Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd & Anor [2009] NSWCA 157 (23 June 2009)
Last Updated: 24 June 2009
NEW SOUTH WALES COURT OF APPEAL
Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd & Anor [2009] NSWCA 157
FILE NUMBER(S):
40289/08
HEARING DATE(S):
18 May 2009
JUDGMENT DATE:
23 June 2009
Perform (NSW) Pty Ltd – Appellant
MEV-AUS Pty Ltd - First Respondent
David Francis - Second Respondent
JUDGMENT OF:
Giles JA McColl JA Young JA
LOWER COURT JURISDICTION:
Supreme Court, Equity Division, Technology and Construction List
LOWER COURT FILE NUMBER(S):
SC 55040/08
LOWER COURT JUDICIAL OFFICER:
Einstein J
LOWER COURT DATE OF DECISION:
19 August 2008
LOWER COURT MEDIUM NEUTRAL CITATION:
Perform (NSW) Pty Ltd v Mev-Aus Pty Ltd (trading as Novatec Construction Systems & Anor) & Anor [2008] NSWSC 858
COUNSEL:
N A Nicholls – Appellant
A J Greinke - First Respondent
Submitting appearance filed
SOLICITORS:
Wilkinson Building and Construction Lawyers, Randwick – Appellant
Doyles Construction Lawyers - First Respondent
Colin Biggers & Paisley - Second Respondent
CATCHWORDS:
BUILDING AND CONSTRUCTION - adjudication under Building and Construction Industry Security of Payment Act 1999 - payment schedule could "indicate" reasons for nil valuation by referring to previous payment schedule - in any event adjudicator's view that it could not did not make adjudication void - what is indicated in a payment schedule is for adjudicator to determine - did not fail to comply with basic and essential requirements of valid adjudication - reliance on backcharge claims as set-off - adjudicator requested further submissions - submissions included that could not rely - open to adjudicator to pay regard to submission - no denial of natural justice - no substance in complaint that adjudicator failed bona fide to exercise his powers - COSTS - adequacy of trial judge's reasons - discretion re-exercised - cross-claim did not have to be decided - but was either unnecessary or raised separate issues - no order for its costs.
LEGISLATION CITED:
CATEGORY:
Principal judgment
CASES CITED:
Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2006] NSWCA 238 ; (2006) 67 NSWLR 9 ;
Brodyn Pty Ltd v Davenport [2004] NSWCA 394 ; (2004) 61 NSWLR 421 ;
Clarence Street Pty Ltd v Isis Projects Pty Ltd [2005] NSWCA 391 ; (2005) 64 NSWLR 448 ;
Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229 ;
Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd [2005] NSWCA 228 ; (2005) 63 NSWLR 385 ;
Downer Construction (Australia) Pty Ltd v Energy Australia [2007] NSWCA 49 ; (2007) 69 NSWLR 72 ;
Halkat Electrical Contractors Pty Ltd v Holmwood Holdings Pty Ltd [2007] NSWCA 32 ;
Hawkins Construction (Australia) Pty Ltd v Mac's
Industrial Pipework Pty Ltd [2002] NSWCA 136 ;
Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129 ;
John Goss Projects Pty Ltd v Leighton Contractors (2000) NSWSC 798 ; (2006) 66 NSWLR 707 ;
John Holland Pty Ltd v Roads and Traffic Authority of New South Wales [2007] NSWCA 19 ;
Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd [2005] NSWCA 142 ;
Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Quin [1997] HCA 6 ; (1996) 186 CLR 622 ;
Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 ;
Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439 ;
Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (in liq) [2005] NSWCA 409 ; (2005) 64 NSWLR 462 ;
Pacific General Securities Ltd v Soliman and Sons Pty Ltd [2006] NSWSC 13 ; (2006) 196 FLR 388 ;
Plaza West Pty Ltd v Simons Earthworks (NSW) Pty Ltd [2008] NSWCA 279 ;
Roadshow Entertainment Pty Ltd v ACNO53 006 269 Pty Ltd (Receiver and Manager appointed) (1997) 42 NSWLR 462 ;
SBBS v Minister for Immigration and Multicultural and Indigenous Affairs [2002] FCAFC 261 ; (2002) 194 ALR 749 ;
Timbarra Protection Coalition Inc v Ross Mining NL [1999] NSWCA 8 ; (1999) 46 NSWLR 55 ;
Transgrid v Siemens Ltd [2004] NSWCA 394 ; (2004) 61 NSWLR 521 ;
TEXTS CITED:
DECISION:
(1) Appeal allowed in part; (2) Set aside the order that the plaintiff pay the first defendant's costs of the proceedings including the costs of the cross-claim, to be assessed on the ordinary basis; (3) In lieu thereof, order that the plaintiff pay the first defendant's costs of the summons, to be assessed on the ordinary basis, and make no order as to the costs of the cross-claim to the intent that each party should bear its own costs; (4) Appeal otherwise dismissed; (5) Appellant pay 95 per cent of the costs of the first respondent and the costs of the second respondent.
JUDGMENT:
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40289/08
SC 55040/08
GILES JA
McCOLL JA
YOUNG JA
Tuesday 23 June 2009
PERFORM (NSW) PTY LTD v MEV-AUS PTY LTD & ANOR
Judgment
1 GILES JA : The first respondent hired out proprietary formwork systems for use in construction work. The appellant was a formwork sub-contractor. The appellant entered into three agreements with the first respondent for the hiring of formwork systems for work on a car park at Sydney Airport and a substation in Sussex Street. This appeal is concerned with the validity of a determination pursuant to the Building and Construction Industry Security of Payment Act 1999 (“the Act”) that the appellant pay to the first respondent money claimed under the agreements.
2 On 10 March 2008 the first respondent served on the appellant a payment claim under the Act for a total of $308,601.86. The money was claimed under the three agreements. It was not in dispute that the agreements were construction contracts within the meaning of the Act or, at least on appeal, that the one payment claim claiming under the three agreements was a valid payment claim.
3 On 26 March 2008 the appellant provided a payment schedule indicating that it proposed to pay $nil (“the March payment schedule”). It gave reasons why this was less than the claimed amount, including reliance on a payment schedule provided in reply to an earlier payment claim (“the February payment schedule”).
4 On 9 April 2008 the first respondent applied for adjudication of the payment claim. The application was accompanied by submissions in support of the payment claim.
5 The second respondent was appointed as adjudicator. His communications with the parties were through a case manager at LEADR, a well-known dispute resolution organisation.
6 On 16 April 2008 the appellant lodged an adjudication response containing submissions in opposition to the payment claim.
7 On 23 April 2008, and again on 29 April 2008, the second respondent requested further materials and submissions. The parties responded to the requests.
8 The second respondent then issued his determination, initially on 30 April 2008 and after amendment in a manner presently of no consequence on 19 May 2008. He determined that $308,601.86 plus interest should be paid by the appellant to the first respondent.
9 By a summons filed on 22 May 2008 the appellant claimed a declaration that the determination was void. The statement of its contentions gave as the grounds that the second respondent –
(a) had failed to comply with the basic and essential requirements for making a valid determination;
(b) had denied the appellant natural justice; and
(c) had failed to make a bona fide attempt to exercise his powers under the Act for making a determination.
10 On 27 May 2008 it was ordered that the appellant paid $322,038.36 into court, the greater amount no doubt reflecting interest. It did so.
11 On 30 June 2008 the first respondent filed a cross-summons, claiming payment to it of the money paid into court if the appellant’s claim in the summons failed and other relief if the appellant’s claim succeeded.
12 The proceedings were heard by Einstein J on 18 and 19 August 2008. His Honour gave an ex tempore judgment on 19 August 2008 ( Perform (NSW) Pty Ltd v Mev-Aus Pty Ltd [2008] NSWSC 858). He ordered that the summons be dismissed and the money paid into court be paid to the first respondent, and gave directions for written submissions with respect to costs.
13 Written submissions were provided. On 4 September 2008 his Honour relevantly ordered that the appellant pay the first respondent’s costs including the costs of the cross-claim.
14 The second respondent had been joined as second defendant, and had filed a submitting appearance save as to costs. He filed a submitting appearance save as to costs on appeal. I will hereafter refer to the first respondent as the respondent and to the second respondent as the adjudicator.
Facts
15 Central to the appellant’s claim that the determination was void was its reliance in the March payment schedule on the February payment schedule, and how that was dealt with in the adjudication.
16 The respondent served a payment claim on 8 February 2008, giving it invoice no. WD071201. It claimed $209,968.68 under one of the three agreements, an agreement relating to construction of floor slabs for the Sydney Airport car park.
17 On 22 February 2008 the appellant provided the February payment schedule, with a scheduled amount of $nil. Apart from a contention that the payment claim was not a valid payment claim, it was said in the February payment schedule that the claim was valued at $nil because the respondent had provided an incorrect and inferior formwork system and had provided the formwork system late and in insufficient quantity, causing the appellant to incur additional expense of $900,082.26 in performing the works and rectifying defects in the works. A number of documents were attached, including six letters dated 21 or 22 February 2008 from the appellant to the respondent referenced BC1 to BC6 in which the appellant asserted “backcharges” to the respondent of various amounts totalling $827,582.26. A “reconciliation” was set out by which it was said that the respondent owed the appellant $473,971.39.
18 The respondent did not apply for adjudication of this payment claim.
19 The respondent then served the payment claim of 10 March 2008. It claimed the same $209,968.68 and other amounts, under the three agreements. The payment claim included -
“We have noted the assertion in your Payment Schedule dated 22nd February that our previous Payment Claim was invalid and advise that the issue of this Payment Claim dated 7th March in no way implies acceptance of your assertion.
We reject your assertion that Novatec [the respondent’s trading name] has failed to fulfil its commitments under the contract and we are responding separately to each of the counter claims attached to your Payment Schedule.
We reject each of these counter claims.
