim and the impact of the fraud upon the amount of the claim has been precisely proved. The consequence of the fraud can be quantified, as therefore can the relief which is necessary to avoid that consequence. This suggests that it would be unjust for Mr Ericson to lose the whole of the benefit of this adjudication. But Hansen Yuncken submits that the decision ought to be set aside in its entirety, because “a finding of fraud undermines confidence in the reliability of the representations made by Mr Ericson in the payment claim and the adjudication application and in turn undermines confidence generally in the decision”. It is said that “the Court cannot make a positive finding that the rest of the claim and the application are not affected by fraud”. It is also argued that Mr Ericson should not have the benefit of the fast track system offered by the Act when he has abused the process by making a fraudulent claim.
[147] I do not accept Hansen Yuncken’s submission that there may be other parts of the claim which were affected by fraud so that Mr Ericson should be left with nothing from the adjudication. In theory, it is possible that some other part of the claim has been unduly inflated. But after the adjudication, Hansen Yuncken conducted an extensive investigation into this claim before prosecuting a fraud case only upon two aspects of the labour costs. It has confined itself to a discrete part of the claim when, as it appears to me from its thorough presentation of its case, it would have pursued any further argument for challenging the quantification of the claim had that been suggested by the evidence which became available to it.
[148] Nor am I persuaded that the subject matter of the fraud is not easily severable from other components. It is said that “the overhead and profit margin applied not just to the fraud components, but to the claim generally”. But the extent of the overcharge can be calculated by adding to what is proved to be the excessive charge for labour, the increments for profit and overheads totalling 12 per cent.
[149] In Johns v Cosgrove , Thomas JA (with whom de Jersey CJ and McMurdo P agreed) held that there was a discretion to refuse to exercise the equitable jurisdiction to set aside a judgment obtained by fraud, but a discretion which would be exercised rarely. In that case, the respondent suffered personal injuries in a motor accident. He successfully sued the appellants, a hotel owner who allegedly supplied liquor to him before he was injured and the driver of the vehicle. He was found guilty of contributory negligence and the trial judge apportioned responsibility amongst the three parties in differing proportions. Subsequently, the judgment was proved to have been obtained by the respondent’s fraud. Each appellant sought to have the judgment against it or him set aside. The respondent argued that only the judgment against the hotel owner should be set aside, because the fraud was directed to that case and not to the case against the driver. But it was held that the false evidence was relevant also to the case against the driver, because the fraudulent evidence of the responsibility for and state of the respondent’s intoxication was relevant also to the assessment of contributory negligence with respect to his claim against the driver, so that the outcome against both defendants could be seen as tainted or affected by the fraud. Thomas JA said:
“[98] The effect of the fraud cannot be extracted with any precision leaving discrete segments of the trial intact. The situation more resembles a cracked windscreen than damage to a discrete unit.”
The argument for Hansen Yuncken cites that passage and says that the present case is similar. That cannot be accepted. In the present case, the consequence of the fraud has been identified and measured. The equitable relief should not extend beyond that which is necessary to avoid that consequence.
[150] As I have said, Hansen Yuncken submits that Mr Ericson should be left to his rights (if any) to payment outside the statutory scheme of the Act. In one way, that might be thought to be reasonable, because an adjudication is provisional as the Act by s 100 preserves the rights of the parties to litigate about the final state of the account. But the intended beneficial purpose of this statutory scheme cannot be overlooked. In R J Neller Building Pty Ltd v Ainsworth , Keane JA said:
“[39] It is evidently the intention of the BCIP Act, and, in particular, s 31 and s 100 … that the process of adjudication established under that Act should provide a speedy and effective means of ensuring cash flow to builders from the parties with whom they contract, where those parties operate in a commercial, as opposed to a domestic, context. This intention reflects an appreciation on the part of the legislature that an assured cash flow is essential to the commercial survival of builders, and that if a payment the subject of an adjudication is withheld pending the final resolution of the builder’s entitlement to the payment, the builder may be ruined.
[40] The BCIP Act proceeds on the assumption that the interruption of a builder’s cash flow may cause the financial failure of the builder before the rights and wrongs of claim and counterclaim between builder and owner can be finally determined by the courts. On that assumption, the BCIP Act seeks to preserve the cash flow to a builder notwithstanding the risk that the builder might ultimately be required to refund the cash in circumstances where the builder’s financial failure, and inability to repay, could be expected to eventuate. Accordingly, the risk that a builder might not be able to refund moneys ultimately found to be due to a nonresidential owner after a successful action by the owner must, I think, be regarded as a risk which, as a matter of policy in the commercial context in which the BCIP Act applies, the legislature has, prima facie at least, assigned to the owner.”
