For a recent decision by Robert Fenwick Elliott as adjudicator, see http://www.nt.gov.au/justice/policycoord/documents/construction/27_12_01.doc.

In his reasons for his decision, Master Norman noted that the application was brought following a termination of the contracts as a result of repudiatory breach by the owner. The Defendants relied on the fact that one of the ways that the claim was put was by way of damages, but that was a claim that alternative to the primary claim for the contract sum, giving credit for the saving to the builder of not having to complete the balance of the work.

Robert Fenwick Elliott, instructed by Fenwick Elliott Grace, was counsel for the successful plaintiff.

The judgment is as follows:

1           This is an application of the defendant dated 12 September 2011 (FDN 5) seeking orders that the court cancel liens 11620481 and 11620485 registered on the defendant’s land and that the plaintiff’s claim for enforcement of these liens be struck out pursuant to Rule 104.

2           Judgment is sought to be entered for the defendant in respect of the claim for enforcement of the liens. An order is sought that the Registrar General remove the liens from the Certificates of Title of the Land.

3           The application is made pursuant to s32 of the Worker’s Liens Act 1983 (“the Act”) and DCR 101, 104, 131 and 232. It is supported by an affidavit of the defendant sworn on 12 September 2011 (FDN 6) and the plaintiff, who opposes the application, has filed affidavits of Mr Tom Meldrum, a contract administrator, sworn on 5 December 2011 (FDN 7) and of Mr Neil Scarce, the director of the plaintiff, sworn on 5 December 2011 (FDN 8).

4           The application came on for hearing before me on 7 December 2011 when Mr Fenwick Elliott of counsel appeared for the plaintiff and Mr Turner of counsel appeared for the defendant.

Background

5           The proceedings were issued on 11 August 2011. A statement of claim (FDN 2) was filed on the same day. A defence (FDN 4) was filed on 24 August 2011.

6           It appears that the plaintiff is a registered builder which entered into contracts with the defendant, who owned land at Glengowrie, in October 2010 to build two units on the land.

7           The defendant was borrowing the entire amount, but the costs of building the units, and having regard to an existing loan; the total amount to be secured by mortgage over the land was $830,616.

8           Both contracts were in the same terms. They are before the court.  I refer to pages 1 and 5 (relating to finance conditions) and clause 24 and particularly clauses 24.3 and 24.4 as to reasonable efforts to obtain finance. The second contract contained terms as to obtaining first mortgage finance, and clauses 24, 24.3 and 24.4 are similar to those in contract one.

9           It appears that the defendant had pre-approval from her bank for the loan and sought the finance but was advised that due to changes brought about by the new National Credit Code, she was no-longer entitled to the loan that had been pre-approved. She also found out that as she was not earning an income, she would not be able to borrow that money based solely on the equity in the land. The defendant’s mortgage broker was not able to find the required finance for her, she said.

10        She advised the plaintiff of this by letter dated 5 January 2011.

11        The parties then spoke about the matter and the plaintiff suggested a mortgage broker that he knew. She agreed to try this mortgage broker but the best that she was able to obtain using this broker was $434,800. This was not enough to proceed with the building of the two units, let alone to deal with the first mortgage.

12        The defendant then cancelled the contract.

13        In its claim, the plaintiff alleges that the defendant did not use every best endeavour to obtain finance.

14        The plaintiff claims that it then did work by delivering fill to the site and that it commenced work. Photographs have been provided of earthworks and fill on the land.

15        The plaintiff has placed liens on the land in relation to each contract. Each lien claims monies payable by the defendant arising from the termination of the contract and for work done and materials supplied to the land.

16        By letter dated 8 August 2011 the defendant’s solicitors wrote to the plaintiff’s solicitors requesting details of the work done and materials supplied to the land. It appears the plaintiff has not responded to this request or supplied any detail.

17        The defendant seeks cancellation of the liens and orders that the plaintiff’s claims pleaded in paragraphs 27, 28, 29 and 30 of the statement of claim be struck out, together with paragraphs one and two of the plaintiff’s prayer for relief.

18        The plaintiff claims damages for alleged breach of the two contracts, the payment of two invoices totalling $8,800 and for orders enforcing the liens to secure these payments.

19        The defendant’s application only relates to the liens. It acknowledges that the plaintiff is entitled to proceed with its claim for breach of contract although this claim is disputed. This claim will need to be determined after a trial.

20        In his submissions, Mr Turner referred to the provisions of the Act, to the decision of Judge Robertson in Cubelic & Sons Pty Ltd v Civil Works Group (SA) Pty Ltd [2008] SADC 41 and to an article on Workers Liens by Michael Hutton dated 11 May 2005. Mr Turner submitted that there was no claim for a lien based on quantum merit or an award of damages. The plaintiff’s lien had claimed for

“…monies payable by the lienee arising from the termination of a building contract dated 14 October 2010 and for work done and materials supplied to the said land…”

21        Mr Turner analysed the statement of claim which claimed for two unpaid invoices for contract one and contract two and he said there could be no claim for a lien based on these invoices as these were accounts for deposits only.

22        A lien was also sought in respect of contract one in the amount of $59,179.12 but paragraph 29 of the statement of claim stated that the amount claimed under lien number one was money due and payable under contract number one by reasons of the express terms of the contract entitling the plaintiff to register a lien in respect of the monies claimed and by the plaintiff’s election to accept the repudiation of the contract by the defendant and her subsequent election to exercise her rights either as a claim for damages arising from the contract or a s a claim in quantum merit arising from the unlawful termination of the contract by the defendant.

23        Mr Turner referred to paragraphs 33 and 5.2 of the statement of claim relating to the defendant’s anticipated profit margin and the contract price and submitted that there could be no doubt that the plaintiff was claiming either damages or quantum merit. He said that although the defendant had sought details of amounts claimed for material or work done to the land, the plaintiff had never responded. He said that as the plaintiff had not made claim in the statement of claim any amount for materials or work done to the land, the plaintiff’s claim for a lien must fail.

24        As an alternative argument, Mr Turner referred to the plaintiff’s claims in 29.1 and 30.1 of the statement of claim for a lien arising by way of an express term of the contract. The only term of the contract which dealt with this was term 32. However looking at the contract, he said, it did not create a right to put a lien for any amount howsoever incurred. He submitted the plaintiff could not create a right outside the scope of the Act or of common law.

25        Mr Turner then analysed the plaintiff’s affidavits and I refer to his written submissions at paragraphs 53-61. He said there was no evidence to show that any work was done in the relevant period, that materials were ordered in the relevant period, or that there was any cost for these.

26        Mr Turner referred to Mr Hutton’s paper and noted that under the Act a lien was available for a contract price so far as the amount due had accrued (s5) but that it would not extend beyond that proportion of the contract price payable by the owner and unpaid at the time the owner or occupier received notice of the lien or its registration.

27        Mr Turner referred to Longreef Pty Ltd v Leyton Contractors 159 LSJS 414 where the Court held that no lien existed because no part of the contract price had accrued due.

28        That applied here, Mr Turner submitted, as no part of the contract price had accrued due.

29        In summary, Mr Turner submitted that the plaintiff could not establish a lienable interest so the liens should be cancelled and the appropriate clauses of the statement of claim struck out. He said the defendant had sought to ascertain from the plaintiff if work had been done in order to ascertain whether there was a lienable interest but the plaintiff had not responded, even in his affidavits. He said that if there was an amount of work which had been done, the defendant would have the option to pay this money into Court or the Lands Titles Office and for the lien to be removed. The plaintiff would have security for this amount and the defendant could then deal with the land. However, the plaintiff had chosen not to respond and provide this information.

Plaintiff’s submissions

30        Mr Fenwick Elliott opposed the application. He observed that it was an application for final relief so that proceedings were not interlocutory – Settlement Wine Company Pty Ltd v National and General Insurance Co Ltd (2008) 143 LSJS 398. He referred to the provisions of s32 of the Act and said that an application under that section must be decided at a trial of the matter – Aberdine Pty Ltd & Anor v Vineyard Estate Management Pty Ltd [2001] SASC 442 per Lander J. He said the Court could only strike out a pleading in circumstances where that pleading did not comply with the rules or which the Court regarded as an abuse of process or it prejudiced the proper conduct of the action. He submitted that the statement of claim complied with the rules and it could not be said that it was an abuse of process.

31        As the defendant’s claim was for summary judgment, the onus was on her to show that the plaintiff’s claim could not succeed and that there was no real question to be tried.

32        Mr Fenwick Elliott referred to Chapman and Chapman v Australian Broadcasting Corporation [2000]SASC 146; Royal Australia Finance v Xenophou Corp Pty Ltd SASC Olsson J, No S3526, 22 July 1992, unreported and to Williams v Reid and Ors [2010] SASC 264.

33        Mr Fenwick Elliott said there were numerous and substantial questions to be tried so the defendant’s application was untenable. The issues for dispute, he said, included whether there was a failure of precondition of finance approval; whether there was any written notice as required by clause 24.3 of the contract; why the contracts did not proceed; and whether there plaintiff had performed work on site.

34        He addressed each of these in turn.

35        On the issue of precondition of finance approval, he said the defendant had relied on a letter to her from Wendy Higgins of Montague Choice of 11 July 2011 but this letter was not frank because the finance had been obtained not through Ms Higgins but through a Mr Heineike. He said the defendant was seeking to conceal the true position regarding finance. He noted that in her affidavit the defendant had conceded that she had obtained an offer of finance organised by Mr Heineike.

36        On the issue of whether there was any written notice as required by clause 24.3 of the contract, Mr Fenwick Elliott referred to page 5 of the contracts and the notice provision, Clause 24.4. It referred to “written notice” ending the contract, but, paragraph 12 of the statement of claim pleaded that there was no such written notice. The defendant had denied this, asserting that there was a clause 24.4 notice. However, Mr Fenwick Elliott submitted, the defendant could not possibly be right about this because she was continuing to do things required under the contract long after February 2011. Further, the letter of 5 January 2011 could not be a clause 24.4 notice for it did not purport to end the contract.

37        On the issue of why the contracts did not proceed, Mr Fenwick Elliott referred to Mr Meldrum’s evidence in paragraph 8 of his affidavit making clear that the defendant had acknowledged that the real reason why she would not honour a contract was, not the issue of finance, but rather her view that the market had changed.

38        On the issue of whether the plaintiff had performed work on site, Mr Fenwick Elliott said the defendant’s assertion that the plaintiff had done no work to the land was plainly wrong because it was contradicted by paragraph 19 of the same affidavit acknowledging that soil had been placed on the land and by evidence including photographic evidence verifying this work.

39        Mr Fenwick Elliott referred to s5 of the Act defining “contract price” and said that in the present case the contractual price for the two contracts was fixed. In each case some of the work was done but much of the contract was not done because it was terminated following the repudiatory breach of the defendant. In these circumstances, he said, the legal position was that the whole of the contract sum became payable subject to a credit for the work or balance no-longer requiring to be carried out. In the present case he said, the plaintiff was entitled to avail itself of the liens because on any analysis at least some of the work was done and had to be paid for. In the present case there did not appear to be a dispute about the quantum of the liens because the defence contained no positive case or that the contract price payable was anything other than as claimed in the statement of claim. Instead the defendant’s case seemed to be a combination of paragraph 20 of the defence and paragraph 27 of the affidavit, that the claim for damages could not sustain a lien. This misunderstood the claim that had been made which was for enforcement of the lien by way of contract price. Mr Fenwick Elliott noted that there was an alternative claim for damages for breach of contract but the primary claims were as set out in paragraphs 29 and 30 of the statement of claim, namely for money due and payable under the two contracts. Mr Fenwick Elliott submitted that the defendant’s case was that the contracts had been terminated so there could be no contract price due and payable but the fact was that the defendant had unlawfully terminated the contracts herself. The defence was obviously wrong and contrary to authority – Henry Walker Contracting Pty Ltd v Pegasus Gold Australia Pty Ltd (Administrator Appointed) 1998 NTSC 98.

40        Finally, Mr Fenwick Elliott addressed issues on the merits. He said the defendant had developed land as a trade and had signed contracts for the development work and committed herself to pay the contract price. She had then reneged on the contract and had sought to sell off the land without paying the plaintiff in respect to the work which it had done. She had been less than frank and the Act was designed to give builders the protection of a lien in such circumstances. As an experienced developer, the defendant should have been aware of the terms of clause 32.1 of the contracts expressly confirming the plaintiff’s right to a lien.

Principles

Strike out

41        The court may only strike out a pleading where it does not comply with the rules or it is regarded as an abuse of process or prejudices the proper conduct of the Action. On a claim for summary judgment, the onus is on a defendant to show that a plaintiff’s claim cannot succeed and that there is no real question to be tried – Chapman and Chapman v Australian Broadcasting Corporation; Royal Australia Finance v Xenophou Corp Pty Ltd.

42        The test is as cited by Gray J in Williams v Reid and Ors [2010] SASC 264:

43               “In General Steel Industries Inc v Commissioner for Railways (NSW) Barwick CJ set out, in an appendix to his reasons, a list of authorities dealing with the test to be applied in determining whether to terminate an action summarily before trial.  As Barwick CJ observed:

The test to be applied has been variously expressed; “so obviously untenable that it cannot possibly succeed”; “manifestly groundless”; “so manifestly faulty that it does not admit of argument”; “discloses a case which the Court is satisfied cannot succeed”; “under no possibility can there be a good cause of action”; “be manifest that to allow them” (the pleadings) “to stand would involve useless expense”.

At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the statement of claim, even if proved, cannot succeed; or “so manifest on the view of the pleadings, merely reading through them, that it is a case that does not admit of reasonable argument”; “so to speak apparent at a glance”.

44              The above statements referred to by Barwick CJ were all made in relation to the summary determination of a proceeding without trial.  Although the expressions employed varied, they all may be seen to be different ways of saying that a court should not exercise its powers of summary determination of a proceeding except in clear cases.”

Section 32 of the Worker’s Liens Act

45        This provides:

‘32—Claim or registration may be cancelled

Any person alleging that he is prejudicially affected by a claim, lien, or charge, or by registration under this Act, may at any time apply to the court to have such claim or registration cancelled or the effect thereof modified, and such order may be made as may be deemed just.’

46        In Aberdine Pty Ltd & Anor v Vineyard Estate Management Pty Ltd Lander J stated as follows:

‘Whether the plaintiff has a lien will, of course, depend on whether or not any of the contract price has accrued due within the meaning of s5. The second defendant of course asserts that no sum has accrued due, because no sum was payable under the contract by reason of the plaintiff’s breach of contract. Indeed, it is the first defendant’s contention that the plaintiff is indebted to the second defendant. That is not, of course, a matter that can be decided on an interlocutory application. That is a matter which has to be decided at the trial.’

S5 of the Worker’s Liens Act

47        This provides:

‘5—Lien of contractor or sub-contractor

A contractor or sub-contractor shall have a lien for the contract price, so far as accrued due, on the estate or interest in land of any owner or occupier in each of the following cases:

(a)        Where the work is done, with the assent, express or implied, of the owner or occupier to the land or to any fixture thereon:

(b)        Where the materials are, with the assent, express or implied, of the owner or occupier, used or intended to be used in or about work done, or intended to be done, to the land or to any fixture thereon.’

48        “Contract price” is defined by s2 as follows:

‘contract price means the money payable to any contractor or sub-contractor for any work, or materials furnished or to be furnished in connection with work, under any contract, and whether such price has been fixed by express agreement or not’

Issues relating to termination of the contract

49        In Henry Walker Contracting Pty Ltd v Pegasus Gold Australia Pty Ltd (Administrator Appointed) Angel J made the following observations as to a contract price accruing following termination of a contract:

No contract price could accrue due following termination of the contract

[27] This fourth ground of attack upon the validity of the plaintiff’s liens is opposed to accepted and fundamentally sound legal principle. The defendant argued that the defendant’s termination of the contract on 15 November 1997 avoided any obligation on the defendant to pay for work performed by the plaintiff, which obligation had accrued due prior to the termination, from being characterised as being part of the contract price.

The Workmen’s Liens Act provides the following definition of “contract price”:

” ‘Contract price’ means the money payable to any contractor or sub-contractor for any work, or materials furnished or to be furnished in connection with work, under any contract, and whether such price has been fixed by express agreement or not;”

[28] In McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477 Dixon J said:

“When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired.”

[29] This statement accurately reflects the position at common law.

[30] In any event, cl31.4 of the contract itself provides:

“The Company may by written notice addressed to the Contractor terminate this Contract at any time if in the Company’s reasonable opinion the continuation of the Mt Todd Project is not economically viable, for any reason whatsoever. If the Company exercises its right to terminate this Contract pursuant to this cl31.4 the Contractor shall be entitled to payment of the contract value of all Work carried out in accordance with the Contract to the date of Termination (less amounts previously paid to the Contractor in respect thereof).” (emphasis added).

[31] The defendant’s argument is quite untenable.

Contract price so far as accrued due

50        s5 is set out above. In Longreef Pty Ltd v Leyton Contractors a lien claimed by the contractor was challenged by the owner on the basis that no monies were due pursuant to the building contract. The court held that no lien existed because no part of the contract price had accrued due. This was because the contract required that the architect certify that a payment was due but this had not occurred.

Consideration and findings

51        In her application, the plaintiff is seeking summary judgment on that part of the claim relating to the liens and strike out of the claim for enforcement of the liens. However, the Court may only strike out a pleading if it does not comply with the rules or is an abuse of process of prejudice to the proper conduct of the action.

52        In my view, the statement of claim complies with the rules and it cannot be said that it is an abuse of process.

53        The onus is on the defendant to show that the plaintiff’s claim cannot succeed and there is no real question to be tried before the Court can summarily dispose of the whole or part of the plaintiff’s claim. This test was articulated recently by Gray J in Williams v Reid & Others and His Honour made it clear in that case that a Court should not exercise its power of summary determination except in clear cases.

54        As analysed by Mr Fenwick Elliott, there appear to be numerous and substantial questions to be tried in this Action. Indeed, Mr Turner conceded, at the outset of his submissions, that the matter will have to proceed to trial anyway on the contract issues (see transcript page 2, line 10).

55        The defendant has asserted at paragraph 26 of her affidavit of 12 September 2011 that the plaintiff has done no work to the land. However, this appears to be contradicted by paragraph 19 of her affidavit where she says that some soil had been dumped onto the land, and in Mr Scarce’s affidavit (Exhibit “NAS8”) there is a photograph showing soil on the land. The defendant’s submissions are that the plaintiff cannot establish a lienable interest but the fact is that there is evidence that work as been done on the land and I refer to the above analysis of this evidence.

56        Under s5 of the Act liens are available for the contract price. This is as defined in s2 and includes money payable to any contractor or sub-contractor for any work or materials furnished or to be furnished in connection with the work under any contract. The contractual price for the two contracts was fixed at $268,996 for contract one and $273,620 for contract two. There is clear evidence that in each case some of the contract work has been done although it is conceded that much of the contract has not been done. This is because the contract was terminated following their repudiatory breach of the defendant.

57        The legal position is that the whole of the contract sum becomes payable subject to a credit by reason of work or balance of work not being requiring to be carried out. Accordingly, on any analysis, the plaintiff is entitled to avail itself of the liens, for at least some of the work was done and must be paid for, and the plaintiff is entitled to security.

58        Mr Fenwick Elliott acknowledges that there is an alternative claim for damages for breach of contract – paragraph 32 of the statement of claim – but the primary claims are as set out in paragraphs 29 and 30 of the statement of claim and that the money due and payable under the two contracts.

59        The defendant’s case is that because the contracts had been terminated there can be no contract price due and payable. However, the defendant herself terminated the contracts, on the plaintiff’s case, and an argument similar to that raised by the defendant was rejected in Henry Walker Contracting Pty Ltd v Pegasus Gold Australia Pty Ltd (Administrator Appointed) (see analysis above).

60        Further, I bear in mind the observations made by Perry J in AJU Pty v Pupello [2001[] SASC 402 [22] where His Honour expressed the common sense view that there is no point dismissing some causes of action when there remains a common factual dispute that has to be determined at trial in any event.

61        I have accordingly come to the conclusion that on the plaintiff’s case there is clearly an entitlement to liens and to maintain and enforce the liens and it would be inappropriate in the circumstances to make orders either for their cancellation or for the striking of the claim for enforcement of them and for judgment for the defendant on that claim.

62        However, I am conscious of the evidence that the plaintiff has refused to particularise details of when the work was undertaken to the defendant’s property by the plaintiff and what work was done, which is not particularized in paragraph 16 other than superficially.  These particulars might assist the defendant in exercising her option of paying appropriate monies into Court pursuant to s26 and having the liens removed so that the plaintiff can obtain security for its appropriate claims but the defendant will have the option of being free to deal with the land.

63        Although the plaintiff has apparently declined to provide this information, there has been no application by the defendant for particulars, so if such a claim is brought it can be expeditiously considered by the Court.

Summary of orders

1.         I refuse the defendant’s application for orders 1-5 of her application (FDN 5)

2.       I fix a directions hearing on Tuesday 24 January 2012 at 10:30am when I will hear from the parties as to the further conduct of this action and consider any applications issued by the parties.

Counsel for the plaintiff:          Mr R Fenwick Elliott

Solicitors for the plaintiff:        Fenwick Elliott Grace

Counsel for the defendant:      Mr F Turner

Solicitors for the defendant:    Scales and Partners

This Act follows the recent harmonisation initiative around all the states of Australia. In short, this new Act brings domestic arbitration into line with the UNCITRAL Model Law, which was introduced into other countries around the world from 1985 (Australia’s international arbitration law had been brought into line some time ago).

The new Act applies to “commercial” arbitrations. Curiously, the term “commercial” is not defined in the Act itself, but the notes suggest that:

The term “commercial” should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business co-operation; carriage of goods or passengers by air, sea, rail or road.

The Act will thus apply to arbitrations arising out of construction contracts.

The main difference between this law and the previous legislation is that the new law allows for much less court interference in the process – the underlying philosophy is that if the parties have agreed to arbitrate, they should be held to that bargain, and there is only very limited scope for the parties to “second guess” the arbitrator’s decisions by reference to the court. This will represent a particularly marked change in South Australia, where the courts have shown themselves much m,ore willing to intervene in arbitral processes than the courts in other states. Other changes include:

• The old discretion of the courts as to stay court proceedings where there is an arbitration agreement goes: if the defendant so requests at the outset of court proceedings the court must stay the court action unless the arbitration agreement is “null and void, inoperative or incapable of being performed.”
• The arbitrator is now competent to decide on his/her own jurisdiction, and a decision that the contract itself is null and void will not of itself invalidate the arbitration clause.

These changes should make arbitration a rather more efficient process than has previously been the case. They also mean that parties should not put arbitration clauses in their contracts unless they are really sure that arbitration is the forum they want in lieu of the courts.

Nothing in this new Act will inhibit the new right to adjudication of disputes under the Building and Construction (Security of Payment Act) 2009 (SA), which came in to effect on 10th December 2011, but of course if there is an arbitration clause in the contract, the right of a losing party to recover what he is required to pay by an adjudicator will now lie in arbitration proceedings, not court proceedings.

The text of the new Act is as follows:

Schedule 1—Related amendments and transitional provisions

Part 1—Preliminary

1—Amendment provisions

In this Schedule, a provision under a heading referring to the amendment of a specified Act amends the Act so specified.