We note that your Payment Schedule in no way substantiates your assertion that Novatec has failed to fulfil its commitments under the contract.”
20 Then came provision of the appellant’s March payment schedule, in which the appellant contended that the payment claim was invalid but went on to give a number of reasons for the scheduled amount of $nil against the letters A to K. The reasons took up the February payment schedule, as follows.
21 First, under the heading “F. The Sydney Airport Car Park Contract (005)” (being the agreement in relation to construction of floor slabs for the Sydney Airport car park) it was said –
“19 In relation to the Airport Car Park Contract [the appellant] refers to and repeats the reasons contained in its payment schedule served on the claimant on 22 February 2008 referred to at attachment 4 below.”
22 Attachment 4 was –
“ Attachment 4
This and the following 1 pages is a copy of the Respondents reasons contained in its payment schedule served on the claimant on 22 February 2008 in reference to the Sydney Airport Cark Park Contract (005) as described in para F.19 of the Statutory Payment Schedule of Perform (NSW) Pty Limited dated 26 March 2008.
[and on the next page]
THE SYDNEY AIRPORT CARK PARK CONTRACT
The Respondent also relies on the reasons for withholding payment as set out in its Statutory Payment Schedule, made pursuant to Section 14 of the Building and Construction Industry Security of Payment Act 1999 (NSW) dated 22 February 2008 in respect of this contract.”
23 Secondly, under the heading “H Detailed Reasons in Response to the Payment Claims” it was said that the appellant “ attaches at attachment 6 below its further detailed reasons for valuing the claimants payment claim at nil or $0”, and attachment 6 included –
“Additionally the respondent has incurred significant back charges in relation to the claimant providing the incorrect formwork system which was incompatible with the respondents existing formwork system, which the respondent had previously purchased from the respondent and was in part the basis for which the respondent accepted the claimant’s further quote to provide the Mev-Aus formwork system and the actual and estimated costs of rectifying defects.
The claimant refers to and repeats the contents of its previous payment schedule in this regard, a copy of which is incorporated by reference.
...
The Respondent has overpaid the Claimant for the full value of goods and services supplied by the full value of goods and services supplied by the claimant to the respondent and the claimant is liable to the respondent for back charges, defects failure to supply the originally contracted formwork systems.
Further the Respondent relies on all reasons as set out in attachments 3, 4 and 5 to this Payment Schedule and its Payment Schedule date 22 February 2008.”
24 Thirdly, the last of the lettered reasons was –
“ K. Previous payment Schedule
40. The respondent incorporates its payment schedule dated 22 February 2008 herein.”
25 A copy of the February payment schedule was not, however, attached to the March payment schedule, and did not accompany it.
26 The March payment schedule did repeat under the F heading the substance of the relevant contention in the February payment schedule, to a considerable extent using language found in that payment schedule. The particularly relevant paragraphs should be set out –
“24. Further and in the alternative and with out any admission that the payment claim has any validity what so ever the claimant was required to provide a Meva-Dec formwork system, as specified in its tax invoices. The claimant has provided an entirely different formwork system which has resulted in the respondent incurring significant costs for:
a. Defect rectification works, as a result of a poor quality of finish resulting from the inferior formwork system provided by the claimant.
b. The costs for the supply of additional labour and resources to enable the works to be completed, in accordance with the respondents contract program of works with the principals, which the claimant was aware of; and
c. The supply of additional formwork to enable the works to be completed attributable to the failure of the claimant to provide the quantities of formwork it was required to provide.
25. In addition the claimant failed to provide the correct scaffold system and provided an alternative system the claimant was not able to supply a sufficient amount of scaffolding for the project as required by its contract with the respondent.
26. As a result of the claimant providing an alternative and inferior scaffolding system, providing the scaffold late, not providing enough scaffold, and the combination of different scaffold systems which has been used on the project and inferior finish which has required significant defect rectification works to be performed, which has resulted in the respondent incurring additional costs in the amount of $878,893.86.
27. Additionally as the claimant has never provided the products or quantity of formwork it was required to provide, the value of the works it claims it has completed and now claims for something which has not been provided. Any claim under this should contract should be valued at nil or minus $597,810.18, which is the amount the claimant has been overpaid and is now due and owing to the respondent.”
27 The adjudication application of 9 April 2008 identified by date the payment claim and the payment schedule, and said that both were attached (although it appears that that was not, or not wholly, correct). The accompanying submissions were little more than a history of requests for payment, but did include, “The first back claim arrived on 22/2/2008 which was responded to by our Branch Manager that none of their claims was applicable”.
28 The appellant’s adjudication response lodged on 16 April 2008 recited the earlier payment claim, the backcharge letters BC1 to BC6, and the February payment schedule. It attached copies of all these documents, and included –
“20 The respondent lodges this adjudication response which contains the respondent’s submissions as to why the claimant’s payment claim should be valued at nil or $0 as set out in the respondent’s payment schedule dated 26 March 2008 and attached below at tab 1 and its submissions in response attached at tab 3 to this adjudication application below and its payment schedule dated 22 February 2008 attached below at tab 4 below which reasons and responses are incorporated by reference with the respondent’s payment schedule dated 26 March 2008 attached below at tab 1 . The respondent also refers to and repeats the contents of its payment schedule dated 26 March 2008 and payment schedule dated 22 February 2008, and all documents referred to and contained within that document as part of this adjudication response.”
29 By a fax dated 23 April 2008 to both parties the case manager on behalf of the adjudicator requested pursuant to s 21(4) of the Act –
“1. An adjudicator is required by section 22(1)(c) of the Act to consider the payment claim. It appears from all the materials provided that neither party has provided a complete payment claim of 10 March 2008 in the sense that not all of the invoices have been provided. By 4pm today 23 April 2008 the claimant is to provide by FAX OR HARD COPY ONLY to the ANA as agent for the adjudicator a complete copy of the payment claim of 10 March 2008 together with copies of all of the invoices referred to.
2. As the respondent has incorporated by reference its payment schedule of 22 February 2008, by 4pm today 23 April 2008 the claimant is to provide by FAX OR HARD COPY ONLY to the ANA as agent for the adjudicator a copies of:
a. The ‘separate responses to each of the counterclaims attached to (the) Payment Schedule’ referred to on page 2 of the covering letter to the payment claim; and
b. If different to the document in 2(a) above, the response to the back claim by the Branch Manager referred to in the penultimate paragraph on the first page of the adjudication submission.
3. Each party is to provide submissions as to whether the adjudicator may have regard to the material provided in response to the above s21(4) requests, and if so, which material. [A timetable for submissions was then stated.]“
30 Later on 23 April 2008 the respondent provided to the adjudicator a complete copy of the payment claim. The accompanying fax included –
“No reason for non payment had been given prior to receipt of the Performs ’ [sic] payment schedule 22nd February 2008 despite the fact that we followed up these invoices in the first few days of every month requesting advice as to when the accounts would be paid.”
31 On 24 April 2008 the respondent provided to the adjudicator “the responses referenced attached our Payment Claim dated 10th March 2008”, being letters dated 6 March 2008. It said in the accompanying fax, however, that they “were not sent previously on legal advice”.
32 The appellant made submissions objecting to the adjudicator having regard to any of the additional information. It is not necessary to relate the objections, save that they included that (as followed from what the respondent had said) the responses to the backcharge letters had not previously been received.
33 By a fax dated 29 April 2008 to both parties the case manager on behalf of the adjudicator further requested –
“1. In its comments on the claimant’s adjudication submissions the respondent denies receipt of certain letters to it from the claimant each dated 6 March 2008. The claimant is to provide submissions including if available, copies of any documents submitted as establishing service on the respondent of those letters, as to whether the adjudicator may have regard to the letters to the respondent from the claimant each dated 6 March 2008. Any submissions which the claimant wishes to be taken into account on the issue should be faxed to both LEADR (for the adjudicator) and the respondent before 2.00 pm on Tuesday 29 April 2008 accompanied by a facsimile transmission record evidencing transmission to that other party.
2. Any comments which the respondent wishes to make on those submissions should be faxed to both LEADR (for the adjudicator) and the claimant before 5.00 pm on Tuesday 29 April 2008 accompanied by a facsimile transmission record evidencing transmission to the claimant,
3. If the short timeframe causes either party any difficulty they should approach the other and negotiate about an extension of time. If agreed, they should send a facsimile transmission to LEADR (for the adjudicator) a jointly signed letter which extends the time under section 21(3) of the Act for the adjudicator to complete the adjudication by the same number of days as the aggregate of the extension of time they have agreed between them for making submissions and comments.”
34 The request is curious, as the respondent had made clear that the responses to the backcharge letters had not previously been sent. However, it produced submissions from the respondent, and then from the appellant.
35 The respondent sent a fax to the adjudicator at 2.12 pm on 29 April 2008. It confirmed that the responses “were not issued to the [the appellant] on advice from Novatec’s Adelaide Head Office”, and went on to make submissions about the validity of the backcharges. The submissions included questioning whether the appellant could withhold payment without informing the respondent of the problems with the formwork systems, as to which it was said that the respondent “had not received any indication prior to the receipt of the respondent’s payment schedule dated 22nd of February 2008 that the respondent was withholding payment due to impending back charges on any of the three hire contracts”, and -
“Novatec’s position regarding the claims is clearly indicated in the responses of 21st April from our Adelaide offices.
That is that the contracts existing between the respondent and Novatec were hire contracts in accordance with Novatec’s terms and conditions. Under these terms and conditions there are no provisions for the respondent to withhold payment in the manner that they have done.
As a result we submit that the respondent’s six (6) claims which the responses dated 16th March [sic: 6 March] were prepared should not be considered in the adjudication.
Further it was our advice that the respondent’s claims in question while referenced had not been included in their payment schedule dated 26th March and as a result should not be included in the adjudication.