Thus, where most of this claim is unaffected by the fraud, it is no small thing to deprive Mr Ericson of the substantial benefit of the adjudicator’s decision. To say that he can be left to an ultimate determination of all issues by a court is to disregard the policy behind and the intended effect of this statutory scheme. Moreover, the unsuccessful party, Hansen Yuncken, has not sought since the adjudication to litigate the threshold question, and to thereby establish that according to the ultimate merits, nothing is owing to Mr Ericson.
[151] It is true that equity should not look kindly upon a fraudulent claimant. Mr Ericson should be deprived of the benefit of his fraud. But to deprive him of the benefit of the entirety of the adjudicator’s decision would be to penalise him.
[152] The outcome should be one under which Hansen Yuncken pays the amount of the claim less the overcharges for labour costs. In the overcharges, I would include the overcharge for the Appendix C Workers, although I was not persuaded that Mr Ericson was fraudulent in that respect. The overcharge for the Appendix C Workers would not of itself warrant equitable relief. But as equitable relief is to be granted, it should not be on terms whereby the Court would require Hansen Yuncken to pay for a cost which has been demonstrated to have been wrongly claimed.
[153] At paragraph [40], I have referred to the difference between the total of what were truly the actual costs ($1,838,788.67) and the sum claimed and allowed ($3,764,814), the difference being $1,926,025.33. To that should be added the amount for the Appendix C Workers, which as I have said at [89] is $54,694.89. Those amounts total $1,980,720.22. To that sum should be added 12 per cent for overheads and margin, resulting in $2,218,406.65. Then an amount of 10 per cent for GST should be added to that sum, resulting in $2,440,247.31. Subtracting that figure from the adjudicated amount, the balance is $2,363,619.29.
[154] Mr Ericson should also have interest on the amount of $2,363,619.29 calculated according to the adjudicator’s decision. He ruled that the adjudicated amount carries interest at the “penalty rate” according to s 67P(3)(a) of the Queensland Building Services Authority Act 1991 (Qld), accruing from 13 June 2009.
[155] On 23 July 2009, Mr Ericson was restrained from taking any steps to obtain an adjudication certificate or otherwise enforcing the decision until further order of the Court. That order was made on the undertaking by Hansen Yuncken to provide, to the Registrar of the Court, bank guarantees securing the adjudicated amount. On 6 December 2010, I ordered that unless Hansen Yuncken provided to the Registrar a bank guarantee securing interest upon the adjudicated amount, in the sum of $1,392,000, the restraining order made on 23 July 2009 would be set aside. Each guarantee was provided. In total, this security will more than meet the amount to be paid to Mr Ericson, being $2,363,619.29 together with interest. Hansen Yuncken should be given some time to arrange the payment of that sum rather than the bank guarantees being called upon immediately. A reasonable time is, in my view, 21 days.
[156] It will be ordered that upon the applicant paying to the first respondent by 25 November 2011 an amount which is the total of $2,363,619.29 and interest on that sum from 13 June 2009 at the rate according to s 67P of the Queensland Building Services Authority Act 1991 (Qld):
(a) the first respondent will be restrained thereafter permanently from taking any steps to obtain an adjudication certificate or to otherwise enforce the adjudication decision of the second respondent;
(b) the Registrar will unconditionally release to the applicant any bank guarantee provided under the orders of 23 July 2009 or 6 December 2010.
[157] I should make some provision for the contingency that payment is not made by 25 November. It will be further ordered that if payment of that total sum is not made by 25 November 2011:
(a) the order within paragraph 1 of the orders made on 23 July 2009 will be set aside;
(b) the first respondent will be restrained from recovering more than an amount which is the total of $2,363,619.29 together with interest on that sum from 13 June 2009 until the date of recovery at that rate of interest, by recourse to one or more of the said bank guarantees or otherwise;
(c) upon the recovery of that total, the first respondent will thereafter be restrained from taking any further steps to enforce the adjudication decision of the second respondent and such of the bank guarantees which then remain in place will be unconditionally released to the Registrar and any moneys paid under any bank guarantee which are surplus to the funds recovered by the first respondent in accordance with these orders will be paid to the applicant.
[158] My intention by these orders is to allow Hansen Yuncken 21 days to make the required payment (rather than the bank guarantees being called upon immediately), so that if payment is then made, the bank guarantees could be returned and there would be no adjudication certificate or consequential judgment in favour of Mr Ericson. If payment is not made within 21 days, Mr Ericson would be able to obtain an adjudication certificate, necessarily for the entire adjudicated amount, and lodge that with the Court resulting in a judgment for that amount. But having done that, he would be able to recover no more than the reduced sum. I have not taken what might be seen as the simpler course of making an order purporting to reduce the adjudicated amount. In my view, there is some doubt as to the Court’s power to affect the operation of the Act in that way, because according to the Act an adjudicated amount is one which can be fixed only within an adjudication.
[159] There will be liberty to apply. I will hear the parties as to other orders, including costs.