Part 2—Amendment of Commercial Arbitration and Industrial Referral Agreements Act 1986

2—Amendment of long title

Long title—delete “arbitration” and substitute:

resolution

3—Amendment of section 1—Short title

Section 1—delete “Commercial Arbitration and”

4—Repeal of sections 3 to 56

Sections 3 to 56 (inclusive)—delete the sections

5—Redesignation of section 57

Section 57—redesignate the section as section 4

6—Amendment, redesignation and relocation of Schedule 1 clauses 1 and 2

(1)     Schedule 1—delete “Schedule” wherever occurring and substitute in each case:

Act

(2)     Schedule 1—delete “clause” wherever occurring and substitute in each case:

section

(3)     Schedule 1—delete “subclause” wherever occurring and substitute in each case:

subsection

(4)     Schedule 1, clause 1(2)—delete subclause (2)

(5)     Schedule 1, clauses 1 and 2—redesignate the clauses (as amended by this clause) as sections 2 and 3 respectively and relocate them so that they follow section 1

7—Repeal of Part and Schedule headings

Act—delete each Part heading and Schedule heading

Part 3—Savings, transitional and other provisions

8—Savings and transitional provisions

(1)     Subject to subclause (2)—

(a)     this Act applies to an arbitration agreement (whether made before or after the commencement of this Act) and to an arbitration under such an agreement; and

(b)     a reference in an arbitration agreement to the Commercial Arbitration and Industrial Referral Agreements Act 1986, or a provision of that Act, is to be construed as a reference to this Act or to the corresponding provision (if any) of this Act.

(2)     If an arbitration was commenced before the commencement of this Act, the law governing the arbitration and the arbitration agreement is to be that which would have been applicable if this Act had not been enacted.

(3)     For the purposes of this clause, an arbitration is taken to have been commenced if—

(a)     a dispute to which the relevant arbitration agreement applies has arisen; and

(b)     the arbitral tribunal has been properly constituted.

9—Other provisions

(1)     The regulations may contain provisions of a savings or transitional nature consequent on the enactment of this Act.

(2)     Any such provision may, if the regulations so provide, take effect from the date of assent to the Act concerned or a later date.

(3)     To the extent to which any such provision takes effect from a date that is earlier than the date of its publication in the Gazette, the provision does not operate so as—

(a)     to affect, in a manner prejudicial to any person (other than the State or an authority of the State), the rights of that person existing before the date of its publication; or

(b)     to impose liabilities on any person (other than the State or an authority of the State) in respect of anything done or omitted to be done before the date of its publication.

The first adjudication was by Philip Davenport. As with several others of his decisions in other cases, this one was declared void and of no effect in August 2010.

The claimant then sough to excercise his right to make a new application on the statutory basis that the adjudicator had failed to determine the application within the time allowed. A second adjudciation took place.

“Quite right”, said McDougall J in November last year ([2010] NSWSC 1367). However, the right to a new adjudication is subject to a time limit of 5 business days, and he said that that 5 days  starts to run – not from the time when the first decision is quashed – but from the expiry of time when the first adjudication decision should have been made. Accordingly, the second adjudication was well out of time.

On appeal, the Court of Appeal (Macfarlan JA and Tobias AJA; Basten JA dissenting)  has now upheld McDougall J’s decision.

Is there a moral to be drawn? Perhaps this: that if a Claimant is driven to the conclusion that a first adjudication decision is obviously void, and wants to avail; himself of the right to a new adjudication on the same payment claim (and thus taking advantage of any paucity in the relevant payment schedule) than he should make his new application without delay, and not wait until the first decision has been declared void.

The Court of Appeal’s decision is as follows:

1. BASTEN JA : The background to this appeal is recounted by Macfarlan JA. In short, it concerns the effect of a declaration that an adjudication determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Security of Payment Act “) is “void”. The primary judge, McDougall J, held that a further adjudication application made within five days of the declaration was ineffective, because the adjudication determination had been void at all times and therefore the five day period, which ran from the time by which the adjudicator had to make a valid determination, had long since expired. The second determination was therefore void: Cardinal Project Services Pty Ltd v Hanave Pty Ltd [2010] NSWSC 1367.

2. The primary judge distinguished a number of cases which had permitted a further adjudication application to be made by a claimant after a determination had been quashed pursuant to proceedings under s 69 of the Supreme Court Act 1970 (NSW). The questions raised on appeal were, first, whether those decisions were, in their terms, correct and, secondly, if so, whether they could be distinguished on the basis that the relief sought in those cases had not been, as in the present case, a declaration of voidness.

3. The developer (who was the respondent to the payment claim and the respondent in this Court) asserted that the earlier decisions were incorrectly decided. The basis for those decisions involved reading language into the Act, which was an impermissible exercise. That submission should be accepted. Nevertheless, the result in the earlier cases was correct for a different reason, namely that the determination had not been ineffective for all purposes and, in particular, the existence of a purported determination was sufficient to preclude the engagement of the right to withdraw the adjudication application on which it was based, until the time of the Court’s order or declaration of invalidity.

4. In the event that the builder succeeded in overturning the reason for the order of the primary judge, it then sought to challenge the validity of the determination on other grounds which had not been considered by the primary judge. That exercise cannot properly be undertaken by this Court and the matter must be remitted to the Equity Division for determination of the remaining issues. The appeal should be allowed with costs.

5. The position of the parties with respect to the second determination appeared to contradict the need for an appeal. Both the appellant and the respondent agreed with each other, and with the order of the primary judge, that the determination was invalid. However, the reason for invalidity was of critical importance. Although an appeal is brought not against the reasons for judgment, but from the orders, the present appeal was justifiable on the basis that the appellant had sought declarations as to its rights, in addition to a declaration that the determination was void. There is, however, some irony in this situation as the order setting aside the first determination was made by consent, without any attempt to identify the ground on which it was declared void. In any event, to determine the effect of the declaration that the first determination was void it is necessary to consider the legislative scheme of the Security of Payment Act .

Background to statutory scheme

6. For more than a decade there has been legislation in this State (and more recently in all other States and Territories) permitting builders to make claims for work done under construction contracts, on an interim basis, pending final determination of any dispute as to their respective rights and liabilities. Keane JA has noted that the Queensland statute “seeks to preserve the cash flow to a builder notwithstanding the risk that the builder might ultimately be required to refund the cash in circumstances where the builder’s … inability to repay could be expected to eventuate”: R J Neller Building Pty Ltd v Ainsworth [2008] QCA 397; [2009] 1 Qd R 390 at [40]. Adopting that understanding in Chase Oyster Bar v Hamo Industries [2010] NSWCA 190; 272 ALR 750, McDougall J described the Security of Payment Act as operating “to alter, in a fundamental way, the incidence of the risk of insolvency during the life of a construction contract”: at [207], Spigelman CJ agreeing at [52].

7. The Security of Payment Act permits a builder to make a claim for a progress payment (known as a payment claim), to which the developer may respond by service of a document (known as a payment schedule) disputing, in part or in whole, the amount of the claim. In the case of a dispute, the claimant may apply for an adjudication, to be undertaken by an adjudicator appointed by a specified authority. Despite the complexity of some disputes, and in the absence of agreement between the parties to extend time, the adjudicator is required to make a determination within 10 business days after notifying the parties that he or she has accepted the adjudication application. The adjudicator’s determination must be in writing and must include reasons for the decision.

8. The Security of Payment Act imposes short and apparently mandatory time constraints on each stage of the process for making claims, disputing liability, applying for adjudication and for determination. In certain circumstances, a claimant may withdraw an adjudication application and make a further adjudication application.

9. If a determination remains unpaid by the developer, the claimant may obtain an adjudication certificate, file it in a court of competent jurisdiction, and sue on it to enforce the debt. (The claimant may also suspend work under the contract.) The power of the respondent developer to have the judgment set aside is limited: it may not challenge the determination. However, the limits on the developer’s rights are expressed only in reference to proceedings brought by it to have a judgment based on the adjudication certificate set aside.

10. The tightly constrained scheme of the Security of Payment Act suffers from a significant omission: there is no provision dealing with the possibility (or consequences) of proceedings by either party challenging the validity of any earlier (pre-judgment) step taken under the Act, including, as in this case, an adjudicator’s determination.

11. The consequence of such an order will partly depend on the basis upon which it is made. For example, if the Court were to hold that the document purporting to be a payment claim was not in fact a payment claim within the meaning of the Act, the process would have to start afresh, assuming that the right to make a payment claim subsisted. On the other hand, if the determination were invalid because of some error on the part of the adjudicator, one would expect that the matter might be returned to the adjudicator to make a fresh determination, according to law.

12. Because the consequences of a declaration of invalidity will depend upon the ground, even if made by consent, it is desirable, if not essential, that the declaration should state the ground. In the present case, the parties were content to work on the assumption that the determination was invalid because the adjudicator had rejected the claim on a basis not relied on by the respondent. The result in that circumstance of setting the determination aside, or declaring it void would be to leave unresolved an outstanding adjudication application. However, determination of the extant application was said to be unavailable because the adjudicator was required to determine an adjudication application as expeditiously as possible and, in any case, within 10 days after notifying both parties of acceptance of the application: s 21(3). Almost inevitably, that period had long since expired at the time that the declaration was made.

13. The alternative course, relied upon by the builder, was, upon the Court making its declaration, to seek to withdraw the adjudication application and make a new adjudication application. That course, it was asserted, was permitted by s 26 of the Security of Payment Act , which was (and is) in the following terms:

” 26 Claimant may make new application in certain circumstances

(1) This section applies if:

(a) a claimant fails to receive an adjudicator’s notice of acceptance of an adjudication application within 4 business days after the application is made, or
(b) an adjudicator who accepts an adjudication application fails to determine the application within the time allowed by section 21(3).

(2) In either of those circumstances, the claimant:

(a) may withdraw the application, by notice in writing served on the adjudicator or authorised nominating authority to whom the application was made, and
(b) may make a new adjudication application under section 17.

(3) Despite section 17(3)(c), (d) and (e), a new adjudication application may be made at any time within 5 business days after the claimant becomes entitled to withdraw the previous adjudication application under subsection (2).

(4) This Division applies to a new application referred to in this section in the same way as it applies to an application under section 17.”

14. It was not suggested that s 26(1)(a) was engaged, but rather that the adjudicator had failed to determine the adjudication application within the time allowed by s 21(3) which, in the absence of agreement between the parties to allow further time, was the period of 10 business days. That provision was engaged because, the builder submitted, the purported determination (made within time) was not a determination for the purposes of that provision which, it must be inferred, refers to the adjudicator validly determining the application. That submission may be accepted.

15. Accepting that submission, the builder faced a further difficulty in relying upon s 26, namely that the new adjudication application was required to be made within five business days after the builder became entitled to withdraw the previous application: s 26(3). There were three possible ways of calculating that limitation period. First, the builder became entitled to withdraw the adjudication application immediately upon the expiration of the 10 business days within which time the adjudicator had to make a valid determination and failed to do so. Secondly, the right to make a fresh adjudication application ran for five days after the builder became aware that it was entitled to withdraw the previous adjudication application. Thirdly, for the purposes of s 26, it was not correct to say that the entitlement to withdraw the first adjudication application arose prior to the order of the Court setting the purported determination aside or declaring that it was void or invalid.

16. The first reading was relied on by the respondent, but rejected by the builder. The builder sought to support the second approach, though concededly it required reading words into the terms of s 26(2) or (3) which were simply not there. Further, since it was the builder who asserted all along that the determination was invalid, and brought proceedings on the basis of invalidity, so that whatever words were to be read in must be such that they did not require the builder to act on its own view as to invalidity until a court had made an order to that effect.

17. The third approach may appear to be inconsistent with the general assumption in the authorities that a decision infected by jurisdictional error is “void ab initio”, being a form of legal nullity which does not require a court declaration or order: the effect of the declaration or order is merely to confirm that which is automatically achieved by the operation of the law.

Authorities dealing with s 26

18. It is convenient to refer at this point to the relevant case law, starting with judgments in the Equity Division.

19. The operation of s 26 appears to have been first addressed by Palmer J in Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140. Multiplex was the respondent to a determination by an adjudicator, which it sought to set aside by proceedings under s 69 of the Supreme Court Act . His Honour gave careful consideration to whether such relief was available in respect of an adjudicator’s determination, whether it was otherwise excluded by the terms of the Security of Payment Act and, if not, on what grounds relief could be sought. Each of these questions was resolved in favour of Multiplex. His Honour determined that in one respect the adjudicator had fallen into error, which required that the whole determination be quashed. He then turned to the consequences of quashing a determination, at [99]-[103]. Accepting that the consequences of quashing the determination would be inconvenient and expensive for the parties, his Honour noted that if the work under the contract had been completed and there were no further claims to be made, the dispute might appropriately be determined by litigation or other final dispute resolution procedures: at [100]. Where the payment claim arose in the course of the construction work, his Honour noted:

The claimant will no doubt want the payment claim determined before completing construction work. Can the claimant re-submit the dispute constituted by the payment claim and the payment schedule to the same adjudicator to be determined according to the reasons given by the Court in quashing the original determination? Or is the adjudicator, having made a determination under s 22(1), functus officio?”

20. Palmer J then opined that the solution lay in s 26: at [101]. The first step in the argument was to hold that a determination made without jurisdiction, even if made within the time stipulated in s 23(3), involved a failure to determine the application for the purposes of s 26(1)(b). For that purpose, he equated the result with a determination procured by fraud, concluding that “the determination is of no effect: it is as if the adjudicator had made no decision at all”: at [102]. He continued at [103]:

“When an adjudication under the Act is quashed pursuant to judicial review, in my opinion the claimant becomes entitled to withdraw its adjudication application under s 26(2) upon and from the date upon which the quashing order is made because on that date it has been ascertained that the adjudicator did not determine the adjudication according to law within the time allowed by the Act, for the purposes of s 26(1)(b). The claimant may then, within five business days of the quashing order, make a new adjudication application under s 26(3).”

21. In practical terms, there may be much to recommend this solution. However, there are problems in reaching such a result, by way of construing s 26 alone. These problems are not addressed in his Honour’s reasoning, no doubt because these comments were entirely obiter and did not affect the outcome of the case, although a contrary view might well have been relevant to the exercise of what his Honour accepted was a discretionary power to quash the determination, in the event of identified error on the part of the adjudicator.

22. The next case was a decision of Barrett J, Quasar Constructions NSW Pty Ltd v Demtech Pty Ltd [2004] NSWSC 116. That case also involved a claim for relief in respect of an adjudication determination, the claim being made under s 69 of the Supreme Court Act . His Honour identified error and made an order quashing the determination. He noted that the contract was no longer on foot and that, accordingly, any dispute would need to be resolved on a final basis. He also noted the possibility of the claimant obtaining another adjudication, referring to the mechanism identified by Palmer J in Luikens . The comment was neither relied upon as part of the reasoning supporting relief, nor was there any further exposition of the reasoning supporting the comment.

23. The issue arose squarely for determination in Emergency Services Superannuation Board v Sundercombe [2004] NSWSC 405. The claimant was a builder, Lipman Pty Ltd. (For reasons which remain obscure, the adjudicator, who should not be an active party, is generally named, inappropriately, as the first defendant.) In earlier proceedings, the Board (being the respondent to a payment claim) had sought to set aside an adjudicator’s determination in judicial review proceedings: Emergency Services Superannuation Board v Davenport [2004] NSWSC 697. McDougall J upheld challenges in respect of two individual items within the determination, and rejected a third challenge. Nevertheless, his Honour noted that there was but one determination and that if he “were to quash that Determination, Lipman would be deprived of the benefit of the entire Determination, including that portion which … is not affected by reviewable error”: at [72]. Noting that relief under s 69 of the Supreme Court Act was “discretionary”, he indicated that he would grant relief but only upon the developer accepting liability to pay the unaffected amount: at [73]. The builder then withdrew the adjudication application, pursuant to s 26, within five days of the orders made by McDougall J and made a new adjudication application. Before Bergin J, the Board challenged the builder’s claim to take those steps in reliance on s 26. It challenged the decision of Palmer J in Luikens . Bergin J accepted that the order of McDougall J quashing the determination triggered the operation of s 21(3): at [22]. She accepted that “in the circumstances where the Act is otherwise silent as to what is to happen in respect of a quashed determination” the approach adopted in Luikens was “persuasive”. She upheld the procedure adopted by the builder as within the terms of the Act: at [23]-[24].

24. In John Holland Pty Ltd v Made Contracting Pty Ltd [2008] NSWSC 374, Nicholas J was required to address the circumstances in which an adjudication application could properly be withdrawn. Although his Honour referred to the discussion of s 26 by Palmer J in Luikens , it was for the purpose of identifying what was covered by the reference to an adjudicator who “fails to” determine an application within the permitted time. He held that it was equivalent to “does not”: at [32]. Whether there is a precise equivalence may be doubted: for example, it may be an awkward use of language to say that a person “fails to” take a step of which he or she has no notice or which is precluded by the act of a third party: cf Brennan v New South Wales Land and Housing Corporation [2011] NSWCA 298 at [67]. However that issue need not be pursued in the present case.

25. It remains to address the reasoning of the primary judge in the present case, which was as follows:

(1) a determination made without jurisdiction was void ab initio – at [22];
(2) there was, therefore, no determination made within the time provided by s 26(1)(b) – at [24];
(3) the power to make a new adjudication application was confined to the period ending five business days after the entitlement to withdraw the previous application arose;
(4) that entitlement arose at the expiration of the 10 day period, absent a valid determination, and
(5) a fresh adjudication application could not be made many months later, after the determination had been declared void by a court.

26. There are two further aspects of the reasoning to which reference should be made. First, the primary judge was at pains to note that he was dealing with a case in which the respondent to an adjudication application had sought and obtained a declaration that the determination was void and not an order quashing a determination, pursuant to s 69 of the Supreme Court Act : at [26]. The significance of that distinction was, perhaps, that it provided a basis for not following the earlier judgments discussed above. However, the legal quality of the determination does not depend upon the nature of the relief sought; indeed, on the assumption set out at step (1) of his Honour’s reasoning, the invalidity of the decision arose by operation of law. Furthermore, in adopting this approach, the primary judge overlooked the fact that an order quashing the determination had been sought in the amended summons and was one of the orders which he made.

27. Secondly, McDougall J placed significant weight on the distinction between void and voidable decisions. In so doing, he made reference to passages in the judgment of Hodgson JA (with whom Mason P and Giles JA agreed) in Brodyn Pty Ltd v Davenport [2004] NSWCA 394; 61 NSWLR 421. It will be necessary to return to this issue below. However, before addressing matters of principle, reference should be made to the authorities construing similar legislation in other jurisdictions.

28. There is equivalent legislation in Queensland, being the Building and Construction Industry Payments Act 2004 (Qld). Section 32 of that Act is equivalent to s 26 of the Security for Payment Act . The language is not identical: one potentially relevant difference is that where s 26(1) refers to a person who “fails to” receive a notice or decide an application, the Queensland statute uses the words “does not”. In Spankie v James Trowse Constructions Pty Ltd [2010] QCA 355 Fraser JA (Holmes and Chesterman JJA agreeing) considered whether the right to make a new adjudication application might provide a basis for concluding that an amount included in one payment claim cannot be included in a subsequent claim. (The issue was similar to that raised in this Court in Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69; 74 NSWLR 190, subject to the qualification that there was in Spankie no pre-existing valid determination.) In dealing with the argument based on s 32 of the Queensland Act, Fraser JA noted that the appellant had sought support in the various decisions in this Court with respect to the power to make a new adjudication application following the setting aside of an earlier invalid determination. His Honour made no comment on the correctness of those decisions but merely stated at [29]:

“Assuming that is so, it does not suggest error in the primary judge’s conclusion that s 32 did not exclude the respondent’s right to make a subsequent payment claim for an amount the subject of the void adjudication determination. As the primary judge held, s 32 does no more than exhaustively define the rights of the respondent in respect of a new adjudication application based upon the earlier payment claim.”

29. This Court’s attention was not drawn to any case in which the equivalent provision in the Building and Construction Industry Security of Payment Act 2002 (Vic), namely s 28, has been addressed.

Construction of section 26

30. The proper construction of s 26 was addressed in submissions on the basis that it was necessary to adapt the express words in some way to accommodate the circumstance not addressed by the legislature, namely the result of a court order that a purported determination of an adjudicator was in fact invalid. It is convenient to address that issue next, as it involves affirming the conclusion of the primary judge that such an approach is not available. A second issue concerns the underlying assumption upon which that approach was based, namely that, being “void ab initio”, the purported determination had no effect in law at all. Both semantically and substantively, that assumption is unsupportable. It follows that the approach adopted by Palmer J in Luikens , and subsequently followed by judges in the Equity Division, was correct, although the basis for the conclusion requires restatement.

(a) approach to construing section 26

31. The terms of s 26 have been set out at [13] above. The problem raised by the present circumstances may be addressed from different perspectives.

32. On one view, if the statutory right of the builder to obtain an interim payment for work done cannot be given effect within the terms of the Security of Payment Act , the builder has lost no more than the promise of a special statutory entitlement which the Act appeared to provide. The builder would retain all its entitlements under law (other than the Security of Payment Act ) to pursue its remedies against the developer. On the other hand, a result which deprives the builder, through no fault on its part, of the special right deliberately conferred by the Security of Payment Act , is a construction which is to be avoided if possible, because it negates the purpose of the Act in circumstances which may appear arbitrary.

33. There are other competing policy considerations which may apply in some cases, though not in others. In some circumstances, where the construction work has not been completed, it may be open to a builder to make a further payment claim in respect of the same work the subject of the aborted claim. However, if the time period within which a payment claim may be served, pursuant to s 13(4), has expired, that alternative course will not be available. There is a further consideration, which may be relevant in some circumstances, namely that a respondent to a payment claim cannot seek to resist the claim on any basis not set out in its payment schedule, which must be served within (at most) 10 business days after service of the payment claim: s 14(4). If some further basis for resisting the payment claim has become known to the respondent at a later stage, there will be a tactical advantage to the builder in seeking an adjudication on its original payment claim and the payment schedule served in response thereto. On the other hand, the respondent could claim unfairness resulting from the fact that it is precluded in such circumstances from relying upon what may be a totally valid defence, which is now known to it.

34. There being no existing authority binding on this Court as to the proper construction of s 26, it is to be considered as a matter of principle. In this respect, a number of propositions relied upon by the appellant should be accepted. First, it is necessary to follow the statutory mandate to “prefer” a construction that would promote the purpose or object underlying the Act, to one that would not: Interpretation Act 1987 (NSW), s 33. Secondly, as noted by Dawson J in Mills v Meeking [1990] HCA 6; 169 CLR 214 at 235, in relation to the Victorian equivalent to s 33, the approach prescribed “needs no ambiguity or inconsistency; it allows a court to consider the purposes of an Act in determining whether there is more than one possible construction”. Thirdly, this is a form of “contextualism”, in that it will require not merely the reading of whole sentences, rather than individual words, but reading a particular section in the context provided by the whole statute and the industrial background in which the statute was expected to operate, which will be the usual way of identifying statutory purpose.

35. Questions as to inherent ambiguity may arise if reliance is sought to be placed on extrinsic material, such as the second reading speech or background reports preparatory to the enactment of the legislation: Interpretation Act , s 34. No reliance was placed on such material in the present case.