Alternatively should the adjudicator elect to consider the respondents claims then we would submit that the adjudicator should assess these claims in the light of all the information since provided by Novatec.” [emphasis added)
36 By a fax sent at 4.59 pm on 29 April 2008 the appellant made submissions which, as well as contending that the respondent’s submissions should be ignored because made after 2.00 pm and repeating that the responses should not be taken into consideration, otherwise replied to the respondent’s fax earlier that day. The appellant’s fax included, referring to the paragraphs which I have emphasised above -
“ Six Back charge claims (second and third last paragraphs on the last page of the letter dated 29 April 2008)
The respondent refers to the back charges in its payment schedule dated 22 February 2008 (which is incorporated by reference in the respondent’s payment schedule dated 26 March 2008).
Further in its payment schedule dated 26 March 2008 (see paragraph 16 of page 0021 of the respondent’s adjudication response, see paragraph 19 of page 0021 of the respondent’s adjudication, see paragraph 26 of page 0022, see paragraph 30 of page 0030 of the respondent’s adjudication response, see paragraph 16 of page 0021 of the respondent’s adjudication response and see paragraph 40 of page 0024) the respondent sets out the back charges and documents which it relies upon in its current payment schedule. Further these are set out in pages 0035 to pages 0065 of this adjudication response.
We also wish it noted that any documents not submitted in the claimant’s payment claim or their adjudication application, which the claimant had more than ample time to prepare, also not be considered by the adjudicator.”
Failure to comply with basic and essential requirements
37 Section 14 of the Act, concerned with provision of a payment schedule replying to a claim, states in subs (3) -
“(3) If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent’s reasons for withholding payment.”
38 Section 22(2) of the Act provides -
“(2) In determining an adjudication application, the adjudicator is to consider the following matters only:
(a) the provisions of this Act,
(b) the provisions of the construction contract from which the application arose,
(c) the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim,
(d) the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule,
(e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates.”
39 Also relevant is s 20(2B), which provides in relation to an adjudication response -
“(2B) The respondent cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant.”
40 In the determination the adjudicator said, under the heading “The Sydney Airport Car Park Contract” -
“51. The respondent says that it ‘ ... refers to and repeats the reasons contain [sic] in its payment schedule served on the claimant on 22 February 2008 referred to at attachment 4 below ”. Attachment 4 simply says that the respondent “ ... also relies on the reasons for withholding payment as set out in its Statutory Payment Schedule ... dated 22 February 2008 in respect of this contract ”. The 22 February 2008 payment schedule does not form part of the 26 March 2008 payment schedule.”
41 The adjudicator later said –
“ 22 February 2008 Payment Schedule
102. In paragraph 40 of its payment schedule (page 24 of the adjudication response) under the heading “Previous Payment Schedule” the respondent states: ‘The respondent incorporates its payment schedule dated 22 February 2008 herein.’ As I have noted at paragraph 51 of these reasons, the 22 February 2008 payment schedule does not form part of the 26 March 2008 payment schedule. It comprises some 126 pages and the 26 March 2008 payment schedule comprises 49 pages, Pages 66 and 67 of the adjudication response indicate the faxing of 51 and 52 pages, respectively, only. The evidence in the respondent’s materials (pp 287-289) is equivocal whether the complete 22 February 2008 payment schedule was served on the claimant or part only.
103. In my view the scheme of section 14 of the Act does not allow the incorporation by reference of material extrinsic to the payment schedule. Section 14(3) requires a respondent to indicate in its payment schedule the reasons for withholding payment. Section 14(1) requires that the payment schedule be provided by the respondent to the claimant. In most cases such provision requires actual physical receipt and although there may be limited cases where a notional receipt might be acceptable that does not arise in this situation as the evidence is that there was no attempt to fax it to the claimant. As the reasons for non-payment set out in the 22 February 2008 payment schedule were not in the 10 March 2008 [sic: 26 March 2008] payment schedule section 20(2B) of the Act prevents the respondent from including them in its adjudication response. Accordingly, I can give no consideration to the 22 February 2008 payment schedule.
104. For the sake of completeness I should now deal with paragraphs 7-11 and 13 on pages 5 and 6 of the respondent’s adjudication response submissions. Each of those paragraphs refers to a letter dated 21 February 2008 (other than paragraph 13 in which the letter was dated 22 February 2008) in which the respondent sent a letter to the claimant making a backcharge claim of varying amounts. Each of those paragraphs go on to assert ‘ ... which letter of the same date forms part of the respondent’s Payment Schedule and to which the Claimant has not responded’. None of those letters were included in the payment schedule of 22 February 2008 [sic: 26 March 2008]. For the reasons I have already explained they will not be considered.
105. In the light of this determination it will not be necessary for me to deal with the issues raised by the supply by the claimant of its letters of 6 March 2008 in response to the respondent’s 21 February 2008 backcharge letters. The 6 March letters were provided in response to my s 21(4) request.”
42 The reference at [102] to service of the complete February payment schedule is obscure. It was not submitted that the adjudicator declined to consider the February payment schedule only because it may not have been served in complete form. I take the reference at [104] to the payment schedule of 22 February 2008 to have been a slip; the adjudicator must have meant the March payment schedule.
43 The trial judge considered that it was “strongly arguable” that the adjudicator was correct in his view that the scheme of the Act did not allow the incorporation by reference of materials extrinsic to the payment schedule, and that his construction of the Act and his decision to exclude the materials were “likely correct”: at [33]-[43]. His Honour held that, even if the adjudicator was in error, the determination was not thereby a nullity because it was for the adjudicator to decide whether the March payment schedule’s indication of reasons extended to what was in the February payment schedule, and because in any event compliance with s 22(2)(d) of the Act in that respect was not a precondition to the validity of the determination: at [44]-[53]. His Honour considered also that, even if exclusion of regard to the February payment schedule was an “invalidating error”, it had no effect on the determination because the reasons were repeated in paras 20-27 of the March payment schedule and were considered and rejected by the adjudicator: at [56]-[61].
44 The appellant submitted that the determination was void because the adjudicator had failed to perform the task required of him under ss 14(3) and 22(2)(d) of the Act, in that he had incorrectly excluded regard to the February payment schedule as part of the reasons for the $nil valuation in the March payment schedule. Was he incorrect, and if so was the determination thereby void?
(i) Was the adjudicator incorrect?
45 As will appear, in my opinion the determination would not be void even if the adjudicator was incorrect. However, lest the trial judge’s obiter observations gain currency I should explain why I respectfully do not agree with them.
46 The discussion by Palmer J which was material to the meaning of the “indicate” in s 14(3) of the Act in Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 has been adopted in this Court in Clarence Street Pty Ltd v Isis Projects Pty Ltd [2005] NSWCA 391 ; (2005) 64 NSWLR 448 , see at [27]-[31] per Mason P, with whom I and Santow JA agreed). Palmer J said -
“76 A payment claim and a payment schedule are, in many cases, given and received by parties who are experienced in the building industry and are familiar with the particular building contract, the history of construction of the project and the broad issues which have produced the dispute as to the claimant’s payment claim. A payment claim and a payment schedule must be produced quickly; much that is contained therein in an abbreviated form which would be meaningless to the uninformed reader will be understood readily by the parties themselves. A payment claim and a payment schedule should not, therefore, be required to be as precise and as particularised as a pleading in the Supreme Court. Nevertheless, precision and particularity must be required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute.
77 A respondent to a payment claim cannot always content itself with cryptic or vague statements in its payment schedule as to its reasons for withholding payment on the assumption that the claimant will know what issue is sought to be raised. Sometimes the issue is so straightforward or has been so expansively agitated in prior correspondence that the briefest reference in the payment schedule will suffice to identify it clearly. More often than not, however, parties to a building dispute see the issues only from their own viewpoint: they may not be equally in possession of all of the facts and they may not equally appreciate the significance of what facts are known to them. This will be so especially where, for instance, the contract is for the construction of a dwelling house and the parties are the owner and a small builder. In such cases, the parties are liable to misunderstand the issues between them unless those issues emerge with sufficient clarity from the payment schedule read in conjunction with the payment claim.
78 Section 14(3) of the Act, in requiring a respondent to “indicate” its reasons for withholding payment, does not require that a payment schedule give full particulars of those reasons. The use of the word “indicate” rather than “state”, “specify” or “set out”, conveys an impression that some want of precision and particularity is permissible as long as the essence of “the reason” for withholding payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication.”
47 Clarence Street Pty Ltd v Isis Projects Pty Ltd was concerned with s 13(2) of the Act and whether a payment claim “identified” the relevant construction work. Section 13(2) also requires that the payment claim “indicate” the amount of the progress payment claimed to be due. The President noted at [29], as to similar effect as the discussion by Palmer J, the remarks of Davies AJA (Handley and Stein JJA agreeing), in Hawkins Construction (Australia) Pty Ltd v Mac’s Industrial Pipework Pty Ltd [2002] NSWCA 136 at [20] , that s 13 should not be approached in an unduly technical manner and -
“The terms used by subs (2) of s 13 are well understood words of the English language. They should be given their normal and natural meaning. As the words are used in relation to events occurring in the construction industry, they should be applied in a common sense practical manner.”
48 So in Multiplex Constructions Pty Ltd v Luikens brief reference to prior correspondence could suffice, and in Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229 at [42] Basten JA said of “identify” in s 13(2) that, on a purposive construction, a payment claim must be accompanied by such supporting documentation as makes it reasonably comprehensible to the other party “unless it has already been provided”.