36. The appellant sought to call in aid a passage in the judgment of Mahoney JA (McHugh and Clarke JJA agreeing ) in Tokyo Mart Pty Ltd v Campbell (1988) 15 NSWLR 275, a case involving the construction of very detailed regulations relating to the sale and consumption of food. His Honour succinctly identified the issue as concerning “an omission not of purpose but of verbiage and as such appropriate to be cured”: 283G. In a more extended explanation he stated at 283A:

“Legislative inadvertence may consist, inter alia, of either of two things. The draftsman may have failed to consider what should be provided in respect of a particular matter and so fail[ed] to provide for it. In such a case, though it may be possible to conjecture what, had he adverted to it, he would have provided, the court may not, in my opinion supply the deficiency. In the other case, the legislative inadvertence consists, not in a failure to address the problem and determine what should be done, but in the failure to provide in the instrument express words appropriate to give effect to it. In the second case, it may be possible for the court, in the process of construction, to remedy the omission.”

37. That passage from Tokyo Mart was set out by Beazley JA in Taylor v Centennial Newstan Pty Ltd [2009] NSWCA 276; 76 NSWLR 379 at [61]. (It was not relied upon by other members of the Court.) The precise nature of the distinction is obscure, although it may amount to no more than the proposition that, to remedy such an omission, it must be “possible to state with certainty what were the additional words that would have been inserted by the draftsman and approved by Parliament had their attention been drawn to the omission before the Bill passed into law”: being the third condition identified by Lord Diplock in Wentworth Securities v Jones [1980] AC 74 at 105-107, applied in this State in R v Young [1999] NSWCCA 166; 46 NSWLR 681 at [9]-[10] (Spigelman CJ, referring to the line of authorities in which it had been applied). That test is not satisfied in this case.

(b) the concept of nullity

38. In Minister for Immigration and Multicultural Affairs v Bhardwaj [2002] HCA 11; 209 CLR 597, a case involving a decision of the Refugee Review Tribunal established under the Migration Act 1958 (Cth), Gaudron and Gummow JJ stated at [46]:

“In our view, it is neither necessary nor helpful to describe erroneous administrative decisions as ‘void’, ‘voidable’, ‘invalid’, ‘vitiated’ or, even, as ‘nullities’. To categorise decisions in that way tends to ignore the fact that the real issue is whether the rights and liabilities of the individual to whom the decision relates are as specified in that decision. And, perhaps more importantly, it overlooks the fact that an administrative decision has only such force and effect as is given to it by the law pursuant to which it was made.”

39. In the same case, Gleeson CJ quoted, with apparent approval, a passage from the judgment of Finkelstein J in Leung v Minister for Immigration and Multicultural Affairs [1997] 79 FCR 400 at 413 in respect of a decision which could be impugned for “jurisdictional error”:

“There is no doubt that an invalid administrative decision can have operational effect. For example it may be necessary to treat an invalid administrative decision as valid because no person seeks to have it set aside or ignored. The consequence may be the same if a court has refused to declare an administrative decision to be invalid for a discretionary reason. In some circumstances the particular statute in pursuance of which the purported decision was taken may indicate that it is to have effect even though it is invalid or that it will have effect until it is set aside.”

40. The assumption that a decision made without jurisdiction must be without any legal status or effect is false. At the very least, it may be the subject of a declaration and an order in the nature of certiorari setting it aside. In statutes providing for an appeal, an invalid decision (made in breach of rules of procedural fairness) may be the subject of an appeal: Calvin v Carr [1980] AC 574. As explained pithily by Aronson, Dyer and Groves, Judicial Review of Administrative Action (4 th ed, Law Book Co, 2009) at [10.35]:

“It is a mistake to assume that jurisdictional errors always lead to the same consequence, namely, nullity. It is also a mistake to assume that nullity represents the same legal consequence (namely, legal non-existence) for all contexts. Nullity does not automatically follow from jurisdictional error, and when it does follow, its effects can vary.”

41. In short, labels do not engage automatic consequences: context is critical. Especially is that so where a step in a statutory process, expressed in mandatory terms, has been omitted. In such a case, the legal consequences will not necessarily flow from reliance on the truism that jurisdiction cannot be conferred by consent and a defect which goes to jurisdiction therefore cannot be waived: cf Strachan v Gleaner Co Ltd [2005] 1 WLR 3204 at [28] (Lord Millett speaking for the Privy Council). If a statute expressly or impliedly provides that a subsequent step is not invalidated by the omission of an essential requirement at an earlier stage, the essential requirement may be treated as, to that extent, contingent. Thus, it is well established that procedural unfairness at one stage does not undo everything that follows – it can be “cured”: see Calvin v Carr , above at [40].

42. Berowra Holdings Pty Ltd v Gordon [2006] HCA 32; 225 CLR 364 involved a challenge to proceedings for damages in relation to a workplace injury, commenced prematurely in contravention of s 151C of the Workers Compensation Act 1987 (NSW). The Court identified the issue at [2] as being:

“does the prohibition apparently imposed by s 151C deny legal effect both to proceedings for common law damages commenced in contravention of that prohibition and to all steps later taken by the parties under the relevant Rules of Court with respect to such proceedings?”

43. The joint judgment (of Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ) applied to judicial proceedings the statement in Bhardwaj of the dangers attendant on labelling an administrative decision as “invalid” or a “nullity”: at [10]. The Court concluded that s 151C was not a precondition to the jurisdiction of the trial court, nor did it “inevitably result in the invalidity of proceedings commenced in contravention of it”: at [33]-[34]. The reasoning of the Court need not be rehearsed in detail: suffice it to say that the characterisation of the provision depended upon its purpose and context, which included the potential diminution of common law rights of an injured plaintiff and a constriction of the jurisdiction of the trial court.

(c) application of principles

44. In applying these principles, it is necessary to refer to the approach taken by this Court in respect of the Security of Payment Act in Brodyn (see [27] above). Aspects of Brodyn have been the subject of reconsideration in later judgments of this Court, including, most recently, Chase Oyster Bar (see [6] above) at [20]-[32] (Spigelman CJ); [146]-[152] (McDougall J); [90]-[92], [95] and [106] (in my reasons). It is now established that the determination of an adjudicator may be the subject of proceedings in the nature of judicial review under s 69 of the Supreme Court Act , for jurisdictional error. The present issues concern a different aspect of the judgment in Brodyn .

45. An adjudication determination in favour of the claimant gives rise to a statutory right to payment by the respondent of the amount so determined: s 23. If not paid within the permitted period, the claimant may request an adjudication certificate under s 24, which can then be filed as a judgment in a court of competent jurisdiction, pursuant to s 25. The latter provision assumes that the respondent may commence proceedings to have the judgment set aside, but, in doing so, may not “challenge the adjudicator’s determination”. In Brodyn , the primary judge had declined to grant relief setting aside the adjudicator’s determination on the basis that the only utility of such an order would be to provide a basis for setting aside the judgment, but that such a step involved challenging the adjudicator’s determination and was thus not available: Brodyn at [33]. This Court held that conclusion to be erroneous: [38]-[42]. As explained by Hodgson JA, “if the determination was quashed or declared void, reliance on there being no determination to support the judgment would not be to challenge the adjudicator’s adjudication within s 25(4): this wording assumes that there is a determination which is challenged”: at [41]. After referring to the possibility of a forgery, his Honour held that “if the respondent could show that for some other reason recognised in law a purported adjudicator’s determination did not amount to an adjudicator’s determination within the meaning of the Act, that would not be challenging an adjudicator’s determination: this … assumes that there is such a determination to be challenged”: at [42].

46. In considering whether judicial review was available under s 69 of the Supreme Court Act, Hodgson JA repeated the proposition that a determination which did not comply with the essential conditions for its existence “will not in truth be an adjudicator’s determination within the meaning of the Act”, and could be subject to relief by way of declaration or injunction: at [52].

47. In the event, the appeal in Brodyn was dismissed for other reasons, so that there was no basis upon which to correct the error which had been identified in the approach of the trial judge. Further, the specific provision in respect of which the effect of the purported determination needed to be assessed was that permitting (subject to constraints) proceedings to set aside a judgment based on the determination, namely s 25(4). That is not the issue at stake in the present case. Accordingly, the present appeal may be determined without reconsidering the reasons given in Brodyn for describing a purported determination as “void”. (It is also unnecessary for present purposes to consider what constitutes a “challenge” to a determination.)

48. There are two aspects of s 26 which should be noted before considering its application in the present circumstances. The first is that, while sub-s (1) identifies the precise time from which an adjudication application may be withdrawn, sub-s (2), which confers on the claimant the power to withdraw such an application, does not itself prescribe a limited period. Secondly, sub-s (3), which deals expressly with the right to make a further adjudication application, is not said to be contingent upon withdrawal of the existing application. These apparent anomalies, however, are removed if the section is read as a whole. Thus, reading the various sub-sections together, s 26 confers on a claimant a single power having two limbs (namely withdrawal of an existing adjudication application and making a new adjudication application) each of which must be exercised within five business days after the entitlement to withdraw, as identified in sub-s (1) arises.

49. The first step requires reference to the status of a determination not made within the period prescribed by s 21(3). If both parties wait for the determination beyond the 10 day period, in circumstances which do not constitute “agreement” to allow further time for the purposes of paragraph (b), is the determination ineffective because not made within the prescribed period? If it were, either party could ignore it or have it set aside on that basis alone. That conclusion is not in conformity with the purpose of the statutory scheme. That scheme envisages that delay will affect the claimant adversely and thus confers on it a right to make a further adjudication application, pursuant to s 26. No remedy is conferred on the respondent. Failure to comply with s 21(3) should not, of itself, permit either party to treat any subsequent determination as totally ineffective.

50. What then is the situation where a determination is set aside for other reasons? On one view, for which neither party argued in the present proceedings, if the time limit in s 21(3) is not inflexible, it might be open to the Court to remit the matter to the adjudicator for reconsideration of the adjudication application, according to law, without the need for a new adjudication application under s 26. Putting that possibility to one side, the only alternative basis upon which the unresolved dispute can be determined is by the making of a new adjudication application. Between the date of the determination and the order of the court, no one can be sure whether the adjudicator has failed to determine the application validly. It is only the order of the court which resolves that question. To say that the question has been previously resolved by operation of law is to deprive the claimant of its entitlement to have the payment claim determined at all. To say that the determination is effective for the purposes of s 26(1)(b), until set aside or declared ineffective by a court, provides the claimant with an opportunity, under s 26(3), to make a new adjudication application. The construction of these provisions which promotes the purpose of the legislation is to be preferred over one that does not: Interpretation Act , s 33. Such a construction is not to be precluded by labelling the first determination “void”, a term not used in the statute. Accordingly, it should be preferred.

51. One example of giving indirect effect to an invalid determination may be found in the first Emergency Services decision of McDougall J referred to at [23] above. As a condition of the respondent to a payment claim obtaining an order setting aside the adjudicator’s determination, his Honour required that it pay the amount unaffected by the jurisdictional error on the part of the adjudicator. The amount was not arbitrarily selected and can only have been justified by reference to the otherwise invalid determination.

52. Such an approach has much to recommend it, particularly, it might be added, if the claimant is otherwise unable to pursue its original payment claim to achieve a second adjudication. However, such conditional relief can itself only be valid if it is designed to achieve a legitimate purpose: cf Minister for Immigration and Multicultural Affairs v Wang [2003] HCA 11; 215 CLR 518 at [15]-[16] (Gleeson CJ); [39] (McHugh J); [68] (Gummow and Hayne JJ). If the determination is indeed legally ineffective in all respects, it would be doubtful whether the Court could condition declaratory relief (or an order setting aside the decision) upon the applicant making such payment as would be required by the determination if validity could be determined part by part, like the curate’s egg. Accordingly, the underlying assumption was inconsistent with total invalidity for all purposes.

53. Further consequences of the ‘void ab initio’ theory should also be noted. The respondent to the claim is required to pay the amount of the adjudication within five days: s 23(1)(a). If it does not, the claimant can take steps to suspend work and seek to enforce the debt. If the respondent challenges the validity of the determination, very likely more than five days after the expiration of the 10 day adjudication period, the claimant, on the basis that the determination was void at all times, is without a remedy, through no fault of its own. It has lost the benefit of the scheme.

54. Where it is the claimant which wishes to challenge the determination, in theory it can protect itself by immediately withdrawing the adjudication application, but it must make a fresh adjudication application within five days after the expiration of the 10 day period: s 26(3). However, there is no provision in the statute to suspend what happens thereafter in respect of the new adjudication application, pending determination of any challenge to the validity of the first determination in the Supreme Court. If the claimant took that course, the inevitable result would be legal confusion and, no doubt, the incurring of costs against an unknown outcome. Thus, whether it is the claimant or the respondent which challenges the validity of the determination, in neither case does the ‘void ab initio’ approach accord with the statutory purpose.

55. For these reasons, the approach adopted in Luikens is correct and, despite the fact that his reasoning was, in its terms, sound, the primary judge was in error in departing from the earlier authorities. The error derived from the assumption that a determination which had been declared to be void had no effect, and never had had any effect for the purposes the Security of Payment Act .

Appropriate orders

56. On 23 November 2010 the primary judge made the following substantive orders:

“The Court declares:

1. That the second defendant’s adjudication determination dated 3 September 2010 (corrected 8 September 2010) is void.

The Court Orders:

2. That the second defendant’s adjudication determination … be quashed.
3. That the Amended Summons otherwise be dismissed.”

57. In the event that the appellant established error in the reasoning of the primary judge, the appellant invited this Court to uphold a claim that the determination was void on various grounds going to the substance of the decision. It is inappropriate to accept that invitation to deal as a trial court with matters going to the validity of the determination which have not been addressed below. The matter must be remitted if the appellant seeks to pursue those grounds.

58. One further point may be made in this context. In seeking remittal, the respondent suggested, perhaps in terrorem , that determination of the additional issues would “require consideration of hundreds of documents and an assessment of the facts be drawn from the documents”: written submissions, par 11. If this suggestion bore any resemblance to the reality of the process engaged in by parties seeking to review the determinations of adjudicators, it reveals a serious misunderstanding of the nature of such proceedings. As explained in Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd [2011] QCA 22 at [3], by Margaret McMurdo P, in reference to the scheme established by the Queensland Act:

“In essence, it provides for the speedy, interim only determination by adjudicators of disputed claims under construction contracts. These adjudications are not intended to be scrutinised in the same way as considered final determinations: Bezzina Developers Pty Ltd v Deemah Stone (Qld) Pty Ltd [2008] 2 Qd R 495 at [71] and [72] and Intero Hospitality Projects Pty Ltd v Empire Interior (Australia) Pty Ltd [2008] QCA 83 at [51].”

59. To similar effect in Grocon Constructors Pty Ltd v Planit Cocciardi Joint Venture (No 2) [2009] VSC 426, Vickery J considered an application to quash a determination under the Victorian Building and Construction Industry Security of Payment Act . After noting that the adjudicator was required to determine difficult questions of fact and law, his Honour stated:

“[143] Nevertheless, in approaching the question of procedural fairness in the decision-making of an adjudicator under the Act, not too fine a point should be taken in relation to what is done. The shortcomings of the statutory procedure provided for in the Act point to the need for a large measure of practicality, flexibility and commonsense being observed to make it work. The procedures will call for adaptation in each case in the light of the clear legislative intention of the Act, namely that an adjudicator’s determinations are to be carried out informally: s 22(5A); and speedily: s 22(4); and ‘on the papers’: ss 23 and 28I; and bearing in mind that there is always the facility for erroneous determinations to be corrected upon a final hearing of the issues in dispute between the parties: s 47(3).

[144] The legislative intention, in my opinion, points strongly to the position that, in approaching his or her task, an adjudicator’s determination will only be brought into question if there has been a substantial denial of the measure of procedural fairness required under the Act.”

60. Each of the sections referred to by Vickery J at [143] has its equivalent in the Security of Payment Act . The further remark that there must be a “substantial” denial of procedural fairness is not consistent with the approach adopted in Re Refugee Tribunal; Ex parte Aala [2000] HCA 57; 204 CLR 82. However, there are different ways of achieving the same result: for example, the content of procedural fairness may be diminished, taking into account the factors which his Honour referred to, so that it is substantially less demanding than that which would be required in a judicial proceeding in a civil court. His Honour’s comment should be so understood.

61. Furthermore, some evidence of an over-rigorous approach is to be found in decisions which analyse the reasons of adjudicators, to determine whether some matter raised by one party or the other has been “taken into account”, where the consequence of failure would constitute jurisdictional error, as if the reasons required by s 22(3) approach those required of a trial judge. It may be that proceedings in the Court’s supervisory jurisdiction are undertaken with limited consideration of statutory context and adopting an unduly broad view of what constitutes jurisdictional error. Suffice it to say in the present case that the scope of the inquiry required to deal with any suggestion of procedural unfairness, or other jurisdictional error, in the determination of the adjudicator would not have engaged the kind of inquiry foreshadowed by the respondent.

Conclusion

62. The appeal should be allowed and the following orders made:

(1) Allow the appeal and set aside the orders made in the Equity Division on 23 November 2010.

(2) Remit the proceedings to the Equity Division for determination of the remaining issues.

(3) Order that the respondent pay the appellant’s costs in this Court.

(4) Grant the respondent a certificate under the Suitors’ Fund Act 1951 (NSW), if not disqualified pursuant to s 7(4).

(5) Direct that the costs of the proceedings in the Equity Division so far be determined by the Court as constituted to deal with the further issues.

63. MACFARLAN JA : On 21 April 2008 the appellant (“Cardinal”) and the first respondent (“Hanave”) entered into a Minor Works Contract under which Cardinal agreed to perform excavation and shoring works for Hanave.

64. On 30 November 2009 Cardinal served on Hanave a payment claim pursuant to s 13 of the Building and Construction Industry Security of Payment Act 1999 (“the Act”) claiming entitlement to a progress payment of $611,545.89. In response Hanave served a payment schedule pursuant to s 14, indicating that it did not intend to pay any part of the amount claimed. On 17 December 2009 Cardinal applied for adjudication of its payment claim and on 8 January 2010 Mr Phillip Davenport, the appointed adjudicator, issued a determination in favour of Cardinal in the sum of $354,181 (“the First Determination”).

65. Hanave took the view that Mr Davenport had found in Cardinal’s favour on a submission that Cardinal had not put to him and that Hanave was therefore denied procedural fairness. As a result Hanave commenced proceedings in the Supreme Court for a declaration that the First Determination was “void and of no effect”. Cardinal recognised the force of Hanave’s complaint and consented to the Court making a declaration in these terms on 6 August 2010.

66. In reliance on s 26(1)(b) and s 26(2) of the Act, Cardinal purported on 9 August 2010 to withdraw its first adjudication application and on 12 August 2010 to lodge a second adjudication application.

67. Section 26 is in the following terms:

” 26 Claimant may make new application in certain circumstances

(1) This section applies if:

(a) a claimant fails to receive an adjudicator’s notice of acceptance of an adjudication application within 4 business days after the application is made, or

(b) an adjudicator who accepts an adjudication application fails to determine the application within the time allowed by section 21 (3).

(2) In either of those circumstances, the claimant:

(a) may withdraw the application, by notice in writing served on the adjudicator or authorised nominating authority to whom the application was made, and

(b) may make a new adjudication application under section 17.

(3) Despite section 17 (3) (c), (d) and (e), a new adjudication application may be made at any time within 5 business days after the claimant becomes entitled to withdraw the previous adjudication application under subsection (2).

(4) This Division applies to a new application referred to in this section in the same way as it applies to an application under section 17.”

68. Section 21(3), to which reference is made in s 26(1)(b), is in the following terms:

” 21 Adjudication procedures

…

(3) Subject to subsections (1) and (2) [which are not of present relevance], an adjudicator is to determine an adjudication application as expeditiously as possible and, in any case:

(a) within 10 business days after the date on which the adjudicator notified the claimant and the respondent as to his or her acceptance of the application, or

(b) within such further time as the claimant and the respondent may agree.

… ”

69. Subsequently Mr David Campbell-Williams, the second respondent, was appointed as adjudicator to determine Cardinal’s second adjudication application. By his determination dated 3 September 2010 (“the Second Determination”) Mr Campbell-Williams found that there was no money owing by Hanave to Cardinal pursuant to Cardinal’s payment claim of 30 November 2009. Cardinal responded by pointing out to Mr Campbell-Williams that he had made an arithmetical error in his determination. This led to Mr Campbell-Williams issuing an amended determination, concluding that Cardinal was entitled to a progress payment of $28,201 exclusive of GST.

70. In the adjudication before Mr Campbell-Williams, Hanave unsuccessfully contended that Mr Campbell-Williams lacked jurisdiction because Cardinal had not been entitled to lodge a further adjudication application after the First Determination had been declared void. Hanave’s contention was that the time for Cardinal to lodge such an application had long since expired because the 5 business day period specified in s 26(3) commenced in January 2010 when Mr Davenport failed to issue a valid determination within the time allowed by s 21(3).

71. On 13 September 2010 Cardinal commenced the present proceedings seeking declarations that the Second Determination is void and that, upon the Court making that declaration, Cardinal “may, within 5 business days, withdraw its adjudication application dated 12 August 2010 under s 26(2) of the Act, and make a new adjudication application under s 26(3) of the Act” (Amended Summons [3]). Cardinal’s complaint concerning the Second Determination is that the adjudicator “did not properly consider the submissions and documents put” before him with the result that Cardinal was denied procedural fairness (List Statement [A8]).

72. In its Response to Cardinal’s List Statement, Hanave contended that the Second Determination was void because, as it had submitted to Mr Campbell-Williams, Cardinal’s second adjudication application was made out of time and Mr Campbell-Williams accordingly lacked jurisdiction to determine it. Hanave contended that the time for Cardinal to make a second adjudication application ran, not from the date that the First Determination was declared void, but from the expiration of 10 business days from the date upon which Mr Davenport (the first adjudicator) notified his acceptance of Cardinal’s first adjudication application (as the parties had not agreed to extend that period: see s 21(3) of the Act). This contention was based on the proposition that if the First Determination was void it did not constitute a determination and Mr Davenport had therefore failed to determine the application within the time allowed by s 21(3) (see s 26(1)(b)).

73. Whilst acceptance of Hanave’s contention would have led to the granting of the same primary relief as Cardinal sought, namely a declaration that the Second Determination was void, its acceptance would have denied Cardinal’s asserted right to lodge a third adjudication application (because Cardinal would be long out of time to do so).

74. The proceedings were heard by McDougall J.

THE JUDGMENT AT FIRST INSTANCE

75. In his judgment of 23 November 2010 the primary judge accepted Hanave’s contention that the Second Determination should be declared void, and quashed, because Mr Campbell-Williams lacked jurisdiction to make it. In these circumstances his Honour did not need to, and did not, consider whether the Second Determination was void for the reason that Cardinal advanced (namely that Cardinal was denied procedural fairness) nor whether, as Hanave contended, Cardinal had (by asking Mr Campbell-Williams to amend his determination) elected not to assert that the Second Determination was void.

76. The primary judge reasoned as follows in relation to the question of whether the circumstance referred to in s 26(1)(b) had occurred:

“24 Thus, where a determination is declared to be void, the legal consequence, which the parties bound by the declaration cannot controvert, is that there is and was no determination. In my view, it follows in those circumstances that the adjudicator did not ‘determine the application’ for the purposes of s 26(1)(b) of the Act. I agree with the view of Nicholas J in [ John Holland Pty Ltd v Made Contracting Pty Ltd [2008] NSWSC 374] at [32] that the expression ‘fails to determine’ in s 26(1)(b) means, in effect, ‘does not determine.’ In circumstances where a declaration is declared to be void, there is thus no determination of the matters set out in s 22(1) of the Act.”

77. This view accorded with that which Palmer J expressed in Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 at [102].

78. The primary judge then concluded that the new adjudication application that Cardinal had made after the Court declared the Second Determination void was not made within the time specified in s 26(3) because, contrary to Cardinal’s submission, time did not only commence to run from the date upon which that declaration was made. Rather, it commenced on the much earlier date when one of the circumstances referred to in s 26(1) occurred. His Honour considered this to be so because “a declaration that a determination is void does not avoid the determination. It declares a state of affairs which in law exist[s] already” (Judgment [32]).

79. His Honour referred to the following different view that Palmer J had expressed in Multiplex v Luikens :

“103 When an adjudication under the Act is quashed pursuant to judicial review, in my opinion the claimant becomes entitled to withdraw its adjudication application under s.26(2) upon and from the date upon which the quashing order is made because on that date it has been ascertained that the adjudicator did not determine the adjudication according to law within the time allowed by the Act, for the purposes of s.26(1)(b). The claimant may then, within five business days of the quashing order, make a new adjudication application under s.26(3).”

80. Palmer J’s view was followed by Barrett J in Quasar Constructions v Demtech Pty Ltd [2004] NSWSC 116 at [38], by Bergin J (as her Honour then was) in Emergency Services Superannuation Board v Sundercombe [2004] NSWSC 405 at [20] – [24] and by Nicholas J in John Holland v Made Contracting . The primary judge in the present case however considered that Palmer J’s view did not accord with the language of s 26 (Judgment [30]).

81. Multiplex , and the cases which followed it, were concerned with orders quashing an adjudicator’s determination rather than, as with the present case, a declaration that a determination was void. McDougall J did not appear to regard this distinction as of any significance. Nor do I, as the effect of an order quashing a decision upon the ground of denial of procedural fairness is that the decision is a nullity unless the relevant statute expressly or impliedly provides otherwise ( Minister for Immigration and Multicultural Affairs v Bhardwaj [2002] HCA 11; 209 CLR 597 at [50] – [54], [63] and [152] – [154]; and see Berowra Holdings Pty Ltd v Gordon [2006] HCA 32; 225 CLR 364 at [10] – [11]).

THE ISSUES ON APPEAL

Does an adjudicator who issues a void determination “fail to determine” the relevant adjudication application?

82. Hanave submitted that to construe s 26(1)(b) as applying where an adjudicator issues a purported but void determination is to add a third circumstance to the two circumstances expressly identified in s 26(1) and thereby to depart from the language of the statute.

83. I do not agree. Unless the relevant statute indicates otherwise, a void determination is not a determination at all (see [81] above). There is no such contrary indication in the Act.

84. As a result, if an adjudicator issues only a purported but void determination within the time allowed by s 21(3) the adjudicator has failed to determine the application and s 26(1)(b) is satisfied. I accordingly agree with the view expressed on this issue by the primary judge and by Palmer J in Multiplex v Luikens (see [76] – [77] above).

When does the time for filing a new adjudication application commence to run?

85. Before answering this question it is appropriate to refer to the objects of the Act, as identified in s 3. In essence they are to ensure that persons undertaking building and construction work are able to obtain progress payments (whether or not their contracts provide for them) and to establish a mechanism by which this may be achieved. It is plain from consideration of the Act as a whole that the legislature intended that the mechanism would facilitate prompt payment and would ensure that disputes as to contractors’ entitlements were resolved in an expeditious fashion. To this end the legislature imposed tight timetables for relevant steps to be taken.

86. I turn then to the question posed above. The answer that the text of s 26 provides is in my view a clear one. If, as I have concluded to be the case, an adjudicator who (having accepted an adjudication application) issues only a void determination “fails to determine” the adjudication application within the time allowed by s 21(3), the date upon which that period of time expires is the date upon which one of the preconditions to the operation of s 26(2) is first satisfied and from which the claimant may, under s 26(2)(a), withdraw its application. It follows that under s 26(3) the claimant has 5 business days from that date to lodge a new application.

87. In the present case Mr Davenport had ten business days after he notified his acceptance of the adjudication application within which to make a determination. I shall assume, for the purposes of illustration, a notification date of 4 January 2010. As the First Determination of 8 January 2010 is void, and was therefore never made, Mr Davenport failed to make a determination when the time to do so expired on 18 January 2010 (ten business days after the notification date of 4 January 2010). Section 26(1) was thereby first satisfied, and Cardinal became entitled to withdraw its application and make a new application within five business days after 18 January 2010. This period expired on 25 January 2010. Cardinal did not however lodge its purported new application until 12 August 2010, and was thus long out of time to do so.

88. This view accords with that of the primary judge. It does not accord with the view expressed by Palmer J in Multiplex v Luikens at [103], as adopted in the subsequent cases to which I have referred (see [79] – [80] above), but those cases do not identify any textual or other reasons for taking a different view to that of the primary judge.

89. In his submissions on the present appeal, counsel for Cardinal did at one point submit that the relevant provisions of s 26 were ambiguous but he was unable to advance any compelling reason why that was so. Instead, understandably, his submissions concentrated upon what he contended was an inconvenient and unfair consequence that could flow from the primary judge’s view, namely that a claimant could be outside the time within which it was permitted to lodge a new adjudication application before the adjudicator’s determination was declared void, or quashed by the Court, and therefore before the claimant knew of its right to make a new application.

90. In construing legislation it is appropriate to consider the consequences that may flow from the interpretations for which the parties contend. However the Court’s primary focus must be upon the text of the provision in question (here s 26) and upon the other provisions of the relevant legislation “with which it interacts” ( Saeed v Minister for Immigration and Citizenship [2010] HCA 23; 241 CLR 252 at [33] – [34]; see also Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; 239 CLR 27 at [4], [5], [47] and [51]; Federal Commissioner of Taxation v BHP Billiton Ltd [2011] HCA 17; 85 ALJR 638).

91. It is of course necessary that the subject provision be construed so that it is harmonious with other provisions of the Act ( Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [70], [80] – [81]) but Cardinal was not able to point to any other provision of the Act which indicates that the construction of s 26 for which it contended should be adopted. Cardinal’s submissions did not, and could not, rise higher than a contention that the primary judge’s construction might in some circumstances lead to an inconvenient or unjust result.

92. Even if that contention is correct, it is insufficient to warrant departure from the clear textual meaning of s 26:

“[I]f the language of a statutory provision is clear and unambiguous, and is consistent and harmonious with the other provisions of the enactment, and can be intelligently applied to the subject matter with which it deals, it must be given its ordinary and grammatical meaning, even if it leads to a result that may seem inconvenient or unjust … On the other hand, if two constructions are open, the court will obviously prefer that which will avoid what it considers to be inconvenience or injustice” ( Cooper Brookes (Wollongong) Pty Ltd v The Commissioner of Taxation (Cth) [1981] HCA 26; 147 CLR 297 at 305; see also Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; 129 CLR 99 at 109).

93. Consideration of the objects of the Act does not in my view provide any assistance to Cardinal’s submissions as to the proper construction of s 26(3) but it is nevertheless appropriate to note the following cautionary observation that Dawson J made in Mills v Meeking [1990] HCA 6; 169 CLR 214 at 235, which is applicable when a departure from the text of a statute is sought:

“if the literal meaning of a provision is to be modified by reference to the purposes of the Act, the modification must be precisely identifiable as that which is necessary to effectuate those purposes and it must be consistent with the wording otherwise adopted by the draftsman. Section 35 [of the Interpretation of Legislation Act 1984 (Vic) requiring regard to be had to the purposes or objects of legislation, of which an equivalent provision exists in s 33 of the Interpretation Act 1987 (NSW)] requires a court to construe an Act, not to rewrite it, in the light of its purposes.”

94. To the same effect is the following observation of Basten JA in Taylor v Centennial Newstan Pty Ltd [2009] NSWCA 276; 76 NSWLR 379 at [92]:

“where some variation is sought of the statutory language, it is an essential precondition to any legitimate exercise of the power of statutory construction that it be ‘possible to state with certainty’ what words would have been adopted by the drafter and approved by Parliament had their attention been drawn to the problem: [ Wentworth Securities v Jones ] [1980] AC 74 at 107; R v Young [1999] NSWCCA 166; 46 NSWLR 681 at [9]-[15] (Spigelman CJ).”

95. This principle constitutes an insurmountable hurdle for Cardinal. Even if (contrary to my view) it could be concluded that the legislature could not have intended that s 26(3) bear its literal meaning that where a void determination has been issued the time for lodging a new adjudication application runs from the expiration of the time allowed by s 21(3), it would not be possible to state with certainty what alternative meaning the legislature intended s 26(3) to have.

96. Cardinal submitted that s 26(3) should be construed as if it said that time commences to run from the date upon which “the claimant becomes aware that it is entitled to withdraw the previous adjudication application”. However it could equally well be contended that, had the legislature’s attention been drawn to this issue, it might have instead incorporated the words “the claimant becomes or ought to have become aware” in s 26(3) to cover the possibility that the claimant’s lack of awareness of its entitlement to withdraw the previous application resulted from its own carelessness.

97. Alternatively, if the legislature had adverted to the question of what should happen when a purported but void determination is issued pursuant to an adjudication application, it may have provided that that application should remain on foot but be remitted to the original adjudicator.

98. For the Court to fasten on one, rather than another, of these alternatives would in my view involve it engaging in speculation and an impermissible re-writing of the statutory provision.

99. I should add that the fact that the time within which a claimant might be entitled to lodge a new application could expire before it knows of that entitlement does not necessarily point strongly against the primary judge’s construction of s 26(3). A long period of time might elapse between a purported determination and a court declaring it void. In the present case that period was seven months, but in others the period might be much longer.

100. An entitlement of a claimant to lodge an adjudication application so long after service of the payment claim to which the application relates seems difficult to reconcile with the purpose of the Act to provide an efficient and expeditious mechanism for resolution of payment claims. On Cardinal’s construction, a payment schedule provided in response to the payment claim may be long out of date by the time the new application for adjudication is lodged. The respondent may in the meantime have discovered defects in the claimant’s work which would in ordinary circumstances entitle the respondent to resist payment of any progress claim. Yet if what is to be adjudicated is the claimant’s original payment claim, the respondent is confined in resisting payment to the reasons that it gave in its original, and perhaps significantly out-dated, payment schedule (see s 20(2B)).

101. If a claimant took the view that a purported determination was void because, for example, the claimant had been denied procedural fairness, it would be open to it, on the primary judge’s construction of s 26(3), to lodge a new adjudication application within days of receipt of the purported determination. If the respondent did not agree that the determination was void, the dispute might have to be resolved by litigation. Nevertheless the claimant would have preserved its right to lodge a new adjudication application. If litigation did ensue, the parties could avoid the possibly unnecessary expense of procuring a determination pursuant to that new application by agreeing, as contemplated by s 21(3)(b), to extend the time for the determination to be made.

102. Furthermore, in assessing whether the primary judge’s construction might produce an inconvenient and unjust consequence, as Cardinal contends, it is relevant to note that whether or not the claimant is able to lodge a new adjudication application under s 26(3), it is able (subject to s 13(4)) to lodge a new payment claim which embraces the subject matter of the (undetermined) earlier claim (s 13(6)). In any event, the claimant retains its rights under its construction contract (s 32).

103. In these circumstances even if (contrary to my view) non-textual considerations were here decisive, they would not in my view support the construction for which Cardinal contends.

ORDERS

104. As Cardinal has failed in its challenge to the primary judge’s decision, its appeal must be dismissed with costs.

105. TOBIAS AJA : In this matter I have had the benefit of reading in draft the separate judgments of Basten JA and Macfarlan JA. I agree with the orders proposed by Macfarlan JA and with his Honour’s reasons. However, as I respectfully disagree with aspects of Basten JA’s approach to the resolution of this appeal, it is appropriate that I should shortly state my reasons for holding that view.

106. The primary judge held that the effect of the court’s declaration on 6 August 2010 that the First Determination was ” void and of no effect ” resulted in that determination being regarded as a nullity or as no determination at all. Basten JA holds at [55] of his reasons that in effect that finding was in error insofar as it was implied that the determination was ineffective for the purpose of the Security of Payment Act .

107. Thus, at [50], his Honour considers that between the date of a purported determination and an order of the court setting it aside, no-one could be sure whether the adjudicator had failed to validly determine the application and it was only the order of the court which would resolve that question. To say that the question had been previously resolved by operation of law would be to deprive the claimant of its entitlement to have its payment claim determined at all. Critically his Honour then says:

“To say that the determination is effective for the purpose of s 26(1)(b) until set aside or declared ineffective by a court, provides the claimant with an opportunity, under s 26(3), to make a new adjudication application.”

108. As I comprehend his Honour’s conclusion, it assumes that the purpose of the Act cannot be achieved unless s 26(1)(b) is construed upon the basis that time does not run for the making of a new adjudication application pursuant to s 26(2)(b) unless and until a purported determination otherwise made by the adjudicator within the time limited by s 21(3)(a) (or any extension thereof pursuant to s 21(3)(b)) is set aside or declared “ineffective” by a court.

109. However, if such a determination is to be considered effective unless and until so set aside or declared ineffective, it must follow from the plain words of s 26(1)(b) that s 26(2) is never enlivened for the reason that, on the hypothesis contemplated, there is no failure of the adjudicator to determine the application within the time limited by s 21(3).

110. To permit a new adjudication application to be made within five business days of an order of the court setting aside or quashing the original determination requires a re-writing of s 26(3) more or less in the manner proposed by the appellant, namely, by incorporating into that provision the words ” ought to have become aware ” immediately after the words ” a claimant becomes “. Such a construction is rightly rejected by Macfarlan JA at [98] of his reasons and by Basten JA at [16] of his.

111. To accept a construction of s 26(1)(b) and s 26(3) which has the effect that, essentially, time does not run for the making of a new adjudication application until the original determination is curially set aside, runs counter to what I regard as the plain meaning of those provisions. In particular, such a construction would require s 26(1)(b) to be read as if the words ” fails to determine the application ” are construed to mean ” fails to determine or purportedly determine the application “. In a different context, the word ” decision ” has been held, absent statutory amendment, to exclude a ” purported decision “: Mitchforce Pty Ltd v Industrial Relations Commission of New South Wales [2003] NSWCA 151; (2003) 57 NSWLR 212 at [62] – [65] per Spigelman CJ; Solutions 6 Holdings Ltd v Industrial Commission of NSW [2004] NSWCA 200; (2004) 60 NSWLR 558 at [102] – [103] per Spigelman CJ with whom Mason P agreed.

112. Even if s 26(1)(b) extends to a purported determination, the ” effectiveness ” of that determination still means that there has been no failure to determine the application within the meaning of s 26(1)(b). In these circumstances s 26(2) is not engaged even if subsequently the court sets aside the determination or otherwise declares it to be void.

113. There are two further comments I wish to make with respect to [48] and [49] of Basten JA’s reasons. As to the former his Honour has considered that s 26 confers on a claimant a single power having two limbs each of which must be exercised within five business days after the entitlement to withdraw arises. With respect I do not agree. The legislature has, in my view, deliberately provided a claimant with two options once s 26(1)(b) is engaged. The first is to withdraw the application at any time without making a new adjudication application because, for example, to do so is regarded as futile, unnecessary or a waste of time and money. The second is to withdraw the original adjudication application and to make a new one. It is only if this second option is adopted that the making of the new application is subject to five business days limitation.

114. In my view a claimant could adopt the second option without formally withdrawing the first application. He may do so either within or without the five-day limitation period for the making of a new adjudication application. There is nothing in the Act that in my view makes it a condition precedent for the making of a new application that the first application be withdrawn. I therefore do not regard the two matters referred to by his Honour at [48] of his reasons as anomalous requiring s 26 to be construed as conferring on a claimant a single power of the nature of that referred to.

115. Nor, with respect, can I agree with his Honour’s reasoning at [49]. In the example he postulates, the failure of the adjudicator to make a determination at all within ten business days (where the parties do not agree to extend that period) results in there being no effective determination. True it is that in those circumstances the claimant can make a new adjudication application provided it does so in accordance with the time limited by s 26(3). But there is no reason why that time should not run from the expiration of the ten days mandated by s 21(3)(a). Accordingly I cannot endorse his Honour’s conclusion that in the circumstances referred to, the claimant may treat a determination made outside the time limit provided by s 21(3) as effective. In my opinion it is not.

116. In a sense it is true that the statutory scheme envisages that delay will affect the claimant only. Certainly the delay will, in the circumstances envisaged by s 26(1)(b), entitle the claimant to make a new adjudication application provided it does so within the statutory time limit. It is also literally true that no remedy is conferred in those circumstances by the Act upon the respondent. But the Act is not entirely one-sided. The time limit which it mandates with respect to the issues in this appeal are imposed on the claimant but are also there to protect the respondent if they are not strictly complied with. Another example is the time limited by s 13(4) for the making of a payment claim as well as the time limited by s 14(4) for the making of a payment schedule. If either is not made in accordance with those time limits, then in the one case the claimant and in the other case the respondent, are, as it were, respectively ” out of court “. The same comment applies to the time limit for the making by a claimant of an adjudication application: see s 17(3)(c), (d) and (e).

117. The problem in the present case is that it is apparent that the legislature simply never envisaged a situation such as the present where a determination is made by an adjudicator within the time limit mandated by s 21(3) but is later set aside or declared invalid. If that situation is to be remedied in a manner that departs from the text of the Act, then it is for the legislature and not the courts to achieve that end. I fully appreciate, as Basten JA notes at [53] of his reasons, that the factual situation with which the Court is faced in the present case was not of the appellant’s making. Nor was it that of the respondent. There is a lacuna which, in my view, only the legislature can fill. It cannot be filled by a construction of the relevant sections of the Act which in my respectful opinion they cannot reasonably bear.

118. For the foregoing reasons, I prefer the approach of Macfarlan JA in the resolution of this appeal.

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Robert Fenwick Elliott

This paper was given as a keynote address at the Society of Construction Law Annual Conference in Brisbane in August 2011.  Other keynote speakers were John Hinchey from the USA, Professor Colin Wall from Hong Kong and Sir Lawrence Street.

The paper is as follows:

Rethinking Adversarialism and Embracing Intermediate Systems

Robert Fenwick Elliott[1]

It might seem odd to have a Brit making a Keynote Address in a conference on “Rethinking”.  As Lord Hailsham used to gleefully point out, one of his predecessors once rejected a proposed reform with the words “Reform! Reform! Aren’t things bad enough already?”[2] This remark has been dragged out many times in the context of legal reform. It is not so very witty, but its black humour rings a bell: the undeniable truth is that most attempts at legal reform have failed dismally. These remarks will deal with a narrow topic: how to cope with the adversarialism that plagues construction disputes. But before descending to the particular, it is worth pausing to survey the wider field: lawyers do a lousy job.  We are not stupid, but we deliver a stupid process. On the whole, lawyers probably deserve the poor reputation we have in the community. An American lawyer told me of a button badge which read:

But the management of construction disputes has bucked the trend;  I have seen huge change in the 35-years that I have been a specialist practitioner, and those changes have been massively for the better.  Those changes impact not only on the domestic UK market, but also on the world stage, where the Brits continue to have a surprising influence on the way in which large projects are administered.

To some extent, these changes have been market driven, or the result of a stream of incremental improvements in procedures.  In part, they have been the result of significant reforms that that come out the UK, and in particular by Lord Woolf’s Civil Justice Review[3], which overturned a good deal of settled thinking as to how litigation should be handled, and the Latham Reports[4], which brought major change by the introduction of a mandatory adjudication scheme, the UNCITRAL model arbitration law[5], the essential features of which were introduced into the UK by the Arbitration Act 1996, and by the Egan Report[6], which suggested that we tend to a disproportionate and unnecessary reliance on contracts as a means of regulating our deeds.

There is no doubt in my mind that these changes have been hugely beneficial.  Where they have been implemented, much less time and cost is wasted on adversarialism.  It also seems to me that, on the whole, they result not so much from the adoption of new ideas, but rather from the rejection of a number of shibboleths; it has essentially been the debunking of these old principles that has allowed best practice to move forward and so I will spend the next few minutes running through what I think of the big 10 fallacies that modern practice has shown that we are better off without.

1.         Litigants are entitled to a trial

The research by Professor Dame Hazel Genn leading to and quoted in the Woolf Report demonstrated that the legal costs of a trial of a construction issue usually exceed the sum in dispute.  Not “sometimes”. Not “quite often”. “Usually”.  That research was conducted in the UK, but my own international observation is that a similar picture emerges everywhere in the common law world, including Australia.

That is an appalling indictment on the legal profession. Think of it in medical terms. A doctor who prescribes a course of treatment whose side effects are worse than the malady he is treating would be regarded as grossly negligent. And yet we do it in legal profession all the time. Not just “sometimes”. Not just “quite often”. But, in cases which go to trial, “usually”.

Trials are usually a stupid way of resolving disputes.  They are the legal equivalent of a medicine whose side effects are usually worse than the illness itself. To say that everyone is entitled to a trial of their disputes is about as ridiculous as saying that everyone with a broken ankle is entitled to have their leg amputated.

This shibboleth, whilst rife, is by no means universal. In Jersey, for example, a Defendant need to earn the right to a trial – in an application for summary judgment, the onus is on the defendant to prove that he has a real defence, not on the plaintiff to prove that there is no real defence. In Switzerland and France, the courts have, by introducing Juges D’Appui[7], recognised that agreements by parties to avoid court trial should be supported, not challenged.

In England, the Woolf Reforms did much to sweep away the ludicrous notion that litigants are entitled to a trial.  The courts are far more ready than they used to be to strike out both claims and defences that fail to pass muster.  Further, the adjudication reforms have also very largely removed the ability of a recalcitrant party to delay payment by insisting on the right to a trial.  The UK system of adjudication is of course an evaluative one, unlike the essentially default system here on the East Coast of Australia – more of that anon.  These reforms recognise that trial has become far too expensive, such as to be a little more just than trial by ordeal.  We should entirely abandon the notion that trial should be treated as a standard of justice; instead it should be regarded as a measure of last resort.  There are much better ways of doing things.

2.         Discovery is necessary for justice

One of the harder things about international law practice is explaining to foreign corporations that they have to disclose their documents, and that the more confidential the document, the more pressing the obligation of disclosure.

The reality is that general discovery is seriously dumb.  It is extremely expensive, and its effects are random at best.  My own experience around the world suggests that there is very widespread cheating; parties at every level from individuals to major corporations do in fact regularly cull their documents in order to exclude the most incriminating.  In the 19^th Century draconian sanctions were imposed for failure to give proper discovery, including imprisonment.  But now, in practice, it is little more than an honour system which advantages the unscrupulous at the expense of the honest.

A far better system is to allow each party to put forward the documents it wants, with provision for special discovery in exceptional cases.

The Federal Court rules have now made a significant move in this direction. But it is still the norm for parties to be required to give general discovery in construction cases.

General discovery should go.

3.         Pleadings define issues

Prior to the recent reforms in the UK, pleadings in construction cases were often very lengthy, opaque and, in the common law world at large, a number of cases were won or lost on pleadings issues – in particular, following the Privy Council decision in Wharf Properties[8].

The Woolf Reforms introduced a number of important measures to de-ossify the pleading process.  Tenuous alternative pleadings are likely now to be struck out if they enjoy no real prospect of success.  If the pleading exceeds 25 pages, there has to be a summary filed and served, and pleadings need to be supported by Statements of Truth, so that it is no longer possible to plead matters of speculation without running the risk of a perjury prosecution.

The success of the UK evaluative adjudication model shows that a formal pleading process does little to advance a just resolution of disputes.

Cases should not be held up by pleadings.