49 The same approach should be taken to s 14(3). “Indicate” is an ordinary word, to be applied in a common sense practical manner and often where the provider and the recipient of the payment schedule will have debated a claim to payment in prior correspondence. In Multiplex Constructions Pty Ltd v Luikens Palmer J’s discussion was directed to the precision and particularity of the indication, rather than to indication by reference to another document, but it necessarily involved that reference to prior correspondence can indicate the provider’s reasons. While it should not be forgotten that the payment claim should be intelligible to the adjudicator as well as the recipient, a sufficient indication between the parties can be explained before the adjudicator by supply of the correspondence. As Mason P said in Clarence Street Pty Ltd v Isis Projects Pty Ltd at [30], the joinder of issue achieved through the payment claim and the payment schedule “sets the parameters for the matters that may be contested if an adjudication under the Act ensues (cf s 20(2A) and s 20(2B))”; but it sets it as between the parties, and primary regard should be had to the parties’ communications.
50 In my opinion, indication within s 14(3) does not exclude what the adjudicator described as incorporation by reference of material extrinsic to the payment schedule. The adjudicator appears to have thought that provision involving physical receipt meant that regard could not be had to anything not physically received with the payment schedule. That can not be so. As a simple illustration, a payment schedule will commonly refer to provisions of the construction contract; it would make no sense that the construction contract, or the relevant provisions, had to be set out in full or attached although known to the parties and the basis for their relationship. It would equally be neither common sense nor a practical application of s 14(3) to deny indication by reference to correspondence in which reasons have been fully set out simply because a copy of the correspondence is not physically attached to or provided with the payment schedule.
51 The respondent submitted to the effect that the meaning of “indicate” was informed by s 20(2B) in its reference to reasons which have been “included in the payment schedule provided to the claimant”. It said that the Act contemplated a single document within which the reasons were included, and that uncertainty in what was included through incorporation by reference was contrary to the “fast track” process for which the Act provided. I do not see textual enlightenment in the reference to inclusion of reasons – they are included because indicated. Questions of certainty come within whether what is done is indication.
52 It will be a question of fact whether, in the particular circumstances, reference to material extrinsic to the payment schedule is an indication of reasons. Reference to a memorandum internal to the provider of the payment schedule could not indicate reasons for the purposes of s 14(3); reference to a conversation, without giving its substance, is unlikely to do so; reference to a long-past letter not readily to hand might not do so; but there is no reason why reference to a recent and specific letter received by the recipient of the payment schedule should not do so. The recipient is thereby informed, and can decide whether or not to pursue the claim and understand the case it will have to meet in an adjudication, and being informed in that way is well within the meaning of “indicate”.
53 In Pacific General Securities Ltd v Soliman and Sons Pty Ltd [2006] NSWSC 13 ; (2006) 196 FLR 388 at [71] Brereton J was “inclined to accept, without deciding, that a payment schedule may ‘sufficiently indicate’ reasons for withholding payment by reference to reasons previously advanced in an earlier payment schedule, if appropriately worded ... ”. His Honour’s inclination was correct, as was his observation that it was not sufficient to incorporate reasons advanced in previous payment schedules, adjudication responses or otherwise so that the claimant could not know whether all or any and if so which of the grounds previously advanced were now relied on. In the present case, in my opinion the March payment schedule indicated as reasons for the $nil being less than the claimed amount and for withholding payment the reasons in the February payment schedule, in substance, the claimed backcharges, at the least as in relation to the $209,968.68 if not as to the entirety of the claimed amount.
(ii) Was the determination thereby void?
54 The appellant put its submissions in two ways.
55 First, the appellant submitted that the determination was void because the adjudicator had asked himself, at [104], whether s 14 allowed incorporation by reference of material extrinsic to the payment schedule, instead of asking (in the words of s 14(3)), what the payment schedule indicated. It referred to Halkat Electrical Contractors Pty Ltd v Holmwood Holdings Pty Ltd [2007] NSWCA 32 , in which it was said at [26]-[27] that an adjudicator who had arrived at an adjudicated amount by a process wholly unrelated to a consideration of the matters in s 22(2) had not performed the task required by the Act and had not complied with an essential precondition to the existence of a valid determination. It submitted that the adjudicator had similarly not performed the task required by the Act.
56 This was an extraordinary submission. In Halkat Electrical Contractors Pty Ltd v Holmwood Holdings Pty Ltd the adjudicator did not value the completed work on evidence. He said expressly he did not have evidence on which he could arrive at the value. Rather, he valued the completed work by adopting one party’s valuation in preference to that of the other because the other party had made unmeritorious challenges to the validity of the payment claim. In the present case there was nothing like the failure to act in accordance with the Act found in Halkat Electrical Contractors Pty Ltd v Holmwood Holdings Pty Ltd. The adjudicator recognised in terms that s 14(3) required indication of reasons. In his understanding, the scheme of s 14 meant that this could not be done by incorporation by reference. Although I consider his understanding to be incorrect, he was applying the Act, and a view of the Act with which the trial judge was prepared to agree.
57 Adjudicators must come to their determinations under strict time limits, often having to grapple with detailed and confusingly presented materials without great assistance from the parties’ submissions. Being human, they can make errors, although often what is called error is only because of preference for a different view. Wholesale departure from an adjudication according to the Act, as in Halkat Electrical Contractors Pty Ltd v Holmwood Holdings Pty Ltd , is quite different from error, and should not lightly be charged against an adjudicator. I do not accept the appellant’s submission, and it so lacked substance that it should not have been made.
58 Secondly, the appellant submitted that the determination was void because , having taken the view he took of s14(3) and so declined to take into consideration the February payment schedule and the backcharge letters, the adjudicator failed to consider the March payment schedule as required by s 22(2)(d) of the Act. It was said that whether the March payment schedule indicated, as reasons for $nil being less than the claimed amount and for withholding payment, the reasons in the February payment schedule was an objective matter, open to review by a court, and that if objectively it did so indicate the adjudicator failed to make a determination compliant with the obligations imposed on him under s 22(2) of the Act. It was said also that whether objectively there was the indication was a “jurisdictional fact” of the kind discussed in Timbarra Protection Coalition Inc v Ross Mining NL [1999] NSWCA 8 ; (1999) 46 NSWLR 55.
59 The foundation for the submission, as it was put, was that s 22(2)(d) of the Act imposed a statutory obligation to consider any payment schedule, and so to consider what (objectively) was indicated in it. Section 22(2) states that the adjudicator “is to consider the following matters only”, and operates to exclude matters from consideration rather than to state matters for consideration. It may nonetheless be accepted that, either by implication from s 22(2) or as a necessary part of the adjudicatory function, an adjudicator must consider a payment schedule, and the respondent did not submit to the contrary.
60 The submission is contrary to the current jurisprudence.
61 Brodyn Pty Ltd v Davenport [2004] NSWCA 394 ; (2004) 61 NSWLR 421 disapproved the test of whether an adjudicator’s error is jurisdictional or non-jurisdictional. The question is “whether a requirement being considered was intended by the legislature to be an essential pre-condition for the existence of an adjudicator’s determination” (at [54]).
62 Hodgson JA, with whom Mason P and I agreed, identified certain “basic and essential requirements” for the existence of an adjudicator’s determination, and said -
“55 In my opinion, the reasons given above for excluding judicial review on the basis of non-jurisdictional error of law justify the conclusion that the legislature did not intend that exact compliance with all the more detailed requirements was essential to the existence of a determination: cf. Project Blue Sky Inc. v. Australian Broadcasting Authority (1998) 194 CLR 355 at 390-91. What was intended to be essential was compliance with the basic requirements (and those set out above may not be exhaustive), a bona fide attempt by the adjudicator to exercise the relevant power relating to the subject matter of the legislation and reasonably capable of reference to this power (cf. R v. Hickman; Ex Parte Fox and Clinton [1945] HCA 53 ; (1945) 70 CLR 598) , and no substantial denial of the measure of natural justice that the Act requires to be given. If the basic requirements are not complied with, or if a purported determination is not such a bona fide attempt, or if there is a substantial denial of this measure of natural justice, then in my opinion a purported determination will be void and not merely voidable, because there will then not, in my opinion, be satisfaction of requirements that the legislature has indicated as essential to the existence of a determination. If a question is raised before an adjudicator as to whether more detailed requirements have been exactly complied with, a failure to address that question could indicate that there was not a bona fide attempt to exercise the power; but if the question is addressed, then the determination will not be made void simply because of an erroneous decision that they were complied with or as to the consequences of non-compliance.
56 It was said in the passage in Anisminic quoted by McDougall J that a decision may be a nullity if a tribunal has refused to take into account something it was required to take into account, or based its decision on something it had no right to take into account. However, in Craig v. South Australia [1995] HCA 58 ; (1995) 184 CLR 163 at 177 the High Court said that this would involve jurisdictional error if compliance with the requirement in question was made a pre-condition of the existence of any authority to make the decision. I do not think that compliance with the requirements of s.22(2) are made such pre-conditions, for the same reasons as I considered the determination not to be subject to challenge for mere error of law on the face of the record. The matters in s.22(2), especially in pars.(b), (c) and (d), could involve extremely doubtful questions of fact or law: for example, whether a particular provision, say an alleged variation, is or is not a provision of the construction contract; or whether a submission is “duly made” by a claimant, if not contained in the adjudication application (s.17(3)(b)), or by a respondent, if there is a dispute as to the time when a relevant document was received (ss.20(1), 22(2)). In my opinion, it is sufficient to avoid invalidity if an adjudicator either does consider only the matters referred to in s.22(2), or bona fide addresses the requirements of s.22(2) as to what is to be considered. To that extent, I disagree with the views expressed by Palmer J in Multiplex Constructions Pty. Limited v. Luikens [2003] NSWSC 1140. ”
63 This approach has been adopted in many subsequent cases, although as noted in Downer Construction (Australia) Pty Ltd v Energy Australia [2007] NSWCA 49 ; (2007) 69 NSWLR 72 at [95] it has not gone unquestioned. It has been applied in holding that matters akin to whether a payment schedule indicates reasons are for the adjudicator to decide, and that incorrect decision is not failure in a basic and essential requirement for a determination.