4.         Judge’s interests are important

To some extent, of course, it is inevitable that judges should come to inhabit ivory towers of a sort.  But there has recently been more of a recognition by the Bench that their own interests should be subservient to the interests of the parties.  As human beings, judges tend to be perfectionists; they do not like loose ends, and they typically dislike being overturned on appeal, particularly on procedural fairness grounds.  This means that they tend to allow trials to go on for far too long, and to admit far too much evidence.

In the UK, it is now happily becoming more common for courts and arbitrators to impose time limits, by means of chess clock arbitrations or guillotines[9].  If possible, these are introduced by agreement, but are sometimes imposed whether counsel agree to them or not.  My own experience is that counsel tend to squeal like stuck pigs when a guillotine is imposed on them, but at the conclusion of such a process the advocates will typically say that they were able to get their key points across within the abridged submission time.  Judges increasingly seem to recognise that a judgment delivered after a rapid and economic process is of much more use to the parties than a more careful judgment at the end of an excessively long and expensive process.

There has also been a recognition abroad that the traditional judicial antipathy to ouster of jurisdiction has no place in modern dispute resolution processes.

5.         Decisions need to be final

A number of things have led to the recent dispelling of the myth that judicial decisions need to be final, including experience from interlocutory injunction processes and procedures for interim payments, introduced into the UK in the 1980’s.  By far the most important penetration of this myth has been the advent of adjudication.

I claim a small part in this history, whilst discussing the proposed UK legislation in the House of Lords tearoom with Lord Howie.  The government had picked up Sir Michael Latham’s suggestion of an interim adjudication system, but Lord Howie, who was steering the draft legislation through, wanted to make the adjudicator’s decision final and binding.  I persuaded him not to go down that track, on the basis that if the adjudicator’s decision was to be final and binding, then it was very likely that the courts would be much more tempted to intervene in the process, and thereby ruin its effectiveness.  I described the better formulation as “pay now, argue later” in the expectation that once the loser had written his cheque, and if the loser felt that he had had a fair crack of the whip, then the loser was unlikely to avail himself of a right to relitigate and so it has proved.

Those who listen to the Society’s podcasts may have noted that Sir Vivian Ramsey, who presides over the Technology & Construction Court in London, identified this acceptance of interim decisions as crucial to the modern approach[10].

Doctrines such as the Anshun principle[11] should have no place in a modern construction dispute regime.

6.         Longer contracts are more certain

During the 20^th Century, construction contracts have got longer and longer, and following the widespread introduction of word-processing capability in offices, bespoke contracts have got even longer still.

Before his report, Sir John Egan had much experience of the automotive industry, and he usefully pointed out that the reliance by the construction industry on these very long contracts is a pointless anomaly.  Certainly, we have seen a considerable rise in two parallel and mutually cancelling processes

• Contract draftsmen have added more and more length to the contracts whilst:
• the dispute process has facilitated more and more incursions into the contractual territory.

Partly, these incursions have been the result of statutory intervention, in terms of banning pay when pay clauses, introducing statutory rights to patent and so forth, and partly by increasingly sophisticated use of doctrines such as that of breakdown in contractual machinery as means to circumvent onerous provisions in construction contracts.

Certainly, in the UK, there is much less extremism in this area than there is in Australia.  By “extremism” I mean the situation where, at the one extreme, we see objectionably one-sided contract drafting, such as provisions to the effect that certifiers are simply agents of the owner with no obligations of fairness, and at the other extreme, we see here[12] a very crude security of payment system where substantial sums are awarded by adjudicators who often have somewhat scant understanding of legal principle, and even less connection with principles of justice.

7.         Hourly rates underpin professionalism

There has been a significant retreat from the old principle that the tradition for lawyers to be reimbursed by hourly rate is satisfactory, or even necessary.  It is obviously a system which rewards delay and inefficiency, and is scarcely more enlightened than the older habit of lawyers to charge by the folio.

“No win no fee” arrangements are still regarded as somewhat tacky in some quarters, but I think less and less so as time goes by.  A key feature of these schemes if they are to be effective is that a successful party is, in the UK, entitled to recover the enhanced fee that inevitably accompanies the scheme from the losing party.  A more sophisticated approach involves target costing.  Thus, in the last major case I did in the UK before leaving for Australia, I acted for an Argentinean contractor in an ICC arbitration concerning a project in Africa for an international consortium.  The client did not want simple hourly rates, because he thought that would provide no incentive for early settlement.  He did not want a simple budget cap, because his experience is that lawyers always spend any budget that is agreed.  So instead we had a target arrangement; we agreed an overall budget cap for the whole case, such that we would not be entitled to any overspend over and above that budget, but if we were able to obtain a result without spending the whole of the budget, we got to keep one-third of the saving.

That, it seems to me, is a modern, sensible formulation which encourages efficiency in the legal process by rewarding a good result instead of rewarding a bad result.  But it is not encouraged in Australia[13].

In the USA, construction lawyers and their client are free to agree any charging system that meets their needs. So it should be here.

8.         Lawyers should not cut corners

This is perhaps the dumbest shibboleth of them all.

In the real world, parties cannot afford either the time or the money that would be involved in their lawyers putting every aspect of their dealings under the legal microscope.  Thank heavens.

Experience also shows that in almost every legal endeavour, there is a law of diminishing return.  The first buck buys more bang than the second buck.  Unhappily, in a climate of unbridled adversarialism, martyrs are all too often led into the belief that spending more money with lawyers provides some sort of potency.

The UK experience of adjudication is very different from the Australian experience.  Hearings are common, particularly in large cases, and they are usually very heavily guillotined, such that they are something in the nature of binding mini-trials.  Parties who prepare prolix submissions, running to say 30 or 40 lever arch files, could be told to go away and précis their submission into a single document.  The very rigid time constraints mean that the lawyers have to cut corners.  The result has been notably successful, and my own experience has been that parties to such a process have found the results are no more anomalous than those of a traditional full-length arbitration.

There is no less skill in presenting a case in this very short form than in running a 20-week trial, but it is a different skill.  It is a skill of micro-surgery as compared to the skill of open surgery.

9.         Neutrals should not judge

It seems to me that it has always been something of a schism in ADR philosophy.  On the one hand, the facilitative people say that mediators should never express their own opinions about the merits of the party’s case, but simply help the parties come to their own conclusions.  On the other hand, the evaluative school will have no difficulty in the concept of mediators telling the parties in caucus that this or that aspect of their case is entirely hopeless.  My own experience in Australia since I have arrived is that the field is largely dominated by the facilitative school.

Elsewhere in the world, a rather broader spectrum of experience such that it is possible on an empirical basis to say what system works best.  The answer to that now seem to be clear: what works best is a flexible approach[14].  For a mediator to go charging in at the outset with bombastic opinions is a disaster.  But by the same token, mediations fail when they could otherwise succeed if only the mediator had taken the trouble to understand the issues, and to persuade the parties off ground that is in reality untenable.

10.       Dispute resolution is a zero-sum game

One of the difficulties with excessive adversarialism is that it encourages the flawed notion that dispute resolution is a zero-sum game[15], in the sense that, “what is bad for him must be good for me”.

A more sensible analysis is that all disputes are the result of misjudgement, first by the clients and then by the lawyers.  Where both parties have a realistic and accurate notion of the real merit of their case, the parties have the same understanding of their risk profiles, and settle their disputes accordingly.  Unhappily, all too often there is all too little dialogue on any meaningful level between the  parties as to what the relative strengths and weaknesses of their positions are, and the current rules with regard to filed offers more often than not entrenches that adversarialism as the parties size each other up from their respective trenches.  A more modern, and it seems to me, better approach is that adopted by the UK Pre-action Protocol, which requires the parties to exchange letters, in which each party should try to identify why it thinks the other party has misjudged the case, followed by a pre-action meeting, at which the parties and their lawyers should discuss how their differences should be resolved, and the respective costs of those options (mediation, expert determination, litigation, etc).  The purpose of this exercise is to encourage the parties to work together to find a sensible and cost effective way of resolving their differences.

Conclusion

What is the conclusion to be drawn from all of this?

We should not be guided too much by either the bar or the bench. All too often, their focus is on the use of trial as a means of resolving disputes. In part, this is because the bar has traditionally earned its serious money out of trials, and not its other functions, such that there has been a financial incentive to see trial as the centrepiece of the dispute resolution process, and in part because the business of resolving civil disputes has too often been tainted by the thinking that applies to criminal cases.

The common law system is, unlike civil law systems, one based on incremental development based on empirical experience, not radical reform based on theoretical models. The best empirical evidence in our field of construction law is now to be found overseas in other common law jurisdictions

That evidence suggests that intermediate dispute resolution systems offer much better outcomes than either trials or mediations. Systems like adjudication UK-style (a far cry from the default systems that operate here on the East Coast of Australia)[16], or expert determination[17], or the Dispute Review Boards that operate in the United States[18], or the ICC Dispute Adjudication Boards that are used under FIDIC contracts[19]. The essential feature of these systems is that that they force a result – based on the merits of the parties’ positions – early, and at a fraction of the cost of trial.  Unlike litigation or arbitration, they jettison many of the shibboleths I have just been describing. Where there are hearings, they are heavily guillotined, so that a case that might traditionally take many days or even weeks to run has to be completed within a day.

Such an approach does not merely mean that Courts should encourage or even order the parties to mediate[20]. We are talking here about processes that lead to enforceable results. Unlike mediation, they prevent a party from saying, “Accept my terms in this mediation or you will be put to the huge cost of a full-scale fight”.

This does not mean that courts become redundant. But it does mean that the courts role should change – just as it has changed in other parts of the world. Instead of the courts taking centre stage as the primary arena for the resolution of disputes, the courts take a step back, and wherever possible are used instead as a means of merely policing the intermediate systems[21].

It does mean that the Courts must swallow their pride, and accept that these processes do indeed not merely challenge but in many cases eclipse (if not oust) the jurisdiction of the courts.  To some extent, this necessarily recognises that it is far harder for the courts to abandon the shibboleths that I have been discussing than it is for the more modern intermediate processes. Where there are court proceedings, the courts should not be jealous of these new processes, but should try to learn from them.

Do they spell the end of adversarialism? Not really.  I am not suggesting an approach which requires a shift in approach whereby lawyers become much less adversarial, instead paying much more attention to their duties to the court[22].  We might as well acknowledge that litigation lawyers are inherently rather aggressive; by asking them to tone it down, all that happens is that their tactics become more subversive. Rather, these new techniques spell the end of the notion that the generals can bring huge numbers of troops onto the field of conflict. In a sense, they represent an abandonment of trench warfare involving huge cost and pain, and a return to something more like trial by champion – hardly a perfect system but at least one that had the merit of obtaining a result with admirable economy.

My own experience is that these highly-guillotined processes are even more adversarial on the day that long drawn-out trials before the courts or in arbitration.

Less glamorous? Not the “real thing”? Well, that depends on your point of view. Would you rather be an old-fashioned surgeon, scalpel in hand and splattered in blood, or one of the new specialists in micro-surgery, who gets his result far more quickly and with much less pain?

The avenues available for a party who wishes to stop or quash a adjudication continue to expand.

In this case, the Federal Court granted an injunction under s 234 of the Australian Consumer Law restraining an adjudication before Philip Davenport on the ground that the contract was induced by deceptive or misleadiung conduct. The injunction was made against Houben Marine, and Philip Davenport as adjudicator, and Adjudicate Today as the ANA.

The decision is as follows:

FEDERAL COURT OF AUSTRALIA

Birdon Pty Ltd v Houben Marine Pty Ltd (No 2)

[2011] FCA 1313

Citation: Birdon Pty Ltd v Houben Marine Pty Ltd (No 2) [2011] FCA 1313

Parties: BIRDON PTY LTD (ABN 59 002 810 255) v HOUBEN MARINE PTY LTD (ACN 14 002 623 396), PHILLIP DAVENPORT and ADJUDICATE TODAY PTY LTD (ABN 39 109 605 021)

File number: NSD 667 of 2011

Judge: RARES J

Date of judgment: 27 October 2011

Catchwords: CONSUMER LAW – INTERLOCUTORY INJUNCTIONS – application for interim injunctions under s 234 of the Australian Consumer Law restraining further progress of adjudication process under Building and Construction Industry Security of Payment Act 1999 (NSW) – plaintiff alleged first defendant conveyed representations that were misleading or deceptive contrary to s 18 of the Australian Consumer Law – whether prima facie case – strength of prima facie case – balance of convenience – relevance of plaintiff’s application for special leave to appeal to High Court of Australia – whether damages are an adequate remedy – sufficient likelihood of success to justify preservation of status quo

Held: application for interim injunctions granted

Legislation: Australian Consumer Law ss 18, 234

Building and Construction Industry Security of Payment Act 1999 (NSW) ss 23(2), 25, 32

Competition and Consumer Act 2010 (Cth) Sch 2

Cases cited: Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 applied

Birdon Pty Ltd v Houben Marine Pty Ltd [2011] FCA 1217 cited

Bitannia Pty Limited v Parkline Constructions Pty Limited (2006) 67 NSWLR 9 applied

Castlemaine Tooheys Limited v South Australia (1986) 161 CLR 148 considered

Jennings Construction Limited v Burgundy Royale Investments Pty Ltd [No. 1] (1986) 161 CLR 681 applied

Paringa Mining & Exploration Co plc v North Flinders Mines Limited (1988) 165 CLR 452 cited

RJ Neller Building Pty Limited v Ainsworth [2009] 1 Qd R 390 cited

Date of hearing: 27 October 2011

Place: Sydney

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 46

Counsel for the Plaintiff: Mr AW Street SC with Mr AK Fleknoe-Brown

Solicitor for the Plaintiff: Hicksons Lawyers

Counsel for the First Defendant: Mr EGH Cox

Solicitor for the First Defendant: Piper Alderman

Counsel for the Second and Third Defendants: The second and third defendants did not appear

IN THE FEDERAL COURT OF AUSTRALIA

IN ADMIRALTY

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION NSD 667 of 2011

BETWEEN: BIRDON PTY LTD (ABN 59 002 810 255)

Plaintiff

AND: HOUBEN MARINE PTY LTD (ACN 14 002 623 396)

First Defendant

PHILLIP DAVENPORT

Second Defendant

ADJUDICATE TODAY PTY LTD (ABN 39 109 605 021)

Third Defendant

JUDGE: RARES J

DATE OF ORDER: 27 OCTOBER 2011

WHERE MADE: SYDNEY

Upon the plaintiff by its senior counsel giving to the Court:

(a) the usual undertaking as to damages;

(b) an undertaking that the plaintiff will prosecute its application for special leave to appeal to the High Court of Australia and, if leave be granted, any appeal, with all reasonable expedition; and

(c) an undertaking that on or before 1 November 2011, the plaintiff will pay the sum of $200,000 into Court or into a bank account agreed in writing by the solicitors for the plaintiff and the first defendant or alternatively by providing a bank guarantee in that sum in a form reasonably acceptable to the first defendant and failing agreement, in a form settled by the Registrar:

THE COURT ORDERS THAT:

1. Pursuant to the answer to question 5 given by the Full Court on 13 October 2011, the interlocutory injunctions as made on 20 May 2011, and extended and varied on 14 June 2011 and on 17 June 2011, be vacated.

2. The first defendant, by itself, its servants and agents, be restrained from proceeding with any application or process concerning the backhoe dredge Ain Dschalut under the Building and Construction Industry Security of Payment Act 1999 (NSW).

3. The first defendant, by itself, its servants and agents, be restrained from seeking any adjudication certificate under the Building and Construction Industry Security of Payment Act 1999 (NSW) concerning the backhoe dredge Ain Dschalut and/or the vessel Hopper 139.

4. The first defendant, by itself, its servants and agents, be restrained from serving or filing or otherwise pursuing any adjudication certificate issued under the Building and Construction Industry Security of Payment Act 1999 (NSW) for or relating to invoices concerning the backhoe dredge Ain Dschalut and/or the Hopper Barge 139.

5. The first defendant, by itself, its servants and agents, be restrained from making any fresh application under the Building and Construction Industry Security of Payment Act 1999 (NSW) for or relating to invoices concerning the backhoe dredge Ain Dschalut and/or the Hopper Barge 139.

6. The second defendant be restrained from proceeding with any adjudication process in relation to the adjudication application made by the first defendant relating to the payment claims by the first defendant relating to the backhoe dredge Ain Dschalut and/or the Hopper Barge 139.

7. The third defendant be restrained from referring to any adjudicator the adjudication made by the first defendant relating to the payment claims by the first defendant relating to the backhoe dredge Ain Dschalut and/or the Hopper Barge 139.

8. The proceedings be fixed for hearing commencing on 12 March 2012.

9. The proceedings be listed for directions on 28 October 2011 at 2 p.m.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

IN THE FEDERAL COURT OF AUSTRALIA

IN ADMIRALTY

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION NSD 667 of 2011

BETWEEN: BIRDON PTY LTD (ABN 59 002 810 255)

Plaintiff

AND: HOUBEN MARINE PTY LTD (ACN 14 002 623 396)

First Defendant

PHILLIP DAVENPORT

Second Defendant

ADJUDICATE TODAY PTY LTD (ABN 39 109 605 021)

Third Defendant

JUDGE: RARES J

DATE: 27 OCTOBER 2011

PLACE: SYDNEY

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

1 Birdon Pty Ltd has applied for the continuation or remaking of the interlocutory injunctions currently in place restraining the further progress of an adjudication procedure under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act) in the circumstances I described in Birdon Pty Ltd v Houben Marine Pty Ltd [2011] FCA 1217. It has also applied for interim injunctions under s 234 of the Australian Consumer Law in Sch 2 to the Competition and Consumer Act 2010 (Cth) based on its substantive case.

BACKGROUND

2 The facts can be briefly stated because there is no substantial dispute between the parties that in the circumstances before me Birdon has a sufficient prima facie case for the purposes of establishing the first limb of its entitlement to seek an interlocutory injunction, having regard to the organising principles identified by Gummow and Hayne JJ in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at 81-84 [65]-[72] with which Gleeson CJ and Crennan J agreed at 68 [19]. The facts that I will recount in these reasons are based on the evidence which is before me only on an interlocutory basis. For the most part, Houben Marine has not filed any evidence, for the purpose of the interlocutory application, as to what it contended the conversations between the principals of the parties were.

3 The parties appeared to agree that on 30 March 2010 they made an oral agreement for the charter of the dredge, Ain Dschalut. The dredge was originally to be transported from Homebush Bay to Western Australia. The parties disagree as to what the terms of that oral agreement are. Birdon alleged that the terms were partly oral and partly in writing but that the written part, which had been prepared by Houben Marine Pty Ltd, did not accurately record the terms. Birdon also claimed that Houben Marine had inserted additional terms that were not agreed or discussed. Houben Marine contended that although the agreement was made orally, its terms were, with one gloss, recorded in writing using a BIMCO standard bareboat charter in the Barecon 2001 form with additional clauses which was emailed by Houben Marine to Birdon on 1 April 2010. The gloss was pleaded by Houben Marine in its defence. It asserted that at the time of their agreement on the terms of the charter, the parties made a further mutual agreement as contemplated, but not recorded, in box 21 in Part 1 of the Barecon 2001 form, that the charter period would be extended for the whole of the period of other dredging work to be performed by Birdon at Garden Island in Sydney. Box 21 had been completed stating that the charter period was:

“3 mths-ext’d by mutual agrmt 2 wks notice

+ 2 mths max standdown”

4 It appears that the circumstances in which the parties negotiated were as follows. Birdon required a dredge and hopper barges for dredging work on two projects. A dredge was required immediately for the purposes of one project in Western Australia. Ain Dschalut was a dredge that could be transported by road, disassembled into six different parts and then reassembled. At the time of the negotiations, Birdon anticipated that the dredging work in Western Australia would take in the order of two weeks. However, Houben Marine was not willing to commit its dredge for any period less than three months. The parties then turned their minds to how the dredge could be employed for the whole of the three months in the event that the West Australian work did not take that length of time. Hence, they turned their attention to Birdon’s other contract, which was to perform dredging work at Garden Island in Sydney Harbour. Birdon needed to charter two hopper barges for the Garden Island work. It agreed to charter those from Houben Marine at the same time as the discussions concerning Ain Dschalut were finalised. The two hopper barges were chartered to Birdon by Houben Marine under other charterparties in the Barecon 2001 form.

5 The parties appeared to have contemplated that if the dredge was returned from Western Australia, she could be employed at Garden Island. But, there is a significant dispute as to whether the term of the charterparty would come to an end at the expiry of the three months, if the Western Australian work was by then complete, unless an extension was agreed, as Birdon contends, or only at the conclusion of the Garden Island dredging work, as Houben Marine asserts. Houben Marine relied on an additional clause, cl 33.2, it had added to the version of the charterparty emailed on 1 April 2010 which provided:

“33. The backhoe pontoon Ain Dschalut is chartered with the provision that:

33.2 After the Ain Dschalut returns from WA to Homebush Sydney it is to work on the offshore disposal dredging component of the Garden Island project from when that starts to its completion. If the dredge has to wait – and there is no other suitable interim work available – the charter rate can be reduced to 15% for up to 60 days before starting offshore disposal dredging.”

6 Under box 22 of the charterparty form, charterhire was payable two weeks in advance at the rate of $67,200 per week, charged every two weeks. Box 20 provided for the trading limits and was completed in the following terms:

“Transport from Sydney to AMC dredging project at Henderson WA and back to Sydney Garden Island dredging Sydney.”

7 The heading of box 20 referred to cl 6 in Pt II of the Barecon 2001 form which dealt with the trading restrictions governing the places of a vessel’s employment. The preamble in the Barecon 2001 form provided that the provisions in the boxes in Pt 1 prevailed over the clauses in Pt 2, including any additional clauses, to the extent of any conflict between the two. The additional clauses in the 1 April 2010 version of the charterparty also provided that following redelivery of all dredge components, a lump sum charge of $10,000 would be payable by Birdon for reassembling the dredge.

8 The content of the boxes in Pt 1 of the charterparty remained the same in the version emailed on 1 April 2010 as it had been in an earlier version sent on about 26 March 2010. However, the contents of additional cl 33 in Pt 2 set out above had changed significantly between those versions, the earlier one being more consistent with the version of the contract for charter that Birdon asserts.

9 Birdon’s group general manager, Ian Ramsay, said that after he had participated in the 30 March 2010 negotiation, he understood that the charterparty was to provide for the dredge to be available for Birdon’s use for three months and no more. That was based on what he said was Houben Marine’s representatives’ insistence in the negotiations that it would not agree to hire the dredge for any lesser period. Mr Ramsay said that he understood that if the dredge was not able to be used in Western Australia for the entire three months, Birdon would then be able to use her on its works at Garden Island, which were expected to commence sometime later. Hence, Mr Ramsay said that because the work at Garden Island may not have been ready to commence immediately, the parties agreed on a stand down period at a lesser rate of hire for a maximum of two months, after which Birdon would be required, as he understood, to work the dredge at the full rate of hire for the balance of the three months’ charter.

10 In the event, the dredge was employed in Western Australia for considerably longer than two weeks as initially had been anticipated. On about 8 June 2010, the manager of Birdon’s dredging division, Steven Bruce, telephoned Casper Houben, informing him that the dredging in Western Australia had been completed and that Birdon was awaiting a confirmation of a survey from its client before demobilising the dredge. Then, on 21 June 2010, Mr Bruce had a conversation with a member of Houben Marine’s staff who had been sent to Western Australia under the terms of the agreement for the dredge’s hire there. Mr Bruce told the staff member that the dredging was now complete and that the demobilisation of the dredge could be commenced. That demobilisation occurred between 22 June and 7 July 2010. The barge was loaded onto trucks and sent to Houben Marine’s Homebush Bay yard, being the place nominated in box 16 of the Barecon 2001 form as the place of redelivery. The redelivery occurred during the week commencing 12 July 2010.