64 Whether a payment claim identifies the construction work or related goods and services to which the payment relates, as required by s 13(2) of the Act, is generally a matter for the adjudicator to determine: Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd at [26] per Hodgson JA, [43]-[46], [51] per Basten JA. Section 13(2) requires also that a payment claim indicate the claimed amount, and more generally in Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (in liq) [2005] NSWCA 409 ; (2005) 64 NSWLR 462 at [76] Ipp JA said that the merits of a claim including whether the claim complies with s 13(2) “is a matter for adjudication under s 17”. In Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2006] NSWCA 238 ; (2006) 67 NSWLR 9 Basten JA said at [71], referring to this observation -
“But the merit (or lack of merit) of a claim is, as Ipp JA expressly accepted, a matter for determination by the adjudicator. Similarly, his Honour accepted that the express elements of a valid claim set out in s 13(2) are matters for the adjudicator. As suggested in Coordinated Construction Co v Climatech (Canberra) Pty Ltd (at 380 [43]–[46]), (a passage cited without disagreement by Hodgson JA in Nepean Engineering (at 473 [32]–[34])), determination of the existence of essential preconditions to a valid claim are matters for the adjudicator, not for objective determination by a court.”
65 In John Holland Pty Ltd v Roads & Traffic Authority of New South Wales (2007) NSWCA 19 whether a submission had been “duly made” (s 22(2) of the Act) was said to be a matter for the adjudicator, whose error in that respect would not invalidate his determination. It was not a matter for objective determination by the Court: see at [57] per Hodgson JA, with whom Beazley JA agreed, and at [71]-[72] per Basten JA referring to what he had said in Co-ordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd.
66 In Downer Construction (Australia) Pty Ltd v Energy Australia I held, referring to these cases and with the agreement of Santow and Tobias JJA, that determination of the scope and nature of the payment claim was similarly a matter for the adjudicator. The reasons at [80]-[98] included -
“81 ... An adjudicator’s determination may be incorrect, but it can still be a valid determination. Many cases have recognized that a determination under the Act is of an interim nature, often made in “pressure cooker” circumstances; that the purpose of the Act is to enable speedy resolution of claims to progress payments without excessive formality or intervention by the courts; and that the scope for invalidity for non-jurisdictional error is limited: for example: Brodyn Pty Ltd v Davenport at [51]; Co-ordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd at [45]; Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (in liq) [2005] NSWCA 409 ; (2005) 64 NSWLR 462 at [44] .”
67 In my opinion, what a payment schedule indicates as the reasons for the scheduled account being less than the claimed amount and for withholding payment is also a matter for the adjudicator, and if the adjudicator makes an error in that respect it does not invalidate the determination. Added reference to s 22(2)(d) does not take this further, see Brodyn Pty Ltd v Davenport at [56] holding that it is sufficient that the adjudicator bona fide address the requirements of s 22(2) as to what is to be considered. By s 22(2) the legislature has committed to the adjudicator consideration of the payment claim, any payment schedule, and all submissions duly made. There is no reason to regard a correct view of what a payment schedule indicates as more basic and essential to a valid determination than an adjudicator’s view of what a payment claim identifies or indicates, or whether a submission has been duly made.
68 The appellant referred to the “factors” stated in the reasons of Basten JA in Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd –
“45 In the present case, three factors militate in favour of treating elements identified in s 13(2) as properly dependent upon the satisfaction or opinion of the adjudicator. First, what is or may be a sufficient identification of matters for the purposes of a claim falls within the special experience which a qualified adjudicator is intended to bring to the task and is one which may well require evaluative judgment. Secondly, the requirement relates to a procedural step in the claim process, rather than some external criterion. Thirdly, the overall purpose of the Act, as reflected in its objects and procedures, is to provide a speedy and effective means of ensuring that progress payments are made during the course of the administration of a construction contract, without undue formality or resort to the law.”
69 It sought to distinguish s 14(3) by submitting that what is indicated in a payment schedule does not require an adjudicator’s special expertise, and that provision of a payment schedule, albeit a procedural step, is a significant step because it operates to define the issues upon which the provider of the payment schedule can rely (s 20(2B)). What a payment schedule indicates may involve an adjudicator’s expertise, and his Honour’s point about a procedural step was one of contrast with an “external criterion”: as I understand it, meaning a separately stated criterion for a valid determination. There is no separately stated criterion relevant to s 14(3). I do not think the suggested distinction is sound.
70 In Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd Basten JA expressed a possible qualification -
“47 It does not follow that the formation of a relevant opinion by an adjudicator with respect to compliance with s 13(2) will in all circumstances be beyond review. The principle stated by Latham CJ in R v Connell; Ex parte Hetton Bellbird Collieries Ltd [1944] HCA 42 ; (1994) 69 CLR 407 at 432, as applied by Gummow J in Minister for Immigration and Multicultural Affairs v Eshetu [1999] HCA 21 ; (1999) 197 CLR 611 at [133] , was to the following effect:
‘If the opinion which was in fact formed was reached by taking into account irrelevant considerations or by otherwise misconstruing the terms of the relevant legislation, then it must be held that the opinion required has not been formed. In that event the basis for the exercise of power is absent, just as if it were shown that the opinion was arbitrary, capricious, irrational or not bona fide.’
Thus, as noted in Brodyn , an essential element in the formulation of such an opinion is that is must be undertaken in good faith, but that is not a sufficient condition of validity.”
71 The appellant did not invoke the possible qualification in relation to “misconstruing the terms of the relevant legislation”. It could be said that the adjudicator’s error was misconstruction of s 14(3), in that he considered that s 14(3) did not permit indication by incorporation by reference. However, I do not think that an argument that such a misconstruction vitiated the determination is consistent with the cases. Underlying the invalidity of a determination only for want of “an essential precondition for the existence of an adjudicator’s determination” ( Brodyn Pty Ltd v Davenport at [54]) is that a determination may be valid although the adjudicator has made an error of fact or law, and it has been accepted that this includes error in the construction of the Act.
72 So in Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd [2005] NSWCA 142 , Hodgson JA said, Bryson JA and Brownie AJA relevantly agreeing –
“ [49] In my opinion, an error of fact or law, including an error in interpretation of the Act or of the contract, or as to what are the valid and operative terms of the contract, does not prevent a determination from being an adjudicator’s determination within the meaning of the Act. Section 22(2) does require the adjudicator to consider the provisions of the Act and the provisions of the contract; but so long as the adjudicator does this, or at least bona fide addresses the requirements of s 22(2) as to what is to be considered, an error on these matters does not render the determination invalid.”
73 This was said as to the effect of s 34 of the Act, with reference to his Honour’s reasons in Transgrid v Siemens Ltd [2004] NSWCA 394 ; (2004) 61 NSWLR 521 at [33] - [34] . In Transgrid v Siemens Ltd his Honour said, with the agreement of Mason P, that error in the construction of s 9(a) of the Act and of the contract “would be a mere error of law, and not such as to render the determination invalid”. Subsequently in Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd [2005] NSWCA 228 ; (2005) 63 NSWLR 385 at [46] his Honour said that, if a determination is valid because the basic and essential requirements of the Act are complied with “an error of law by the adjudicator, even in interpreting the Act itself, would not make the determination unlawful ...”.
74 In Plaza West Pty Ltd v Simons Earthworks (NSW) Pty Ltd [2008] NSWCA 279 it was noted at [27-[28] that there was no challenge to authorities in this Court “to the effect that an error of fact or law by the adjudicator was not sufficient to vitiate an adjudication”, and at [32] that in that case “there may have been legal error but that did not mean that the adjudicator did not fulfil his statutory task in s 22”: per Allsop P, with whom I and Hodgson JA agreed.
75 There is not a clear line between the construction and the application of a statutory or contractual provision, or between the construction of a statutory provision and the construction of a contractual provision, and all have been committed by the legislature to the adjudicator. Construction of the Act necessarily arises in the course of an adjudication, and in accordance with Brodyn Pty Ltd v Davenport and subsequent cases incorrect construction does not necessarily invalidate a determination. It could do so if the construction negated an essential precondition as spoken of in Brodyn Pty Ltd v Davenport , but the construction of s 14(3) as part of deciding what a payment schedule indicates is not of that nature.
76 In my opinion, the correct construction and application of s 14(3) were not essential preconditions for a valid determination. Accordingly, although I consider the adjudicator to have been incorrect in the respect considered earlier in these reasons, the determination was not thereby void.
(iii) Any effect on the determination?
77 I have set out paras 24 to 27 of the March payment schedules. The adjudicator described at [43] to [71] a host of reasons given by the appellant for valuing the payment claim at $nil. These paragraphs included his view at [51] that the February payment schedule did not form part of the March payment schedule. But they also included many references to the appellant’s assertion that the respondent was liable to it for backcharges for failure to supply the proper formwork systems. The adjudicator set out at [56] the bulk of para 24 of the March payment schedule, and at [57] stated in narrative form the substance of paras 25 to 27.
78 The adjudicator’s reasons came in due course to the heading “Valuation of Payment Claim”, under which he dealt sequentially with the agreement in relation to the Sussex Street substation, the agreement in relation to floor slabs for the Sydney Airport car park and the agreement in relation to columns for the Sydney Airport cark park.
79 As to the first of these agreements, having referred to his prior description of the appellant’s “payment schedule reasons for non-payment of this part of the claimant’s claim” the adjudicator’s reasons for valuing the claim so far as under the agreement in accordance with the payment claim included -
“107. I consider that this part of the claimant’s claim falls to be valued under section 10(2)(a) of the Act as the Sussex Street Substation Contract expressly provides for valuation on a lump-sum basis for the lump-sum hire period and thereafter on weekly hire at a rate per square metre per week. The relevant rental tax invoices I have listed above have been prepared in conformity with those express provisions. Neither the quotation itself nor the claimant’s General Terms and Conditions provide any mechanism for inclusion of the respondent’s claims in the process of valuation of a progress claim. As I read the material in Attachment 3 of the payment schedule the claimant is not impeaching the invoices identified above, rather is seeking a right of set-off against them for what it alleges are the costs it has occurred as a consequence of the claimant’s breach of the Sussex Street Substation Contract. There is nothing in that contract or the Act which allows it to do so in this adjudication application.”
80 As to the second of these agreements, the adjudicator again referred to his prior description of the payment schedule reasons, adding that “[t]o the extent the reasons rely on the respondent’s 22 February 2008 payment schedule I will not consider them”. His reasons for valuing the part of the claim so far as in invoice no WD071201 in accordance with the payment claim included -
“115. I have summarised the pricing provisions of the Sydney Airport Car Park Mevadec Option B Contract in paragraph 86 of these reasons. In my view there is an express term of the contract which provides for valuation in which case section 10(2)(a) of the Act applies. Invoice WD071201 has been prepared in conformity with that express provision. Neither the quotation itself nor the claimant’s General Terms and Conditions provide any mechanism for inclusion of the respondent’s claims in the process of valuation of a progress claim. As I read the material in paragraphs 22 and 24-27 of the payment schedule the claimant is not impeaching invoice WD071201, rather is seeking a right of set-off against it for what it alleges are the costs it has occurred as a consequence of the claimant’s breach of the Sydney Airport Car Park Mevadec Option B Contract. While paragraph 27 might be seen as impeaching the tax invoice what the respondent is seeking is a right of set-off. In any event, this is no more than assertion and does not allow a determination either of what should have been supplied by the claimant and was not supplied and what amounts should be deducted as they have been wrongly claimed for.”
81 I avoid undue repetition in these reasons. The adjudicator expressed like views in valuing the remainder of the claim so far as under the second of the agreements. As to the third of the agreements, his reasons included -
“123. The other reasons for non-payment I set out in paragraph 58 of these reasons is not that the materials supplied were defective and not able to be used for the purpose for which they were rented. The defect rectification which the respondent talks about is defect rectification in the construction work in which the rented materials were used, not rectification of the plant or materials (goods) rented on hire. As supervision has not been charged for separately, the remaining reasons I have summarised at paragraphs 58(b)-(d) of these reasons allege breaches of contract for which the respondent is seeking a right of set-off against it for what it alleges are the costs it has occurred as a consequence of the claimant’s breach. There is nothing in that contract or the Act which allows it to do so in this adjudication application.”
82 The adjudicator thus considered the repetition in the March payment schedule of the substance of the complaint in the February payment schedule. He recognised as within the reasons indicated in the March payment schedule the appellant’s assertion of backcharges because the respondent had provided inferior formwork systems and providing the formwork systems late and in sufficient quantities, to the value of additional costs of $878,893.86. He declined to allow the backcharges as a set-off against the payment claim because he considered that neither the agreements nor the Act permitted that to be done, and also because the relevant paragraphs in the March payment schedule did not allow a determination of what should have been supplied and was not supplied and quantification of the additional costs.
83 The appellant submitted that there had been denial of natural justice in the adjudicator’s refusal to allow the backcharges as a set-off against the payment claim, see later in these reasons, but for present purposes that is not to the point. Notwithstanding that he gave no consideration to the February payment schedule, he gave consideration to its assertion of backcharges whereby the payment claim should be valued at $nil. It may be that his opinion that the relevant paragraphs in the March payment schedule did not allow determination of what should have been supplied and was not supplied and quantification of the additional costs would have been different if the backcharge letters BC1 to BC6 had been taken into consideration. But that inability was an alternative basis for declining to allow the backcharges as a set-off against the payment claim. A sufficient basis, on the adjudicator’s reasoning, was that neither the agreements nor the Act permitted the set-off. The adjudicator may or may not have been correct, but if he was incorrect that was within the exercise of his function.
84 The adjudicator would have come to the same result even if he had taken the February payment schedule into consideration as part of the reasons indicated in the March payment schedule. An adjudicator’s error does not invalidate the determination unless it is material to the result. Had the correct construction and application of s 14(3) of the Act in principle been essential preconditions for a valid determination, the determination would not have been void because the adjudicator’s error in that respect was not material to the result.
Denial of natural justice
85 This involved the exclusion of regard to the February payment schedule and the refusal to allow the backcharges as a set-off against the payment claim. I have described what the adjudicator did in those respects, and it need not be repeated.
86 The appellant submitted that it had been denied the opportunity to make submissions in relation to the adjudicator’s determination so far as he concluded -
(i) that s 14(3) of the Act did not permit incorporation by reference of the reasons contained in the February payment schedule; and
(ii) that the agreements did not provide a mechanism for regard to the appellant’s backcharge claims in the valuation of a progress claim and neither the agreements nor the Act permitted the appellant to claim a setoff of the backcharge claims.
87 The trial judge said that there “is no substance in the contention that there was a substantial denial of natural justice within the meaning of Brodyn Pty Ltd v Davenport [2004] NSWCA 394 ; (2004) 61 NSWLR 421 ”. at [54]. He said that he “accept[ed] as correct the following submissions advanced by the defendant”, setting out in terms (but with slight formal changes) paragraphs from the respondent’s written submissions. With the utmost respect, this is an undesirable course, amongst other reasons because it can lead to failure to explain and engage with the submissions of the opposite party, or to refine from an advocate’s amalgam of submissions a clear exposition of the path to the judge’s own conclusion. In the present case it appears to have brought this failure.
88 In relation to s 14(3) and the February payment schedule, the appellant submitted to the effect that –
the payment claim recognised the February payment schedule, referring to it and rejecting the “counter claims”;
the March payment schedule clearly relied on the February payment schedule;
the adjudication application indirectly recognised the February payment schedule in its reference to the first “back claim”;
the adjudication response clearly relied on the February payment schedule;
para 2 of the adjudicator’s s 21(4) request of 23 April 2008 expressly conveyed that he accepted that the appellant had incorporated the February payment schedule by reference;
the respondent again recognised the February payment schedule when providing a complete copy of the payment claim and the responses to the backcharge letters;
the adjudicator implicitly conveyed that he accepted that the appellant had incorporated the February payment schedule by reference by following-up provision of the responses to the backcharge letters in his s 21(4) request of 29 April 2008; and
at no time until the determination was issued did the adjudicator suggest that the express conveyance of acceptance was provisional or open to doubt, or that he had in mind the conclusion expressed in the determination.
89 The appellant submitted that there was in the circumstances procedural unfairness, in that it did not have the opportunity to make submissions against the conclusion expressed in the determination.
90 In relation to allowing for the backcharge claims by claiming a set-off, the appellant accepted that they were relied on by way of an equitable set-off, referring to Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439 ; Roadshow Entertainment Pty Ltd v ACNO53 006 269 Pty Ltd (Receiver and Manager appointed) (1997) 42 NSWLR 462 and Bitannia Pty Ltd v Parkline Constructions Pty Ltd ; [2006] NSWCA 238 ; (2006) 67 NSWLR 9. It submitted to the effect that it had asserted the backcharge claims in answer to the respondent’s claim, and that there had been procedural unfairness in that the adjudicator had not provided it with the opportunity to make submissions in support of a right of set-off.
91 Any procedural unfairness must take account of the faxes on 29 April 2008.
92 The respondent’s fax sent at 2.12 pm included, in the second of the paragraphs which I have emphasised, that the backcharge claims “while referenced had not been included in the payment schedule dated 26th March and as a result should not be included in the adjudication”. It included, in the first of the paragraphs which I have emphasised and the preceding paragraph, that under the agreements “there are no provisions for the respondent to withhold payment in the manner they have done”.
93 These were important issues, clearly enough put forward as reasons why the adjudicator should not consider “the respondent’s claims”, being the backcharges, see the last paragraph set out. Albeit without detail, the respondent raised as issues for the adjudicator regard to the backcharge claims so far as, “while referenced”, they had “not been included” in the February payment schedule, and whether in any event they entitled the appellant “to withhold payment in the manner that they have done”.
94 The adjudicator’s fax permitted comment by 5.00 pm, with the potential for extension of the time. The appellant did comment, subject to its position that the respondent’s submissions should be ignored, effectively reiterating reliance on the February payment schedule but otherwise not dealing with the two issues. It did not otherwise respond to the two issues raised by the respondent.
95 In Brodyn Pty Ltd v Davenport at [55] the essential requirement was that there be “no substantial denial of the measure of natural justice that the Act requires to be given”. It was said at [57] –
“The circumstance that the legislation requires notice to the respondent and an opportunity to the respondent to make submissions (ss 17(1) and (2), 20, 21(1), 22(2)(d)) confirms that natural justice is to be afforded to the extent contemplated by these provisions; and in my opinion, such is the importance generally of natural justice that one can infer a legislative intention that this is essential to validity, so that if there is a failure by the adjudicator to receive and consider submissions, occasioned by breach of these provisions, the determination will be a nullity.”
96 So in Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd Basten JA said at [48] that -
“ ... the relevant content of procedural fairness must be ascertained by reference to the specific statutory scheme. Where that scheme is inconsistent with some element which might otherwise have been implied under the general law, it is the general law which must give way.”
97 To the provisions of the Act mentioned in Brodyn Pty Ltd v Davenport at [57] may be added s 21(4). An adjudicator may request further written submissions from either party, and must given the other party an opportunity to comment on those submissions. An adjudication, however, is conducted within strict time limits, as to all of its initiation (s 7(3)), the adjudication response (s 20(2)), any further written submissions (s 21(4)(b) as to setting deadlines) and the determination (s 21(3), with possible agreed extension). The mechanism for consideration of submissions found in the Act includes these constraints, for example, an adjudicator’s response lodged out of time may not be considered (s 21(2)), which are part of the Act’s moulding of natural justice.