11 No issues arose between the parties relevant for present purposes in relation to the dredging work in Western Australia and the return of the dredge in July 2010. Hire payments were made either in accordance with the charterparty or without any relevant complaint. Birdon paid an apparently final invoice, ADs 009, for $31,680 dated 11 July 2010, for the hire of Ain Dschalut. That invoice recorded the dredge being on hire for three days until 7 July and no charge being made for 10 days during her transport back to Sydney, pursuant to cl 43 of the additional clauses in the 1 April 2010 version of the charterparty. The period covered by the invoice finished on 17 July 2010.

Houben Marine sends fresh invoices for subsequent charter hire seven months later

12 On 20 February 2011, Houben Marine sent five further invoices, ADs 10-14, to Birdon. These asserted that Ain Dschalut had been on hire from 18 July 2011 to 26 December 2011. Subsequently, on 8 March 2011, Houben Marine sent three more invoices, ADs 15-17, claiming further hire until 20 March 2011. The total claimed in those eight invoices amounts to about $2,060,000.

13 The eight invoices bore dates well before the dates of their despatch. The first, ADs 10, was dated 31 August 2011. It claimed $95,040 for hire between 18 July 2010 and 15 September 2010. That was apparently based on the last part of cl 33.2 of the additional terms, claiming hire at the rate of 15% of the charterparty rate for 60 days. Invoice ADs 11 was dated 9 September 2010 and claimed $190,080 hire at the full rate of $67,200 for two weeks and four days from 16 September to 3 October 2010. Invoice ADs 12 was dated 27 September 2010 and claimed $295,680 for four weeks’ hire to 31 October 2010. Invoices ADs 13 and 14 were dated 25 October and 22 November 2010. Each claimed a further four weeks’ hire to 28 November and 26 December 2010 respectively. The second batch of invoices, ADs 15, 16 and 17, sent to Birdon on 8 March 2011, were dated 20 December 2010, 17 January 2011 and 14 February 2011 respectively. Each claimed four weeks’ hire for periods ending 23 January, 20 February and 20 March 2011 respectively. Each of the eight invoices commenced with the anomalous assertion, given their content, dating and times of despatch:

“2 weeks hire payable in advance as per Charter agreement.”

14 Subsequently, on 21 April 2011, Houben Marine made a payment claim for $2,132,907.86 against Birdon under the Security of Payment Act asserting that the eight invoices, together with one other which is not presently relevant, were unpaid. The payment claim asserted reference dates for payment of the last day of each month between March 2010 and March 2011. It claimed that the date for payment was 10 May 2011.

15 The interlocutory injunctions I granted in May and June this year restrained Houben Marine from proceeding with the adjudication process, from seeking any adjudication certificate or making any further application relating to those invoices under the Security of Payment Act. The interlocutory injunctions also restrained the adjudicator and his appointer from proceeding with the adjudication or referring to adjudication any further payment claims made by Houben Marine based on the impugned invoices. At that time, Birdon put forward that its financial position was as recorded in its accounts as at 31 October 2010. The balance sheet in those accounts showed that the company had share capital and reserves of about $2.26 million, including trade debtors of over $5 million, a loan to its holding company, Birdon Holdings Pty Limited, of about $1.2 million, and total assets of nearly $8 million. The accounts showed total liabilities of about $5.6 million.

16 When the matter was returned before me following the delivery of judgment by the Full Court, Houben Marine put into evidence Birdon’s draft accounts for the year ending 30 June 2011. These showed a significant change in Birdon’s balance sheet. The total capital and reserves were now about $1.34 million. The intercompany loan account due by the holding company had increased to about $2 million. Birdon’s total current assets were about $2.45 million and total current liabilities were about $3.1 million, leaving it with net assets of about $1.34 million.

THE ISSUES BETWEEN THE PARTIES

17 The cases of each of the parties on what the oral contract provided and whether or not it was at an end following the dredge’s return to Homebush Bay are clearly divergent, on the facts, and on what might be the proper construction, and reconciliation, of the apparently conflicting terms of the 1 April 2010 version of the charterparty, if that is found ultimately to record the agreement made by the parties. A major issue for the trial will be the contractual period of the hire. That will involve determining whether or not the charterparty required mutual agreement to extend the hire period beyond three months, whether additional cl 33.2 effected such an extension or whether, as Houben Marine appears to contend as an alternative in its defence, the parties made some further agreement on 30 March 2010 for an extension of time. Birdon argued that the contract orally agreed between the parties on 30 March 2010 provided for the hire of the dredge for a period of three months for use in Western Australia, and if that were completed before the three month period had ended, for return to Sydney for use at Garden Island. In addition, Birdon alleged that each of the invoices was “backdated”.

18 Birdon relied on the return of the dredge to Houben Marine’s Homebush Bay premises after more than three months of hire as a redelivery and, therefore, the completion of the charterparty. There is no evidence that Houben Marine ever informed Birdon that the dredge was ready for use after it had been returned to Homebush Bay in mid July 2010. Houben Marine argued that there was no evidence of a notice of redelivery in accordance with the written terms of the charterparty and, so, it was entitled to treat the charter as continuing. Houben Marine made a submission in the adjudication proceedings explaining the seven month delay between the return of the barge to its Homebush Bay premises and service of the first five invoices in respect of hire claimed after that return. That explanation was follows:

“There was no need to communicate that hire was on going when this was clearly evident from the contract. … The reason for the delay in the issuing of invoices was because the relevant director of Houben Marine was distracted as he was going through a divorce at the time.”

19 Birdon also alleged that Houben Marine made representations, in trade or commerce, that in substance were:

• the hire period was effectively for three months or as extended by mutual agreement on two weeks’ notice, and upon redelivery at Homebush Bay the charter would terminate (the first representations);

• Houben Marine’s intention was only to seek to hire out the dredge for three months and there would be no hire or further obligation due by Birdon once she was redelivered to Homebush Bay (the second representations);

• the eight invoices served on Birdon in February and March 2011 were genuine, correctly represented the dates of their issue and were not backdated (the third representations).

20 Birdon alleged that the first representations were made before the oral contract was made. It pleaded that each representation was relied upon by it and amounted to a contravention of s 18 of the Australian Consumer Law. It alleged that by reason of the first representations it was misled into entering into, or performing, the charterparty without reviewing or revising the terms of the unsigned Barecon 2001 form proffered in the email of 1 April 2010. Secondly, Birdon asserted that at no time prior to late February 2011, when it received the first set of invoices, had Houben Marine suggested that the charterparty was still on foot following redelivery of the dredge in July 2010. Accordingly, Birdon claimed that the second representations had caused it to be misled into believing that the charter was at an end from the time of the dredge’s redelivery. Thirdly, Birdon alleged that the third representations were calculated to bring about a situation in which Birdon was exposed to an adjudication process based on the eight invoices and their use in supporting the payment claims. It asserted that in making the payment claims, Houben Marine represented that they were based on genuine reference dates, the invoices had not been backdated, and had become due and payable and remained unpaid from their dates of issue.

21 In effect, Birdon claimed that it is not liable for any further amounts of hire at all and that the true contract between the parties effectively came to an end when the dredge was returned to Homebush Bay in July 2010. Alternatively, Birdon sought relief on the basis that it was misled by Houben Marine’s conduct in contravention of s 18 to believe that the contract either provided, as the first representations suggested, for the three month period of hire, or alternatively, that the contract had, in fact, been accepted to be at an end as asserted in the second representations.

CONSIDERATION

(a) Should an interim injunction be granted under s 234 of the Law?

22 It is convenient to deal first with the claim for an interim injunction under s 234 of the Australian Consumer Law. That section provides that if an application for an injunction is made under s 232, the Court may, if it considers desirable, grant an interim injunction pending the determination of that application. There is no dispute that Birdon is entitled to bring its application for relief under s 234. The test applicable for the grant of an interlocutory injunction has been subject to some debate between the parties. As noted above, the test is set out in the organising principles identified in the reasons of Gummow and Hayne JJ in O’Neill 227 CLR at 81-82 [65], namely:

‘The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd ((1968) 118 CLR 618). This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued ((1968) 118 CLR 618 at 622-623):

“The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief … The second inquiry is … whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.”

By using the phrase “prima facie case”, their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument ((1968) 118 CLR 618 at 620). With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal ((1968) 118 CLR 618 at 622):

“How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.”’

23 The real debate between the parties centred on whether the second of the two criteria for the grant of the injunction has been established in this case. The substance of the parties’ arguments centred on the questions of the degree to which the inconvenience or injury to each has to be established in this application and how that may be affected by the strength of any prima facie case, which it appears that Houben Marine concedes currently exists.

24 I am satisfied that Birdon has shown a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial, subject to the question of the balance of convenience. The strength of the probability of Birdon’s success is signalled by the fact that for over seven months Houben Marine made no claim at all for what ultimately amounted to over $2 million in the aggregate. That sum was comprised of very large sums accruing, if its case were correct, every two weeks at the rate of $134,400. It is notable, in weighing the likelihood of success of a claim for charter hire due two weeks in advance for eight months, that nothing was claimed by the owner (Houben Marine) against a charterer, particularly in circumstances where Houben Marine did not give any notice of the dredge’s reassembly and availability for use at any time. And, Houben Marine was aware of Birdon’s ongoing work at Garden Island because it had two of its hopper barges working on that project, earning it charter revenue. A further factor that adds to the apparent strength of Birdon’s prima facie case is the present absence of any evidence of a mutual agreement for an extension of the hire period, after the return of the dredge to Homebush Bay, apart from what happened prior to the making of the oral contract on 30 March 2010.

25 In addition, the reference dates relied on by Houben Marine in its payment schedule are somewhat incongruous. There is no apparent reason why they were claimed to be at the end of each month of the asserted period of the hire, rather than for every second week in advance, as Box 22 of the Barecon 2001 form provided. Of course, this issue may be resolved by an adjudicator in the course of an adjudication.

26 If the current interlocutory injunctions substantively remain in place until final determination of the proceedings, the adjudication process will continue to be forestalled. Of course, those injunctions must be justified on a different basis following the decision of the Full Court that the current injunctions should be dissolved after Birdon failed on its Constitutional challenge.

27 These facts suggest that there is a strong prima facie case that if the evidence remains unchanged, Birdon would be likely to succeed at trial. However, it is likely that at the trial, there will be, first, considerably more evidence adduced and, secondly, detailed argument on the construction of any contract, whether it is fully recorded in the 1 April 2010 Barecon 2001 form or elsewhere. A trial of those issues will be necessary before a confident conclusion could be reached as to what the real underlying rights of the parties are. It is not appropriate to express any views on that question on this application. I merely make the observation that at the moment, on the limited evidence, and bearing in mind that Houben Marine has not yet exercised its opportunity to put on evidence as to the circumstances, it is impossible to know the basis on which the ultimate trial will be decided.

28 The grant or continuation of interlocutory injunctions will not substantively dispose of the rights of either of the principal parties in the proceedings. However, Birdon’s position must be balanced against the interruption in the statutory right of Houben Marine to seek remedies under the Security of Payment Act. That Act was designed to ensure, as its analogues throughout Australia were, that the process of adjudication would provide a speedy and effective means of ensuring cash flow to builders from parties with whom they contract, where those parties operated in a commercial, as opposed to a domestic, context. That intention reflects the legislature’s appreciation that an assured cash flow is essential to the commercial survival of builders and if a payment the subject of an adjudication is withheld pending the final resolution of the builder’s actual entitlement to payment, the builder may be ruined, as Keane JA observed in RJ Neller Building Pty Limited v Ainsworth [2009] 1 Qd R 390 at 400-401 [39]. Fraser JA and Fryberg J agreed with his Honour.

29 Houben Marine argued that this speedy adjudication procedure ought not be interfered with by the grant of an interlocutory injunction and that the balance of convenience weighed heavily in its favour. It also argued that no present damage had been sustained or proved by Birdon and that in effect, its application for injunctive relief was premature. Houben Marine said that this was because until the result of the adjudication process was known, there would be uncertainty as to the best means of balancing the respective prejudices that each party will, or might, suffer by the grant or withholding of interlocutory relief. Houben Marine argued that if the adjudication were allowed to proceed, the parties would be able to address arguments from a new position, influenced by whether the adjudicator had accepted Birdon’s argument that Houben Marine’s claims were not maintainable under the contact, or alternatively, the adjudicator having provided for a reduced payment or set of payments.

30 Houben Marine also pointed to the fact that Birdon had not paid any money into Court, as would ordinarily be expected, so it claimed, and indeed, as would be required under s 25 of the Security of Payment Act if an attempt were made to set aside a judgment based on an adjudication certificate. During the course of argument, Birdon offered to provide, on or before 1 November 2011, $200,000 in cash to be paid into Court or provided by way of a bank guarantee as securing its undertaking as to damages, if an interlocutory injunction were granted or continued.

31 Houben Marine also argued that Mason A-CJ in Castlemaine Tooheys Limited v South Australia (1986) 161 CLR 148 at 153 had appositely observed that a party applying for an interlocutory injunction had to demonstrate that he or she would suffer irreparable injury for which damages would not be an adequate compensation.

32 The concept of irreparable injury to which his Honour referred must, of course, be read having regard to the organising principles accepted as stating the law by the majority of the High Court in O’Neill 227 CLR 57. I am of opinion that Mason A-CJ was referring to the well known principle affecting the discretion to grant an interlocutory injunction, namely, that damages would not be adequate compensation for the injury that the plaintiff would suffer if an injunction were not granted. This is relevant in considering the degree of injury that the plaintiff would suffer by permitting the threatened conduct to continue unabated. I am not satisfied that there is any substantive difference between what Mason A-CJ had in mind and the organising principle of considering whether the inconvenience or injury which the plaintiff is likely to suffer if an interlocutory injunction were refused, outweighs or is outweighed by the injury the defendant would suffer if an injunction were granted. Both what Mason A-CJ said and the organising principles involve consideration of the same concepts and matters in exercising the discretion to grant an interlocutory injunction.

33 The injury to which Birdon will be exposed is a process in which a debt due by it will be created under the Security of Payment Act if an adjudication is made against it by force of s 23(2) of that Act. Whether or not an injunction is later granted, the creation of such a debt is likely to create significant disadvantage for Birdon. That is because, on its current balance sheet, any significant sum found to be due by it in the adjudication would cause it substantive detriment and may render it insolvent. In addition, if an adjudication were made against Birdon, Houben Marine would be entitled to add statutory interest of 8.5% or perhaps more at the charterparty rate, thereby leading to a not insubstantial increase in the amount of Birdon’s liability.

34 Next, Houben Marine argued that Birdon had not identified any causative effect between the alleged misleading conduct and any apprehended loss that Birdon asserted. Houben Marine argued that this ellipsis was demonstrated by the reasons of Hodgson and Basten JJA in Bitannia Pty Limited v Parkline Constructions Pty Limited (2006) 67 NSWLR 9 at 39 [106] per Basten JA (also at 27 [58]-[60]) and at 15 [8] per Hodgson JA.

35 In one sense, there is an opposition here between two sets of statutory rights that are in play, namely, Houben Marine’s right to pursue the adjudication process under the Security of Payment Act and Birdon’s right to seek relief from Houben Marine’s alleged departure from the norm of conduct in s 18 of the Law. Birdon claimed that it will suffer loss by the use of the adjudication procedure in the circumstances where an adjudication award may be made against it despite, first, the contract being at an end or, secondly, the misleading or deceptive conduct that gave rise to its entry into the contract, or, thirdly, the rendering of the invoices that may be acted on by the adjudicator, in treating the contract or the payment claims as valid.

36 In my opinion, the proper principle to be applied in a case like this was identified by Hodgson JA in Bitannia 67 NSWLR at 15 [8], namely, that the Australian Consumer Law:

“… discloses a legislative intention that persons should have a remedy to protect them from damage from the misleading conduct of a corporation, or to recover from the corporation compensation for such damage, and it would not be in accordance with that intention that a corporation should be permitted to obtain a judgment against a defendant on a cause of action one essential element of which has been created by that corporation’s misleading conduct against that defendant. Subject to discretionary questions, it would in my opinion be appropriate for a court to give effect to that legislative intention by granting an injunction under [the powers now reflected in ss 232 and 234 of the Law].” (emphasis added)

37 The provision by Birdon of $200,000 in cash or by way of a bank guarantee in support of the undertaking as to damages will also be of assistance in providing Houben Marine with some redress if it succeeds at trial.

38 In weighing the injury likely to be suffered by the parties, I am mindful of the fact that, without any real explanation, Houben Marine delayed for over seven months in making claims that a valuable dredge was actually on hire after it had been returned to the contractually nominated place of redelivery, Homebush Bay. Its assertion that its delay was due to one of its directors having difficulties arising out of his own personal circumstances suggests that the injury from a further delay of a few months until the matter comes on for a trial that will commence on 12 March 2012 will not be of great significance to it. This is hardly a situation in which Houben Marine has timeously or expeditiously sought to pursue its rights. It sat on its hands for over seven months before it created a series of invoices for that preceding period without ever raising with the other party to the contract a serious contention that the dredge was still on hire. On the material now before me, Houben Marine has failed to give any real explanation for its delay or of any injury that it may be caused if the status quo is maintained until Birdon’s case is determined on its merits.

39 Birdon’s claim is further strengthened by the circumstance that Houben Marine, without any explanation, relied on invoices that bore issue dates well before the dates in February and March 2011 when they were served, with the exception of the last. There has been no explanation as to how that discrepancy in dating and service happened, even accepting that one of the directors was experiencing matrimonial problems.

40 I am satisfied that damages would not be an adequate remedy if I allowed an adjudication process to proceed that could potentially result in a substantial determination being made against Birdon. The size of the payment claims is significant. At the moment, it would appear that these claims were put forward by Houben Marine in order to obtain an adjudication under the Security of Payment Act for a sum in the order of $2 million plus interest. I am satisfied that Birdon is not, and will not be, in a position where it could meet an adjudication debt of that order or of a significant size. On the other hand, there is no evidence before me of a substantive injury to Houben Marine if it is kept out of its entitlement to pursue an adjudication procedure.

41 The scheme reflected in s 32 of the Security of Payment Act is that at a final hearing of the parties’ underlying dispute, the accelerated payment of an adjudication debt can be taken into account in adjusting the parties’ rights if they are not as the adjudicator found. It is not appropriate to wait until the adjudication process takes place to assess the consequences of what the adjudicator might determine. Whatever the adjudicator determines will then become a debt created, and given effect, by statute. Whether or not an injunction were granted restraining Houben Marine from presently enforcing it, the existence of that debt and interest is likely to impact adversely on the appearance of Birdon’s solvency to its creditors.

(b) The relevance of the application for special leave to appeal

42 The second, and until now primary, basis upon which Birdon sought the continuation of injunctive relief was that it has applied to the High Court of Australia for special leave to appeal from the decision of the Full Court. The special case stated for the consideration of the Full Court included the question whether the existing interlocutory injunctions should continue. The majority held they should not. Nonetheless, the subject matter of the application for special leave includes, in part, the consideration of that very question.

43 It is less than desirable that, as the dissenting judge in the Full Court, I should be asked effectively to make an evaluation of the strength of Birdon’s attack on the decision of the majority: see Paringa Mining & Exploration Co plc v North Flinders Mines Limited (1988) 165 CLR 452 at 459-460 per Mason CJ, Brennan and Gaudron JJ. Whether or not an injunction ought be granted pending the hearing of an application for special leave to appeal involves the exercise of an extraordinary jurisdiction. In that situation, the Court must consider the four issues raised by Brennan J in Jennings Construction Limited v Burgundy Royale Investments Pty Ltd [No. 1] (1986) 161 CLR 681 at 685, namely: (1) whether there is a substantial prospect that special leave to appeal will be granted; (2) whether the applicant has failed to take whatever steps are necessary to seek a stay from the court in which the matter is pending; (3) whether the grant of a stay will cause loss to the respondent; and (4) where the balance of convenience lies. The second issue is not relevant here, since I am considering that very question. Brennan J addressed an argument by the respondent that special leave there was unlikely to be granted saying (at 685):

“It is undesirable to canvass the arguments in advance. I do not, however, think that the prospect of a grant of special leave is insubstantial.”

His Honour imposed, as conditions on the grant of a stay in that case, that the applicant seek special leave and prosecute any appeal with all reasonable expedition and give an undertaking as to damages.

44 In this matter, the argument based on Constitutional invalidity is not insubstantial. Birdon is prepared to give undertakings, by its senior counsel, in the terms that it gave earlier as well as a further one, to provide a measure of security for the undertaking as to damages, albeit that it falls far short of Houben Marine’s total claim. If the High Court were to grant special leave to appeal there may be a question as to the maintenance of the trial date that I have fixed. When I offered the trial date neither party had put on or prepared its evidence for a final hearing. Birdon has sought about three weeks in which to provide any further evidence that it will seek to lead. After that, Houben Marine has said that it will not be able to complete its evidence preparation until late January 2012.

CONCLUSION

45 There being no evidence of any substantial injury to Houben Marine other than the one that can be inferred by it being kept out of a claim for a very large sum of money, to which it may only be temporarily entitled in any event, I am not persuaded that the injury it will suffer from the relatively short delay until a trial in this matter is held and a final judgment delivered will outweigh the potential prejudice and detriment to Birdon. I am satisfied that Birdon is entitled to interim protection under s 234 of the Law based on its claims under s 18: Bitannia 67 NSWLR at 15 [8].

46 For these reasons, I am of opinion that I should make an order giving effect to the answers the Full Court gave but then remake the interlocutory injunctions in the same terms until the final hearing has concluded or until further order, on conditions that Birdon undertakes:

(1) to pursue its application for special leave to appeal, and any appeal, and all steps in these proceedings up to and including the completion of the trial with all due expedition; and

(2) on or before 1 November 2011 to pay the sum of $200,000 into Court or into any bank account which may be agreed between it and Houben Marine or alternatively provide a bank guarantee in that sum in a form acceptable to Houben Marine or failing agreement, in a form settled by the Registrar in that sum.

I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Associate:

Dated: 21 November 2011

Hansen Yuncken Pty Ltd v Ian James Ericson trading as Flea’s Concreting & Anor [2011] QSC 327

A permanent injunction was granted restraining the enforcement of the decision of Philip Davenport as adjudicator on the ground that the payment claim was tainted by fraud in the sense of deliberate exaggeration. But the court dis require Hansen Yunken to pay the part 6that was not tainted by fraud, saying

[151] It is true that equity should not look kindly upon a fraudulent claimant. Mr Ericson should be deprived of the benefit of his fraud. But to deprive him of the benefit of the entirety of the adjudicator’s decision would be to penalise him.