98 I go first to allowing for the backcharge claims and claiming a set-off without taking account of the faxes of 29 April 2008.
99 Subject to any s 21(4) request, the appellant had to deal with that through submissions duly made in support of a payment schedule and lodgement of an adjudication response. It was confined to the reasons for withholding payment in the payment schedule, but it was up to the appellant to make submissions and the adjudicator could not go beyond the submissions: s 22(2)(d). The appellant had the opportunity to make all submissions it wished in that respect. The adjudicator would have denied natural justice if he had come to his determination on a basis other than one within the joinder of issue before him. But allowing for the backcharge claims and claiming a set-off was not of that nature. Even without taking account of the faxes on 29 April 2008, the respondent claimed money and the appellant opposed payment of the money because of the backcharge claims. It was necessary for the adjudicator to decide whether the backcharge claims stood as a set-off against the claim and justified valuing the claim at $nil. Nothing was done by the respondent or the adjudicator whereby the appellant could reasonably have thought that a right of set-off was accepted or conceded, or that whether the backcharge claims could stand as a set-off against the claim was not an issue for decision. It was always an issue for the appellant to address, within the Act’s mechanism for submissions, and a matter for the adjudicator’s decision, in accordance with the Act notwithstanding that submissions going to it had not been made. There would not have been denial of natural justice in his coming to a decision in the absence of submissions in support of a right of set-off.
100 Taking account of the faxes of 29 April 2008, the respondent’s fax at 2.12 pm clearly enough specifically raised as an issue that the backcharge claims did not entitle the appellant “to withhold payment in the manner they have done”. The adjudicator was obliged to consider the provisions of the Act and the provisions of the agreements (s 22(2)(a) and (b). Raising that and the other important issue may not have been responsive to the adjudicator’s s 21(4) request (although that is debatable), but the adjudicator could consider the issue under ss 22(2)(a) and (b) even if those elements of the fax were not submissions “duly made” by the respondent in support of its claim (which is also debateable): cf The Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd at [35] per Hodgson JA, Bryson JA relevantly agreeing and Brownie AJA agreeing; Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd at [52] per Hodgson JA; John Holland Pty Ltd v Roads and Traffic Authority of New South Wales [2007] NSWCA 19 at [47] - [48] per Hodgson JA, Beazley JA agreeing. The adjudicator did not have to tell the appellant, the issues having been raised, that he proposed to decide them or how he might decide them.
101 The appellant had the opportunity to respond to the respondent’s overt submission that the backcharge claims did not entitle the appellant to withhold payment. It did, but as I have said it effectively reiterated reliance on the February payment schedule but otherwise did not deal with that or the other important issue. In relation to allowing the backcharge claims and claiming a set-off, there was not denial of natural justice: cf Downer Construction (Australia) Pty Ltd v Energy Australia at [91], where it was said that the party “may not have used the opportunity well, with the focus it now sees as desirable, but that does not make out a denial of natural justice”.
102 I go to s 14(3) and the February payment schedule.
103 If the faxes on 29 April 2008 be put aside, there is more to be said for denial of natural justice. Because the respondent referred to the February payment schedule in the payment claim, and again in the adjudication application without any suggestion that it was not part of the indication of reasons by the March payment schedule, the appellant could reasonably have thought that the respondent accepted that the February payment schedule and its reasons for valuing the previous payment claim at $nil were accepted by the respondent as part of the March payment schedule. At that point, had the adjudicator come to his determination on a different basis without notice to the appellant it could be said with some force that there was a denial of natural justice. This would not have been alleviated when the adjudicator appeared to accept in the s 21(4) request of 23 April 2008 that the February payment schedule had been incorporated by reference. The trial judge appeared to accept that so far as this indicated a view held by the adjudicator it was “necessarily provisional” (at [55 iii], but in conjunction with the respondent’s acceptance there was a strong argument that procedural fairness would have required that the appellant be made aware that the issue of consideration of the February payment schedule (which of its nature was not one on which the payment schedule itself should have included submissions) was or became open to submissions.
104 However, the respondent’s fax at 2.00 pm on 29 April 2008 did raise the issue. It raised for the adjudicator’s consideration, in a manner apparent to the appellant, the respondent’s contention that the backcharge claims had not been included in the March payment schedule “and as a result should not be included in the adjudication”. As I have earlier explained, within the Act’s mechanism the adjudicator could consider the issue, and he did not have to tell the appellant that he proposed to decide it or how he might decide it.
105 As to this also the appellant had the opportunity to respond to the respondent’s overt submission. It was not denied natural justice when it failed to respond with the submissions put to the trial judge and on appeal. This having been raised, it was not incumbent on the adjudicator to warn the appellant that the view previously indicated might not remain.
106 In these circumstances, I do not think that denial of natural justice has been made out.
Bona fide exercise of powers
107 It should be said at once that there is no substance in this ground. As with charging wholesale departure from adjudication according to the Act, an allegation of lack of bona fide exercise of powers should not lightly be made. Brereton J in Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129 at [97] cited, from SBBS v Minister for Immigration and Multicultural and Indigenous Affairs [2002] FCAFC 261 ; (2002) 194 ALR 749 that “an allegation of bad faith is a serious matter involving personal fault on the part of the decision-maker”. As noted by McDougall J in John Goss Projects Pty Ltd v Leighton Contractors (2000) NSWSC 798 ; (2006) 66 NSWLR 707 at [58] , s 30(1) of the Act dealing with an adjuducator’s protection from liability involves acting “in good faith”; the concepts in their contexts may differ but this adds to the restraint to be exercised in alleging that an adjudicator has not bona fide exercised the power under the Act. In the present case the lack of substance is such that the allegation should not have been made against the adjudicator.
108 The trial judge considered that there was “no basis for the assertion that the Adjudicator was to any degree reckless or capricious” (at [63]). His Honour’s outline of the appellant’s submissions and his reasons, including this expression of a conclusion, largely took up the language of the respondent’s written submissions. The appellant submitted on appeal that its case at trial had been misstated, and that his Honour had not addressed the complaint it had made and made again on appeal.
109 The appellant’s submissions were founded on “the way the Adjudicator acted on” the 2.12 pm fax of 29 April 2008. It said that for the first time the respondent asserted that the reasons for withholding payment in the February payment schedule could not be incorporated in the March payment schedule and that the agreements did not permit it to withhold payment by reason of the backcharge claims. The complaint as made on appeal was that the adjudicator “adopted each of these contentions” -
“ ... in the following context and with the following knowledge:
(a) The Adjudicator knew Perform had purported to incorporate by reference the reasons contained in the February Payment Schedule;
(b) The Adjudicator knew the first s 21(4) request was made on the expressed premises that the February Payment Schedule had been incorporated by reference as reasons within the March Payment Schedule;
(c) The Adjudicator must have been aware of the significance of the Perform Claim Documents and for that reason requested Mev-Aus to provide its response to those documents;
(d) On 24 April 2008, Mev-Aus provided the Adjudicator with separate responses to the Perform Claim Documents, however noted that these documents had not been sent to Perform on legal advice (Blue 599).
(e) In making findings that the February Payment Schedule could not be incorporated by reference under s 14(3) and that Perform could not raise a set off or cross claim by reason of the terms of each sub-contract, the Adjudicator could only have acted on what was said by Mev-Aus in its letter dated 29 April 2008, as submissions to that effect had not been previously made.
(f) The Adjudicator must have known that these submissions were not open to be made, because in paragraph 73 of the Determination (Blue 664 O), the Adjudicator said of the Adjudication Submissions made by Mev-Aus that: ‘What is conspicuously absent from the Adjudication Application Submissions is any attempt by the Claimant to deal with the issues raised by the Respondent in its payments schedule of 26 March 2008’.
(g) The findings ultimately made by the Adjudicator concerning incorporation by reference amounted to a complete turnaround in the way in which the Adjudication, and the parties, had to that point been conventionally proceeding;
(h) The Adjudicator provided Perform with no warning that he was proposing to re-consider the issue of incorporation by reference, notwithstanding this awareness of the importance of that issue to Perform ;
(i) The Adjudicator makes no reference to the letter dated 29 April 2008 in the Determination, or to whether and to what extent he relied on that document, or the basis upon which he considered himself entitled to rely upon it.”
110 With reference to “an additional matter”, to which I will return, it was submitted that the adjudicator had “acted recklessly and capriciously and in doing so failed to exercise the power conferred upon him in making the determination” in accordance with the “broader approach to the question of good faith” taken by Brereton J in Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd .
111 I first dispose of the additional matter. On 26 April 2008 the case manager sent an e-mail to the respondent, saying that the adjudicator “has asked to clarify how many pages there are of invoice H0802055” and enquiring whether the adjudicator should have received more pages. On 29 April 2008 the respondent faxed a full copy of the invoice to the case manager, with apologies for the loss of a page in the original transmission. The case manager’s enquiry was not copied to the appellant. It was submitted that “this showed the Adjudicator to be actively seeking further information from [the respondent], while not inviting submissions on issues central to the determination”. (I take this to mean the issues raised in the 2.12 pm fax of 29 April 2008, not an issue of the number of pages in the invoice, although the submissions included that there should be contrasted the adjudicator’s observations at [102] regarding transmittal of the February payment schedule.)
112 The point of the reference to the additional matter does not seem to have been that the enquiry was not copied to the appellant. Copying to the appellant would have been preferable, although it was an administrative and innocuous enquiry, but in any event the departure from preferable practice was by the case manager and does not reflect on the adjudicator. The point seems to have been that the adjudicator sought information on a small matter, but not on the large matter of the issues raised in the fax of 29 April 2008, in some manner thereby demonstrating or contributing to demonstration of his recklessness and capriciousness. To be blunt, this is nonsense. The adjudicator properly questioned whether he had a complete copy of the invoice. Any failure bona fide to exercise his powers under the Act must be found elsewhere, and gains no support from the additional matter.