In other cases, it may be on the facts that a fraud would infect the whole of a claim. Certainly, fraud is a ground upon which an adjudicator’s decision may be challenged, the court noting that

Certiorari may be granted where a relevant decision has been obtained through fraud, including where the fraud is that of a party which is subject to the decision: SZFDE v Minister for Immigration and Citizenship

The judgment is as follows:

SUPREME COURT OF QUEENSLAND

CITATION: Hansen Yuncken Pty Ltd v Ian James Ericson trading as Flea’s Concreting & Anor [2011] QSC 327

PARTIES: HANSEN YUNCKEN PTY LTD ACN 063 384 056(Applicant)

v

IAN JAMES ERICSON TRADING AS FLEA’S CONCRETING

ABN 86 016 599 870

(First Respondent)

and

PHILIP DAVENPORT

(Second Respondent)

FILE NO: BS 7864 of 2009

DIVISION: Trial Division

PROCEEDING: Originating Application

ORIGINATING COURT: Supreme Court at Brisbane

DELIVERED ON: 4 November 2011

DELIVERED AT: Brisbane

HEARING DATE: 22-24 March, 11-15, 18-21 April and 11-13 May 2011Further written submissions received on 10 June 2011

JUDGE: McMurdo J

ORDER:

1. Upon the applicant paying to the first respondent by 25 November 2011 an amount which is the total of $2,363,619.29 and interest on that sum from 13 June 2009 at the rate according to s 67P of the Queensland Building Services Authority Act 1991 (Qld):

(a) the first respondent will be restrained thereafter permanently from taking any steps to obtain an adjudication certificate or to otherwise enforce the adjudication decision of the second respondent;

(b) the Registrar will unconditionally release to the applicant any bank guarantee provided under the orders of 23 July 2009 or 6 December 2010.

2. If payment of that total sum is not made by 25 November 2011:

(a) the order within paragraph 1 of the orders made on 23 July 2009 will be set aside;

(b) the first respondent will be restrained from recovering more than an amount which is the total of $2,363,619.29 together with interest on that sum from 13 June 2009 until the date of recovery at that rate of interest, by recourse to one or more of the said bank guarantees or otherwise;

(c) upon the recovery of that total, the first respondent will thereafter be restrained from taking any further steps to enforce the adjudication decision of the second respondent and such of the bank guarantees which then remain in place will be unconditionally released to the Registrar and any moneys paid under any bank guarantee which are surplus to the funds recovered by the first respondent in accordance with these orders will be paid to the applicant.

3. Liberty to apply.

CATCHWORDS: ADMINISTRATIVE LAW – JUDICIAL REVIEW – GROUNDS OF REVIEW – ERROR OF LAW – where the applicant was a head contractor and the first respondent a subcontractor – where the first respondent made an adjudication application under the Building and Construction Industry Payments Act 2004 (Qld) – where the adjudicator accepted the first respondent’s claim in full – where the applicant obtained an injunction restraining the first respondent from enforcing the adjudication decision until trial or further order – whether the applicant was denied natural justice – whether a denial of natural justice must be substantial or material for relief to be grantedEQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INJUNCTIONS FOR PARTICULAR PURPOSES – OTHER CASES – whether the first respondent’s claim was fraudulent – whether the adjudication decision should be set aside where the fraud affected only part of the claimADMINISTRATIVE LAW – JUDICIAL REVIEW –POWERS OF COURTS UNDER JUDICIAL REVIEW LEGISLATION – GENERALLY – whether s 18 of the Judicial Review Act 1991 (Qld) displaces judicial review on the grounds of fraud

CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – REMUNERATION – STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS – OTHER MATTERS – whether the decision of an adjudicator should be set aside upon the basis of evidence which was discovered after, but discoverable before, the decision – whether an adjudicator could be said to have not decided an adjudication application under s 32(1)(b) of the Act because the application was affected by the applicant’s fraud

Building and Construction Industry Payments Act 2004 (Qld), s 21(3)(c), s 25(3), s 32(1)(b), s 100

Building and Construction Industry Security of Payment Act 1999 (NSW), s 26(1)(b)

Judicial Review Act 1991 (Qld), s 18, Sch 1, Pt 2

Queensland Building Services Authority Act 1991 (Qld), s 67P(3)(a)

Akerhielm v De Mare [1959] AC 789, applied

Angus v Clifford [1891] 2 Ch 449, cited

Arnison v Smith (1889) 41 Ch D 348, cited

Bezzina Developers Pty Ltd v Deemah Stone (Qld) Pty Ltd [2008] 2 Qd R 495, cited

Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421, considered

Cardinal Project Services Pty Ltd v Hanave Pty Ltd [2010] NSWSC 1367, considered

Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 272 ALR 750, considered

Colonial Bank of Australasia v Willan (1874) LR 5 PC 417, considered

Derry v Peek (1889) 14 App Cas 337, cited

Emergency Services Superannuation Board v Sundercombe [2004] NSWSC 405, considered

Fifty Property Investments Pty Ltd v O’Mara [2006] NSWSC 428, considered

Hansen Yuncken Pty Ltd v Ericson [2010] QSC 156, cited

Hansen Yuncken Pty Ltd v Ericson (No 2) [2010] QSC 457, cited

HML v The Queen (2008) 235 CLR 334, cited

John Holland Pty Ltd v Made Contracting Pty Ltd [2008] NSWSC 374, considered

John Holland Pty Ltd v TAC Pacific Pty Ltd [2010] 1 Qd R 302, considered

Johns v Cosgrove [2002] 1 Qd R 57, distinguished

Jones v Dunkel (1959) 101 CLR 298, cited

Kirk v Industrial Court of New South Wales (2009) 239 CLR 531, considered

Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, applied

Lees v Tod (1882) 9 Rettie 807, cited

McDonald v McDonald (1965) 113 CLR 529, applied

Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2) (1992) 37 FCR 234, considered

Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140, considered

Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors [2011] QCA 022, considered

Owens Bank Ltd v Bracco [1992] 2 AC 443, considered

Owens Bank Ltd v Etoile Commerciale SA [1995] 1 WLR 44, cited, considered

Quasar Constructions NSW Pty Ltd v Demtech Pty Ltd [2004] NSWSC 116, considered

R J Neller Building Pty Ltd v Ainsworth [2009] 1 Qd R 390, applied

Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1, cited

Re Refugee Review Tribunal; ex parte Aala (2000) 204 CLR 82, considered

Spankie v James Trowse Constructions Pty Ltd [2010] QCA 355, considered

Stead v State Government Insurance Commission (1986) 161 CLR 141, cited

SZFDE v Minister for Immigration and Citizenship (2007) 232 CLR 189, cited

Toubia v Schwenke (2002) 54 NSWLR 46, applied

Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2008] NSWSC 399, applied

Wentworth v Rogers (No 5) (1986) 6 NSWLR 534, considered

COUNSEL: TP Sullivan SC with T Duggan for the applicantGW Walsh for the first respondent

SOLICITORS: Hopgood Ganim acting as town agent for Crawford Legal for the applicantNo appearance for the first respondent

[1] In August 2007, the applicant (‘Hansen Yuncken’) was engaged as the head contractor for the redevelopment of Cairns Airport. About a month later, it engaged the first respondent, Mr Ericson, as the subcontractor for all concreting works. As I will discuss, the basis upon which Mr Ericson was engaged is controversial. But clearly he was the subcontractor for the concreting works from then until about the middle of 2008 when, a dispute having developed between the parties, he left the site.

[2] On 29 May 2009, Mr Ericson caused to be served on Hansen Yuncken a payment claim under the Building and Construction Industry Payments Act 2004 (Qld) (‘the Act’). The amount claimed was $4,803,866.60, calculated as follows:

Total value (before GST) of work carried out $7,530,901.91

Less payments made to Mr Ericson $2,886,299.46

Less payment by others $81,553.50

Less allowed deduction for rectification $47,822.50

Less retention moneys $148,075.00

Balance $4,367,151.45

Plus GST $436,715.15

Total claimed $4,803,866.60

[3] Hansen Yuncken delivered a payment schedule dated 5 June 2009, stating that it proposed to pay nothing of the claim.

[4] On 22 June 2009, Mr Ericson made an adjudication application. On 30 June 2009, Hansen Yuncken delivered its adjudication response, again saying that it should pay nothing.

[5] The second respondent was the adjudicator. By a decision dated 2 July 2009, he accepted Mr Ericson’s claim in full. The sum of $4,803,866.60 became the adjudicated amount, and the due date for payment was fixed at 13 June 2009.

[6] On 23 July 2009, Byrne SJA was persuaded to order that Mr Ericson be restrained, until trial or further order, from taking any step to enforce the adjudication decision. Accordingly, he has not filed an adjudication certificate. The order was made upon condition that Hansen Yuncken lodged bank guarantees to secure the adjudicated amount. Those guarantees were lodged with the Court, and pursuant to a subsequent order, Hansen Yuncken lodged another guarantee to secure interest accruing on the adjudicated amount.

[7] In essence, the adjudicator’s decision is challenged by Hansen Yuncken upon two bases. The first is that there was a denial of natural justice, because the adjudicator had what is said to have been an important letter from Mr Ericson, which Hansen Yuncken alleges was not within the copy of the adjudication application which was served upon it.

[8] Secondly, Hansen Yuncken alleges that Mr Ericson defrauded it and the adjudicator. The fraud was in respect of what the adjudication application put forward as Mr Ericson’s labour costs. Hansen Yuncken alleges that some of Mr Ericson’s employees, for whom he claims some amounts against Hansen Yuncken, were not working on the airport project but instead were on other sites. The amount claimed for these employees was, in total, $108,244.88. Further, Mr Ericson claimed that the “actual cost” of the labour which he employed on this site was of the order of $3.7 million (to which he added increments of 5 per cent for overheads and 7 per cent for profit), when the true costs of that labour was approximately $1.8 million.

[9] In Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd & Ors,[1] the Court of Appeal held that adjudication decisions made under the Act are subject to judicial review for jurisdictional error. Hansen Yuncken says that the denial of natural justice would entitle it to an order setting aside the adjudicator’s decision. But it says that upon that ground the decision is already devoid of effect, because the provision of natural justice is an essential condition of a valid adjudication, relying upon Brodyn Pty Ltd v Davenport.[2] It argues that judicial review is available upon the fraud ground, just as a writ of certiorari would have been available to quash a decision of an inferior tribunal which was procured by fraud. Alternatively, it argues that the fraud ground warrants the same relief in the exercise of an equitable jurisdiction to prevent the enforcement of a judgment obtained by fraud: Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2);[3] Toubia v Schwenke.[4]

[10] The availability of the fraud ground to challenge an adjudicator’s decision was originally disputed by Mr Ericson. He unsuccessfully applied to strike out those parts of the Statement of Claim.[5] But ultimately his case accepted that if it is proved that he defrauded the adjudicator in either of the ways claimed, there would be at least a discretionary power to set aside the decision or to prevent its enforcement.

The payment claim

[11] The claim was in the form of a tax invoice, which was numbered 65, together with several attachments.[6] Within the invoice it was described as a “[c]laim for cost of structural goods, services and labour, hire of machinery, supplied to the abovementioned project… ”. The sum of $7,530,901.91 was described as the “[t]otal project cost to date”.[7] That was particularised in the attachments. One of the attachments was a table described as “Summary of Cost of Works”, on which there was the note “Below are Direct Costs where applicable”. It contained totals for machinery hire, transport, materials (broken up between types of formwork, consumables, steel and concrete), other items and, most significantly, on site labour, where there was a claim for $3,756,884. That was said to be the result of applying an hourly rate of $73.44 to 51,159 hours. There were also claims for offsite personnel and site management, again expressed to be the result of a certain number of hours by certain hourly rates, for amounts of $122,760 and $197,120. It is the onsite labour claim which is now relevant. The number of man hours were there described as further particularised in other attachments.

[12] This “Summary of Cost of Works” also contained an item:

“Overheads (5%) and Margin (7%) 12% Of Above $806,882.35

Includes Flea’s hours”

Mr Ericson is known as “Flea”: hence the name of his business “Flea’s Concreting”.

[13] Another attachment was described as “Summary of Trade Labour Hours”, showing hours and “Sum Cost”, month by month from October 2007 through September 2008. The hours totalled 51,250 and the overall cost $3,764,814. That equates to an hourly rate of $73.46 (to the nearest cent). What that page shows is that the same hourly rate was not applied to all hours, because the cost of labour per hour varied month by month within this attachment, in a range between $71.32 and $99.99. Neither this attachment nor the balance of Mr Ericson’s payment claim revealed the various hourly rates which had been applied. Nor did the claim reveal whether these hourly rates represented what had been paid by Mr Ericson to his employees or something else. However the overall claim was based upon what was said to be the “cost of works” and “direct costs where applicable”.

The payment schedule

[14] In its payment schedule for this claim, the main point sought to be made by Hansen Yuncken was that the claim had not been made in accordance with what it said was the true agreement between the parties. It said that the payment claim was “deficient in the detail required to enable an accurate assessment under the terms of the Subcontract Agreement and [the Act]”.[8]

[15] As to the component of the claim which was for labour, the payment schedule advanced these reasons for rejecting the claim. The first was that “[t]he rates used in the Payment Claim are in excess of market rates and do not reflect the rates used in the compilation of the Claimant’s tender”.[9] But that was not confined to the component which was labour costs. In his evidence, Hansen Yuncken’s Mr Reynolds, who was involved in the preparation of its payment schedule, conceded that there were no such rates which had been used in the compilation of Mr Ericson’s tender. So this assertion within the payment schedule seems to have been made without reference to Mr Ericson’s case, and instead was extracted from another document in an unrelated matter.

[16] The payment schedule also contained this:

“(m) The payment claim purports to include the Claimant’s actual costs for trade labour. Off site personnel and site management of some 55,183 hours. The Claimant has not provided any substantiation of the labour rate or any other substantiation that would verify that the quantum of labour was actually employed on the project. Furthermore the accounting of actual hours spent on the project does not consider any possible shortfalls contained in the Claimant’s tender submission, nor does it take into account inefficiencies and inadequate management by the Claimant of its labour resources. The works were undertaken under a fixed price contract and presentation of actual hours worked is not relevant or correct in the assessment of variations to changes in construction documents under Clause 40.”[10]

In essence, Hansen Yuncken’s substantive response was to say that this was a fixed price contract, so that a number of hours or a rate for labour were irrelevant.

The adjudication application

[17] The adjudication application was a compilation of documents totalling about 600 pages. It included a 15 page document described as the Claimant’s Submissions. That document contained, relevantly, the following contentions. First it was said that the construction contract was one upon a ‘costs plus’ basis. As I will discuss, that argument was accepted by the adjudicator. There were alternative contentions, which were that the contract was for a fixed price but that there were substantial variations from the work which was the subject of that contract or that the contract was in the terms of a certain subcontract document (which had been sent to Mr Ericson but which he had declined to sign). Under that last alternative, he again claimed that there had been substantial variations.

[18] It was submitted that the adjudicator should determine “…the value of the works undertaken by the claimant, including the variations”.[11] In the submissions under the heading “Valuation of Works” were these passages:

“8.1.2 The payment claim represents the actual costs to the claimant of the works carried. This includes substantial increases over the course of the contract not only of the costs of both labour and primarily steel faced by the claimant but also that of the increased amount of supply of such including concrete …

8.2 Given the matters raised by the respondent in its Payment Schedule it is important to note that the claimant’s claim is for his actual costs incurred plus a margin in regards to all works provided and is represented in the summary page of such attached to the claim along with that of all its workings. This summary consists of not only of accounts as paid by the claimant – Job Activity ‘Appendix 1b’ but also that of the actual mans hours spent on the project along with estimated costs for such items as Machinery Hire, Processed Bar and costs associated with deliveries along with minor costs allocated for maintenance personnel to ensure the up keep of such equipment… . In regards to valuation of works, the claimant has provided accurate information based upon actual time sheets, invoices and associated paper work available as of 29th May 2009.”[12]

(original emphasis)

[19] The submissions went on to address the reasons given in Hansen Yuncken’s payment schedule for rejecting the claim, by reference, paragraph by paragraph, to that document. This section included the following:

“10.1.b Claim Deficient in Detail The respondent is well aware of the issues involved in this dispute. Information was provided to the respondent in August of 2008 of the claimant’s breakdown of costs including that of the provision of substantial backing material. In April 2009 the respondent was also provided with a 140 page ‘as Built BOQ’ in significant details (sic). If the respondent wished to resolve this matter prior to applying for adjudication and as per the details contained on the claim ‘if Further information is required on the above please ask’ a meeting would have been set up and under the implied conditions of the respondent’s contract and dispute resolution procedure would have been followed. The Payment Claim is valid in this case as the parties were in fact aware of the nature of the amounts claimed and how they are calculated … .

10.1.c Markets Rates The rates contained within the Payment Claim are costs actually incurred by the claimant as set out in the Appendix 1b. These rates represent market rates in fact facing the claimant plus the margin claimed.

10.1.d Variations claims The claimant contends that the Subcontract Agreement does not apply. In any event, the claimant in fact claims for the ‘price reasonably paid’ within the meaning of the clause as the claim here is for the actual costs incurred by the claimant plus a margin.

10.1.e Contingency Even if the Subcontract Agreement applies, the claimant is at least entitled to a 7% margin, and even if the other margins are not applicable, the claimant seeks in the alternative a determination of the application of a 7% margin.

10.1.f Margin For the information of the Adjudicator and respondent and the trade contractor usually experiences (and budgets for) figures of 25 to 35% on margin whilst between 8 and 12% for over heads. Alternatively if the 5% limit applies the claimant repeats and relies upon 10.1.e above.

10.1.g Concrete Costs The respondent is incorrect. … Again it is important to note that the claimant seeks payment based on the actual costs incurred…

10.1.h Steel Costs The respondent is incorrect. The steel rate was in fact $1850 per tonne as per cost summary sheet. Differences between preliminary estimates and actual supply costs were subject to a quite abnormal industry increase in steel experienced in 2008 of approximately 45 to 75% – ‘refer Annexure L’

…

10.1.m Trade labour. H&Y have an effective Site Quality Control system along with that of reporting and recording. The basis of all commercial construction recording is that of a site diary as kept by H&Y Site supervisors, this diary records the daily activities along with that of the number of trade contractors on site and working on site. This information is summarised usually by Site Management and accessible by such. Further, the claimant has confirmed the matters set out in this application in his statutory declaration (Annexure A).”[13]

(again, original emphasis).

[20] The application enclosed a statutory declaration, made by Mr Van Diemen, an employee of Mr Ericson, which was towards proving the number of hours worked on this site. He said that to the best of his knowledge, what was enclosed contained “…an accurate summary of all man hours of employees spent on the Cairns Airport Redevelopment and represents a majority summary of ‘Worked Hours’ on the project …”. He said also that “[s]ome time sheets have been damaged or missing, however these items are cross checked against weekly wage sheets with that of employee’s”.

[21] There was also enclosed a one page document containing a table described as “Summary of Labour Rates”. The table contained amounts in three columns, respectively headed “$ Per Hr”, “Tool allow[ance]” and “Sum”. The figures in the first and second columns were added to reach the figure in the third column. Amounts were inserted against various descriptions of worker, such as labourers, carpenters and formworkers as well as a “Site Supervisor” and “Project & Site Manager”. The amount per hour varied from $55 to $120 and the tool allowance varied from zero to $4.50. The total sum varied from $58.50 to $120. There was a note underneath the table as follows:

“*Above rates include – Overtime and Applicable Penalty Rates and Basic site Allow”.[14]

[22] The tables headed “Summary of Cost of Works” and “Summary of Trade Labour Hours Spnt on Site”, as attached to the payment claim, were again included here. But this time there were details of these amounts, within 27 pages of a table headed “Summary of Labour Hours”. This identified the specific employees, the job description of each (such as labourer or foreman), a number of hours for that employee by reference to a particular week and an amount for that employee for that week under the column heading “Cost/Hr”. Those hourly rates were the same as those (inclusive of the tool allowance) which were set out in the table “Summary of Labour Rates”.

[23] Included within the adjudication application was a form of contract. This was the contract document which Hansen Yuncken had proposed for the subject works. Although Mr Ericson had declined to sign that document, he appears to have included it in order to pursue his alternative arguments to which I have referred.[15] Of present relevance were the provisions for valuing and thereby pricing a proposed variation. Clause 40.5.1(e) of that document provided that the value of a variation was to be determined by Hansen Yuncken according to any relevant reference in any bill of quantity or schedule of rates, but that if no unit rate could be reasonably applied, the works would be priced at the rates or prices payable by the subcontractor as reflected in any documents that comprised his tender. It further provided that if none of those means of valuation was applicable, the subcontractor’s “base cost” would be determined, as to labour, by “the wages reasonably paid or payable by the Subcontractor…”. There was provision for the inclusion of a component for “administration, supervision, off-site overheads and profit…” to be added to the base cost according to a rate in Annexure Part A of the document, where the rate of 5 per cent was specified. Therefore, if the terms of this document were at all relevant, Mr Ericson departed from them because he added a component of 5 per cent for overheads as well as a component of 7 per cent for profit.

[24] The adjudication application included a document in the form of a letter from Mr Ericson addressed “to whom it may concern”. Undoubtedly, this was within the application which the adjudicator received because he referred to it in his decision. However, this is the document which Hansen Yuncken says was not within the copy of the application served upon it so that it was thereby denied natural justice by being unable to address the case as put to the adjudicator. I will return to that question. At this point I will simply set out the terms of the letter:

“22nd June 2009

Re: Backing paperwork – Flea concreting claim

Dear Sir / Madam

In regards to the 24 to 30 odd folders of misc dockets such as included but not limited to the below we have not supplied (although can) primarily due to the effect on our environment along with that of the huge paper that would be consumed with three (3) copies required for such. We note that the information provided is a summary of such.

We have provided stat decs to confirm the accuracy of such – and if requested we will be happy to provide.

Concrete deliveries

Steel schedules

Accounts and relative invoices

Labour time sheets and folders

Machinery dockets

Site Diaries and records

Consumables and hardware invoices

It would be more economical and practical to fly you to Cairns to review such, and I take pleasure in offering such

Yours faithfully

Ian Flea Ericson”[16]

The adjudication response

[25] Hansen Yuncken’s response was dated 26 June 2009 and ran to about 170 pages. It began with 20 pages of submissions.[17]

[26] Hansen Yuncken accepted that the adjudication application had arisen from the payment claim. It accepted that there was a construction contract for the purposes of s 3(1) of the Act and that Mr Ericson was a licensed builder and otherwise a competent applicant. But it contended that the true agreement was for a fixed lump sum contract, evidenced by Mr Ericson’s tender form submitted to Hansen Yuncken, the minutes of a meeting which had been signed by Mr Ericson described as the “Pre Award Meeting Minutes”, a letter of acceptance signed by Hansen Yuncken and the form of subcontract which Mr Ericson had enclosed within his application.

[27] Much of its submissions were devoted to the subject of what constituted the contract (if any) between the parties. As I have noted, Mr Ericson had not signed the form of subcontract. Hansen Yuncken argued that nevertheless the parties had agreed to be bound in those terms. In particular, Hansen Yuncken submitted to the adjudicator that the parties had not entered into an agreement to carry out the work on a cost plus basis.[18]

[28] On page 11 of this document, Hansen Yuncken referred to the payment claim. By a series of paragraphs, each of which commenced with the words “The Respondent accepts …”, it made several concessions. Most relevantly here, in paragraph 7.3, it wrote:

“7.3 The Respondent accepts that the payment claim represents the Claimant’s opinion of actual costs incurred for the work claimed.”[19]

[29] Then followed a section headed “Valuation of Works”. That began with a contention that Mr Ericson’s payment claim had not been made according to cl 42 of the form of subcontract. There followed these contentions:

“8.1.1. The Claimant has submitted a payment claim for 25 areas, however the Claimant’s methodology in compiling the payment claim is severely flawed, the Claimant has done a complete re-measure of the works and has reflected a cost plus arrangement within the payment claim. This is not the agreement that exists between the Respondent and the Claimant all evidence shows that the nature of the agreement is a fixed lump sum agreement, therefore the Claimants costs associated with the Claimants re-measure are irrelevant.