113 In Brodyn Pty Ltd v Davenport at [55] Hodgson JA included in the basic requirements for existence of an adjudicator’s determination “a bona fide attempt by the adjudicator to exercise the relevant power relating to the subject matter of the Legislation and reasonably capable of reference to this power”. In Holmwood Holdings Pty Ltd v Halkat Electrical contractors Pty Ltd Brereton J considered that something less than wilful and deliberate failure to perform an adjudicator’s function could suffice, and that there could be failure in the basic requirement if, despite honesty, there were recklessness or capriciousness; in another phrase used, if there were not “a conscientious effort to perform the obligation” at [109]-[117].
114 The appellant noted this Court did not on appeal “fully endorse” this “broader approach to the question of good faith”. This Court did not endorse it at all, declining to embark on “an exegesis of the reference in Brodyn Pty Ltd v Davenport to a bona fide attempt to exercise the statutory power” ( Halkat Electrical Contractors Pty Ltd v Holmwood Holdings Pty Ltd [at [26]. The appellant’s submissions did not venture into the correct understanding of the basic requirement. It is again unnecessary to do so, since even on the so-called broader approach the facts did not approach making out failure of the adjudicator to make a bona fide attempt to exercise the powers under the Act.
115 It is plain from the adjudicator’s reasons that he carefully and conscientiously applied himself to coming to the determination and did so with close regard to the provisions of the Act concerned with payment claims, payment schedules and submissions duly made including submissions made pursuant to s 21(4). The appellant’s complaint in the submissions set out above came down to this regard to the respondent’s 2.12 pm fax of 29 April 2008 so far as it raised the two issues, with the suggested recklessness or capriciousness because the adjudicator must have known that the submissions were not open to be made and did not warn that he proposed to reconsider the issue of incorporation by reference.
116 For the reasons I have given, the adjudicator could consider the two issues and there was no denial of natural justice. But even if the adjudicator had been in error in the extent of his regard to the 2.12 pm fax, there is no basis for finding that he was reckless or capricious, or did anything other than attempt bona fide to come to a determination according to his understanding of the provisions of the Act; and if there had been a denial of natural justice, that would not in the circumstances of this case have been more than an error in the course of such a bona fide attempt.
117 Elsewhere in the appellant’s written submissions it was said that the adjudicator had not bona fide attempted to construe the Act and the agreements when he excluded consideration of the February payment schedule. He excluded consideration because he was of the view that s 14 of the Act did not allow incorporation by reference. This was part of the careful and conscientious application, and that he was incorrect does not mean that he was reckless or capricious, or failed to attempt bona fide to exercise the statutory power. It should be clearly understood that error, which as I have said is often only because of preference for a different view, amounts to absence of good faith in coming to a determination.
Costs of the cross-claim
118 The appellant also appealed in relation to the trial judge’s order that it pay the respondent’s costs of the cross-claim.
119 The cross-summons filed by the respondent claimed the relief –
“In the event that the plaintiff’s claim fails:
1 the monies paid into Court by the plaintiff be disbursed to the first defendant.
In the event that the plaintiff’s claim succeeds:
2 the second defendant be ordered to make a determination in relation to the Adjudication Application according to law;
3 the Court makes such declarations as to any matters affecting such determination including as to any matters of law;
4 the monies paid into Court by the plaintiff remain in Court until further order.”
120 When delivering his reasons the trial judge ordered that the money paid into court be paid to the respondent, but stayed the order for seven days. His Honour “reserve[d] to the parties an entitlement to address on costs”, and gave directions for written submissions.
121 In its written submissions the respondent contended that it should have the costs of the cross-claim because it had obtained the order for payment out and -
“8 The alternative relief sought in the cross-claim, as to orders in the nature of mandamus and discretionary orders as to monies paid into Court:
8.1 was relevantly defensive as it was postulated on the success of the plaintiff’s claims in whole or in part;
8.2 was opposed by the plaintiff on various grounds requiring preparation of evidence and submissions;
8.3 did not fail on the merits but was not dealt with by the Court due to the failure of the plaintiff’s challenge to the adjudication;
8.4 the relevant ‘event’ on which costs should follow should be the failure of the summons.
9 For these reasons McDougall J in Trysams [footnote: Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2008 NSWSC 399 at [91] TO [98]] found that the plaintiff should pay the costs of the proceeding including the cross-claim. This case is relevantly on all fours with Trysams and the same result should follow in this case.”
122 In its written submissions the appellant contended that there should be no order for the costs of the cross-claim. It said that the first order sought was unnecessary, because an order for payment out would necessarily been made, and that the real point of the cross-claim was the respondent’s claim that the money paid into court should remain in court while any fresh determination was made. When it became unnecessary to determine the claim for relief in this respect, it said, the relevant principle was that stated in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Quin [1997] HCA 6 ; (1996) 186 CLR 622 at 625. The appellant replied to para 8 of the respondent’s submissions by submissions to the effect that the cross-claim raised separate “issues” (presumably meaning an order in the nature of mandamus and the money remaining in court (which were not relevantly defensive) that evidence and submissions had been necessitated, and that the “event” was not dismissal of the summons because the appellant may not have succeeded in having the money remain in court if the cross-claim had been decided. Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd was distinguished for that reason, and because it did not appear that the principle in Lai Quin had been raised in that case.
123 The trial judge reasons published on 4 September 2008 were brief, relevantly -
“2. The only live issue concerns whether or not the cost of the cross-claim should be awarded to the defendant.
3. The principled the [sic] exercise of the discretion is for the costs of the cross-claim to be paid by the plaintiff to the defendant for the reason that the cross claim was defensive in the relevant sense.”
124 With respect, the reasons are inadequate. On the written submissions, it was necessary to address whether the cross-claim was in part unnecessary as distinct from defensive, and as to an order in the nature of mandamus and retention of the money paid into court more than defensive, and whether costs were incurred beyond proper defensiveness. Competing principles were posed. It was not adequate baldly to refer to a principled exercise of discretion, leaving the principle unstated, or to describe the cross-claim as “relevantly defensive” without indication of what was meant by “relevantly” and some resolution of the competing submissions.
125 The parties agreed that, if it were necessary, this Court should re-exercise the discretion. The submissions were essentially those made to the trial judge.
126 The cross-claim was in part unnecessary, and quite inappropriate (beyond deficient grammar) so far as it claimed declarations as to any matters affecting the determination. The claim to an order in the nature of mandamus could have been appropriate, although I should not be taken to indicate a view one way or the other, and the claim that the money should remain in court was a matter additional to the result on the appellant’s claim. These claims could well have caused additional costs to be incurred. To this extent, at least, in the absence of a submission that the parties acted unreasonably in claiming and opposing that relief, analogy with Lai Quin at 625 suggests that no order as to costs should be made. With the dubious occasion for an inappropriateness of the cross-claim in other respects, in my opinion that is the proper order for the costs of the cross-claim as a whole.
127 Try s ams Pty Ltd v Club Constructions (NSW) Pty Ltd was a different case, and it appears correct that the judge was not referred to Lai Quin . I respectfully do not agree that, as its [94] might suggest, the fact that the cross-claim is postulated on success of the plaintiff’s claim will always make it “defensive in the relevant sense” or warrant an order that the plaintiff pay the costs of the cross-claim.
128 The appellant’s success on this matter, which was given little attention and took up little time in the appeal, should bring slight amelioration of the costs order otherwise to be made against it.
Orders
129 I propose the orders -
1. Appeal allowed in part.
2. Set aside the order that the plaintiff pay the first defendant’s costs of the proceedings including the costs of the cross-claim, to be assessed on the ordinary basis.
3. In lieu thereof, order that the plaintiff pay the first defendant’s costs of the summons, to be assessed on the ordinary basis, and make no order as to the costs of the cross-claim to the intent that each party should bear its own costs.
4. Appeal otherwise dismissed.
5. Appellant pay 95 per cent of the costs of the first respondent and the costs of the second respondent.
130 McCOLL JA : I agree with Giles JA.
131 YOUNG JA: I agree with Giles JA, but need to make a few additional comments.
132 The Building and Construction Industry Security of Payment Act 1999 was intended to provide for a quick and fair provisional payment to subcontractors and the like. The whole thrust of the Act appears to be that an assessment is to be made expeditiously with strict adherence to time deadlines but with minimum formality.
133 This sends a message to courts to be careful in not being too quick in avoiding an assessment for minor error.
134 Although it does not affect the result of this appeal, I should note that I am not convinced that the appellant’s claim to avoid payment because of set-off was a proper answer to the first respondent’s claim.
135 First, the adjudicator under the Act is intended to be a person skilled in the administration of construction contracts. It would be odd for the legislature to compel such a person to consider cross-claims which might involve other contracts.
136 Secondly, it needs to be remembered that the present case was about leasing of formwork systems. Basically contracts for hire of goods.
137 With certain types of contract there is a statutory right to set up a breach by the opposing party in diminution or extinction of the price; see eg Sale of Goods Act 1923 , s 54(1)(a).
138 There is no such statutory right with a contract of hire of goods.
139 Set-off of mutual liquidated debts is permitted in court proceedings by s 21 of the Civil Procedure Act 2005 . Apart from that, the better view appears to be that the only right of set-off in NSW prior to insolvency is equitable set-off.
140 It is most doubtful whether adjudicators have the right to consider any equitable rights and titles. I adhere to what I said in Wooding v Estoe [2006] NSWSC 277 that adjudicators cannot recognize equitable assignments of contracts.
141 I do not wish to make any definite ruling as to whether adjudicators can take account of equitable set-off. I will content myself with saying: (1) it is doubtful whether they can do so;
(2) if they can do so, it is doubtful whether the appellant’s claims in the instant case would qualify for equitable set-off.
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LAST UPDATED:
23 June 2009