8.1.2 The Respondent accepts that the Claimant’s payment claim Tax Invoice No 65 is representative of the Claimants opinion of actual costs incurred. The Claimant’s actual costs are irrelevant, as the contractual agreement between the parties is a lump sum contractual agreement not a cost plus agreement. (refer to annexure N, C & E)

8.1.3 (refer to annexure A.1) The Respondents independent Quantity Surveyors and Cost consultants Davis Langdon undertook an assessment of the Claimants variation number 52 AS01. Davis Langdon in their assessment have outlined rates which are not reflective of the Claimants tender pricing however the result of their assessment actually indicates that the variation is a credit to the Respondent for $5,209.00 as opposed to the Claimants claim for $358,927.24.

8.1.4 …

8.2 The Respondent accepts that the Claimants payment claim Tax Invoice No 65 is in the Claimants opinion actual costs incurred, the Respondent does not accept that the costs incurred are an accurate reflection of the true market value. The Respondent does not accept that the Claimants payment claim for the Claimants alleged actual costs constitutes a valid payment claim due to the nature of the agreement between the Respondent and Claimant being a lump sum agreement. (refer to annexure N, C & E).”[20]

[30] It can be seen that by this point in the document, Hansen Yuncken had stated its acceptance of the fact that the payment claim accorded with Mr Ericson’s opinion of what actual costs he had incurred. That was not an acceptance of the accuracy of the quantification of his claim as a cost plus claim. But in my view, it was unambiguously an acceptance of the honesty of the claim, insofar as what were represented to have been the actual costs to the claimant.

[31] Paragraph 10 was headed “Reasons for Non-Payment by the Respondent”. It began with the statement that these reasons had been provided in the payment schedule. Most importantly, Hansen Yuncken maintained that there was an agreement according to the form of subcontract. Under this heading these further contentions were included:

“10.1.c Market Rates The rates that the Claimant has articulated within payment claim Tax Invoice No 65 are not consistent with the rates that the Claimant included within the Claimant’s submitted and accepted tender. The Claimant submitted a tender price to undertake the subcontract works on a lump sum arrangement, as already stated this is evidence within the Tender Form submitted by the Claimant, the Pre Award Meeting Minutes signed by the Claimant, the Letter of Acceptance sent Claimant and the Subcontract agreement. The Claimant did not at time of tender and signing of the Pre Award negotiate into the agreement between the Claimant and the Respondent an allowance to adjust the Claimants rate to reflect market changes. To suggest that market rate applies and is relevant to each of the Claimants payment claims is a contradiction to the tender submitted by the Claimant and accepted by the Respondent.

…

10.1.g Concrete Costs The Respondent again reiterates the nature of the arrangement between the Respondent and the Claimant is a lump sum agreement not a cost plus arrangement. The Claimants alleged actual costs are irrelevant. …

10.1.h Steel Costs The Respondent again reiterates the nature of the arrangement between the Respondent and the Claimant is a lump sum agreement not a cost plus arrangement. The Claimants alleged actual costs are irrelevant. …

…

10.1.m Trade Labour As outlined in the payment schedule provided to the Claimant on 5th June 2009 the payment claim purports to include the Claimant’s actual costs for trade labour. Off site personnel and site management of some 55,183 hours. The Claimant has not provided any substantiation of the labour rate nor any substantiation that the quantum of labour was actually employed on the project. Furthermore the accounting of actual hours spent on the project does not consider any possible shortfalls contained in the Claimant’s tender submission, nor does it take into account inefficiencies and inadequate management by the Claimant of its labour resources. The works were undertaken under a fixed price contract and presentation of actual hours worked is not relevant or correct in the assessment of variations to changes in construction documents. …”[21]

In those paragraphs, it was made clear that Hansen Yuncken was not admitting that either the number of hours worked or the hourly rates were in fact accurate. That can be reconciled with the repeated acceptance of the honesty of the claim in those respects, upon the basis that Hansen Yuncken was admitting that the quantification of actual costs was honest but not necessarily accurate.

[32] The further contention (contained within cl 12.1) was that Mr Ericson was claiming effectively “…the complete contract value of the agreement when [he] simply has not completed the subcontract works”.[22] Its case was that only about one-half of the works had been completed. Again, this was not a challenge to his honesty, but was part of the broader point that this was a lump sum contract.

[33] In no part of the response did Hansen Yuncken attempt to challenge the quantification of the claim, at least insofar as labour costs were concerned, except as I have mentioned. That challenge went only as far as saying that the number of hours and the labour rates had not been “substantiated”. For example, there was no suggestion that the labour rates seemed to be too high to represent actual costs, because Mr Ericson could not have been paying such high rates to his employees.

The adjudicator’s decision

[34] The adjudicator’s reasons extended to 11 pages, much of which was occupied by the question of what constituted the relevant contract. The adjudicator rejected Hansen Yuncken’s case that there was a lump sum contract. He wrote:

“19] I am satisfied that the respondent and the claimant proceeded without a written contract. It appears that the respondent was anxious to have the claimant commence work and both parties were prepared to proceed without a written contract or agreement on just what work the claimant would carry out for what price. There was an arrangement between the parties which arrangement is a construction contract as defined in the Act. It is easier to decide what were not terms of the arrangement between the parties than to decide what were the terms of the arrangement. I am satisfied that the clauses of the so called Subcontract Agreement relied upon by the respondent in the payment schedule were not part of the arrangement under which the work was carried out. In particular, in the payment schedule the respondent relies upon clauses 40 (Variations) and 44 (Default). I am satisfied that these clauses were not part of the arrangement.”[23]

[35] He then discussed the basis for the claim and the evidence in support of it. He wrote:

“24] In the payment claim the claimant provides details of the work, materials and labour for which payment is sought. Essentially it is a claim for alleged actual costs plus 5% for overheads and 7% ‘margin’. At [7.3] of the adjudication response the respondent says, ‘The Respondent accepts that payment claim Tax Invoice No 65 represents the Claimant’s opinion of the actual costs incurred for the work claimed’. The respondent does not contend that the claimant’s alleged actual costs were not truly actual costs incurred by the claimant. In the payment schedule the respondent does not provide any alternative valuation of the work carried out.

…

27] The respondent says that the payment claim is deficient in the detail required to enable an accurate assessment under the terms of the Subcontract Agreement and the Act. It appears to me that the claim includes quite sufficient detail to allow an assessment under the Act. The Subcontract Agreement was not part of the construction contract. The claimant ceased work on 26/9/09. The respondent has had adequate time to make an accurate assessment of the value of the contraction work carried out by the claimant. …

28] The respondent says that the rates used in the payment claim are in excess of market rates and do not reflect the rates used in the compilation of the claimant’s tender. The claimant says that the rates represent the claimant’s actual costs. The claimant says that over the course of the contract there were substantial increases in the costs of labour and steel. I do not consider that rates used in the compilation of the claimant’s tender are relevant. That offer was not accepted. Consequently, the rates used are not binding. The respondent has not provided a valuation based upon alleged market rates or upon the rates used in tile compilation of the tender. …

…

31] The claim for 7% for ‘Margin’ is apparently a claim for profit. In the payment schedule the respondent relied upon the alleged 5% agreed in the alleged Subcontract Agreement but did not address what would be a reasonable profit in the absence of any agreement on profit. In the absence of any submission from the respondent on what would be a reasonable allowance for profit on actual costs, other than the argument that the 5% should apply to overheads and profit, I am satisfied that the 7% margin claimed is reasonable for the purposes of assessing a payment on account.

39] The respondent says that the claimant has not provided any substantiation of the labour rate or the number of hours. That is not strictly correct. For example, included in the adjudication application is a statutory declaration by Mr Nicolaas van Diemen, the claimant’s site manager and leading hand on the project. He says that he has correlated the summaries and checked the figures. The claimant says that there are 24 to 30 folders of dockets that the claimant has not included with the adjudication application ‘primarily due to the effect on our environment’. They included accounts and relevant invoices, labour time sheets, site diaries, etc. The claimant says that it would be more economical and practical to fly me to Cairns to review the documents. I don’t see that it would serve any purpose for me to inspect the documents. The respondent has apparently not bothered to inspect the material. It seems to me that the approach of the claimant in summarising the material is appropriate.

40] The respondent says that the accounting of actual hours does not consider any shortfalls contained in the Claimant’s tender. It does not have to. That tender was not accepted. The respondent says that the accounting of actual hours does not take into account inefficiencies and inadequate management by the claimant of its labour resources. However, the respondent fails to provide anything upon which I could decide the amount, if any, to be deducted for the alleged inefficiencies and inadequate management. What were the alleged inefficiencies and inadequate management? How many hours should be allowed for them? The respondent provides no answers. Instead the respondent submits that the actual hours worked are irrelevant because the works were undertaken under a fixed price contract. As I have said, I am not satisfied that the parties made a fixed price contract for the construction work.

…

50] …[H]aving decided that the alleged Subcontract Agreement is not the construction contract and that the construction work cannot be valued on the basis of a lump sum plus variations, the only evidence I have upon which to value the construction work for the purpose of a progress payment is that provided by the claimant. The claimant claims cost plus. I am satisfied that the costs claimed by the claimant are the claimant’s actual costs and the percentage added for offsite overheads and profit is reasonable. The respondent has not satisfied me that the costs or any of them were not reasonably incurred in the carrying out of the construction work. I am satisfied that the claimant is entitled to the whole amount claimed.”[24]

[36] Several things must be noted about the adjudicator’s reasons. The first is that he interpreted Mr Ericson’s references to “actual costs” to be just that: the costs actually incurred by him. For the fraud case against Mr Ericson, it is what Mr Ericson believed was the effect of his representation which is relevant. But it is relevant that the adjudicator could see no ambiguity in the term “actual costs”.

[37] Secondly, the adjudicator noted the letter of 22 June 2009 and its reference to “24 to 30 odd folders”. Not surprisingly, the adjudicator assumed that Hansen Yuncken had been given a copy of that letter and he commented on its apparent lack of interest in looking at these documents. Similarly, he remarked that “the respondent has had adequate time to make an accurate assessment of the value of the construction work carried out by the claimant” and he noted the absence of any positive case as to what was that value.

The fraud case

[38] Hansen Yuncken was very surprised by the adjudicator’s decision. As I have mentioned, it promptly applied for an order that Mr Ericson be restrained until a trial from taking any step to enforce the decision. It then set about a thorough investigation of Mr Ericson’s documents, from which it built its fraud case.

[39] The fraud case has two parts, each relating to labour costs. The first is that Mr Ericson represented that these were his ‘actual labour costs’, whereas his actual costs were much lower, and he could not have believed the amounts he put forward in his claim were accurate or, at least, a reasonable estimate of his actual costs. Secondly, it is said that he claimed for the costs of some workers who did not work on this job at least on the relevant day or days, and that he must have known that this was the case.

Actual costs

[40] Hansen Yuncken prepared two spreadsheets, comparing Mr Ericson’s true labour costs and the amounts which he claimed. Ultimately, there was no contest as to the accuracy of these comparisons. The first of them results in a total for true costs of $1,838,788.67, as against the sum claimed for those employees which was $3,764,814.[25] The second comparison excludes the tool allowance from the amounts claimed, resulting in a total of $3,655,449.25 against that same amount of estimated true costs of $1,838,788.67.[26]

[41] Hansen Yuncken accepts the accuracy of the number of hours claimed to have been worked by each employee (apart from those employees whom it says were not on this job).

[42] The spreadsheets show the comparison between the amount claimed and the estimated true costs week by week, employee by employee. To take the example of the first line in each spreadsheet, the comparison there made is in relation to Mr Shane Heaven for the week ending 23 October 2007. He was a foreman and worked 43.5 hours. The amount claimed by Mr Ericson was $87 per hour, made up of $85 per hour plus a tool allowance of $2.00 per hour, according to the Summary of Labour Rates to which I have referred above at [21]. Net of the tool allowance, the sum thereby claimed for Mr Heaven for that week was $3,697.50. The hourly rates actually paid to employees have been derived mostly from Mr Ericson’s payroll documents, kept on a MYOB system. Those payroll records are not complete or, it would seem, completely accurate. In some instances within these spreadsheets then, Hansen Yuncken has estimated the likely cost by assuming that the relevant employees did work the number of hours as claimed and by applying an hourly rate for those employees from other weeks for which there are payroll records. Then there are some employees for which no payroll advice at all was disclosed by Mr Ericson, but they were shown on the Summary of Labour Hours as labourers. In those instances, Hansen Yuncken has averaged the amounts paid to labourers and applied the average to these employees. It has had to do the same with some steel fixers and form workers.

[43] I am satisfied that the amounts shown in each of these spreadsheets as “Wages Paid for Week” constitute, for the most part, an accurate statement of what in truth was paid and where it is an approximation, that it is a reasonable one. Overall, the extent to which the true wages paid have had to be approximated in this analysis, rather than being derived exactly from the payroll records, does not detract from the substantial accuracy of these spreadsheets in their comparisons of the costs claimed and what were in truth the actual costs.

[44] To that sum of “wages paid”, Hansen Yuncken has added superannuation (assumed at 9 per cent), payroll tax (at 4.75 per cent) and workers compensation premium (at 5 per cent). So in Mr Heaven’s case for that first week ending 23 October 2007, the estimated true costs per week is an amount of $1,925.40. On the basis of the number of hours for that week as claimed by Mr Ericson (43.5 hrs), it equates to an actual hourly rate of $44.26. The comparison for this employee is representative of the difference between the sum claimed and the true costs, week by week, for each employee. There is a difference of the same order in the respective totals, such that what was claimed as the total “actual cost” was about twice the cost actually incurred according to this analysis.

[45] As I have said, there is no challenge to the substantial accuracy of these spreadsheets. Hansen Yuncken says that Mr Ericson must have known that what he was claiming did not represent even a reasonable estimate of his actual costs. I turn to the various arguments for Mr Ericson.

[46] In order to establish fraudulent misrepresentation, it must be proved that the representor had no honest belief in the truth of the representation in the sense in which he intended it to be understood. In stating that proposition in Krakowski v Eurolynx Properties Ltd,[27] Brennan, Deane, Gaudron and McHugh JJ cited this passage from the decision of the Privy Council in Akerhielm v De Mare:

“The question is not whether the defendant in any given case honestly believed the representation to be true in the sense assigned to it by the court on an objective consideration of its truth or falsity, but whether he honestly believed the representation to be true in the sense in which he understood it albeit erroneously when it was made. This general proposition is no doubt subject to limitations. For instance, the meaning placed by the defendant on the representation made may be so far removed from the sense in which it would be understood by any reasonable person as to make it impossible to hold that the defendant honestly understood the representation to bear the meaning claimed by him and honestly believed it in that sense to be true … (For the general proposition that regard must be had to the sense in which a representation is understood by the person making it, see Derry v Peek;[28] Angus v Clifford;[29] Lees v Tod,[30] which authorities must, in their Lordships’ view, be preferred to Arnison v Smith[31] so far as inconsistent with them.)”[32]

[47] Mr Ericson says that he had a different understanding of the term “actual costs”. In his original Defence, Mr Ericson pleaded that:

“17.2 the hourly pay rates at which the first respondent employed his workers were less than the hourly rates applied to labour hours in the Adjudication Application by reason that the latter were estimates of the hourly cost of the relevant workers to the first respondent;

17.3 the Summary of Labour Rates and Summary of Labour Hours were an estimate of the costs that the first respondent actually incurred in engaging employees.”[33]

Those paragraphs were deleted and replaced with the following in the ultimate Defence:

“16.4 the Adjudication Application in fact represented that hourly rates applied to labour hours was an estimate of the hourly cost to the first respondent, known as a ‘charge-out rate’, and not the actual wage rate at which first respondent employed the particular individuals;

16.5 the Adjudication Application did not purport to state the hourly pay rates of employees as alleged;

16.6 the applicant knew or ought to have known that the Adjudication Application and the Payment Claim contained hourly rates for employees which represented actual charge-out rates and not amounts calculated as pled at paragraphs 35.1 and 35.2 of the Statement of Claim, and that the expression ‘actual costs’ referred to such charge-out rates, because:

(a) the Adjudication Application at Appendix K contained an extract from Rawlinsons Construction Costs Guide comprising ‘Contract Charge-Out Rate[s]’ which corresponded approximately to the hourly charge-out rates charged by the first respondent;

(b) the applicant’s own ‘back charge’ rates corresponded approximately to the hourly charge-out rates charged by the first respondent;

(c) no reasonable contractor in the position of the applicant could have believed that the hourly rates charged by the first respondent could have represented the actual wages and entitlements paid to the first respondent’s employees, because such rates would be fancifully high.”[34]

Thus Mr Ericson’s case is that he estimated the labour costs by the use of market or “charge-out” rates because they represented the complete cost of employing a worker.

[48] It is convenient to discuss at this point the relevant events and circumstances out of which the payment claim was made. By the middle of 2008, the parties were in dispute as to variations. Mr Ericson claimed that as a result of variations, his costs had been greatly increased. Hansen Yuncken agreed that there had been substantial variations but denied that the costs had been increased. It obtained a quantity surveyor’s report which supported its case.

[49] Mr Ericson sent an email to Hansen Yuncken’s Mr Norton on 4 September 2008, saying that he had spent about $5.5 million on the project having been paid by Hansen Yuncken $3 million. He said that he was then “bankrolling this project to the tune of approx $3mil”.[35] On 10 September 2008, Mr Ericson repeated those claims and said that the circumstances made it impossible for him to continue on the site. He left the site in late September 2008.

[50] At about this time Mr Ericson retained a Mr Darcy Ringland, who was an independent consultant offering the service of assisting in the submission of claims in construction matters. Mr Ringland became heavily involved in the preparation of the subject claim. But he did not give evidence.

[51] On 9 April 2009, Mr Ericson served five payment claims on Hansen Yuncken. They were within tax invoices respectively numbered 51, 54, 55, 56 and 57.[36] The covering letter for invoice 51 was headed “Variation to ALL works up to Sept 2008”. The invoice claimed an amount of $1,733,449.23, which the letter explained was calculated as follows:

“Estimated and Surveyed Cost of Works Completed -

As per Schedules – refer to attached $4,722,424.09

• Add Previously Approved Variations

as of Sept 08 + $82,971.46

• Less retention held as of Sept 08 – $127,735.78

• Less outstanding defects as of 1st Sept 08 – $47,822.50

• Less Previous certified as of Sept 08 – $2,896,387.41

Total

Gross Cost of Variation No. 51 $1,733,449.23 ex [GST]”[37]

An attached schedule sets out the calculations of this total cost of $4,722,424.09. But those calculations were not by reference to labour costs. Rather they involved the application of certain rates per cubic metre of concrete, certain rates per ton for steel and the costing of other components. Clearly, this total was less than the $5.5 million which Mr Ericson had claimed when he left the site, but was considerably less than the total project cost of $7,530,901.91, according to the subsequent claim which the adjudicator accepted. The other invoices issued at the same time need not be discussed. They were for relatively small amounts ranging from $4,801.50 to $70,254.68.

[52] At about this time, Mr Ericson was engaging a further consultant, which was an organisation called Building and Construction Payment Solutions (‘BCPS’). Upon Mr Ericson’s instructions, Mr Ringland requested Ms Wiles of BCPS to quote for the work of preparing an adjudication application, to which she responded on 2 April 2009. But it appears that these five payment claims were not prepared with the assistance of BCPS.

[53] Mr Ericson made a further payment claim on 20 April 2009, by a tax invoice numbered V57 which was for a particular variation and in an amount of $17,222.83.[38] On the following day, he made yet a further payment claim, by a tax invoice number V58, for another particular variation, in an amount of $4,574.16.[39]

[54] On 23 April 2009, Hansen Yuncken served payment schedules in respect of all seven payment claims. In each case, it said that nothing was payable. In response to tax invoice 51, Hansen Yuncken referred to the report of its quantity surveyor, which was to the effect that there had been no substantive increase in quantities of the magnitude asserted by Mr Ericson. It added that it was “prepared to review and assess any claim for a variation to the scope of the Subcontract however any claim must be presented having regard to documented quantities at time of tender versus the current construction drawings. The claim must also be prepared using equivalent rates to that used in the tender for the Subcontract works. Any claim is to be supported by a fully itemised and rated bill of quantities that totals to the Subcontract sum. Any subsequent determination made by [Hansen Yuncken] of any valid variation claims made by [Mr Ericson] in accordance with the terms of the Subcontract will be taken into consideration with the final reconciliation of the Subcontract works”.[40]

[55] On 27 April 2009, Mr Ringland sent an email to Ms Wiles, referring to Hansen Yuncken’s response. Mr Ringland there wrote:

“The client has assured me his costs are around the $6m with $3m of approved payments to date – I can easily see $1.4 to $1.8m argument arising along with that of the further $1.2m being ‘negotiated’ and used as leverage to secure the $1.4/1.8m.”[41]

That email is shown as having been copied to Mr Ericson. He agreed that he would have read it.[42]

[56] On 29 April 2009, Mr Ringland sent an email to a number of Mr Ericson’s employees, including Mr Ericson’s wife who performed clerical and accounting work in the business. It was copied to Mr Ericson and Ms Wiles. Mr Ringland set out the various tasks for the employees in the preparation of an adjudication application. Part of that work involved the collection of all timesheets and records “of all weekly time spent on the job”.[43] He stressed the urgency of the task because the Act permitted only a number of days from the service of the payment schedules (23 April) for the submission of an application.[44]

[57] On 5 May 2009, Ms Wiles wrote to Mr Ericson, saying that BCPS had reviewed his “file” and that the best course of action was to serve a fresh payment claim for all outstanding moneys. She wrote that this would “…greatly enhance your prospects of convincing an adjudicator that you are entitled to the amount you have claimed…”.[45]

[58] At the same time, Mr Megson, an employee of Mr Ericson, sent an email to Hansen Yuncken as follows:

“I am currently amending our Safety and Personnel files and request that you send us a copy of your records relating to the Site Induction of all our personnel who were involved on the Cairns Domestic Terminal Project during the period of our company’s involvement.

(Request name of inductee, date of induction, inductee’s signature etc)”[46]

He sent a follow-up email on 8 May 2009, again saying that the requested information was for workplace health and safety purposes. It is clear enough that the true purpose was to obtain information which was relevant to the preparation of an adjudication application or a new payment claim. Mr Ericson denied that purpose in his evidence. But Mr Van Diemen said that he was aware of the request but that its purpose was to find out “…when we had been inducted so we would establish when we actually started the job. We needed to get a start date”.[47] That evidence supports what is in any case strongly indicated by the timing of this request. Mr Megson was not called, although he was available to give evidence.[48] I infer that his evidence would not have assisted Mr Ericson’s case on this point. Mr Megson’s request was not answered by the time the relevant payment claim was made on 29 May 2009.

[59] On 6 May 2009, Mrs Ericson produced a document described as a “summary of hours”, which she sent to Ms Wiles and which was copied to Mr Ericson. It set out a number of hours for each of the months from October 2007 through September 2008, together with 213.5 hours described as “misc hours”. The total was 47,946.5 hours. The summary then showed additional hours for certain project managers, the project foreman, herself as the office manager and for delivery drivers and a boilermaker. Adding those resulted in a total number of hours of 53,945.7.[49]

[60] On 8 May 2009, a Mr Barrell from BCPS sent a questionnaire to Mr Ericson. He asked that Mrs Ericson provide a breakdown of the “summary of hours” with a copy of all timesheets.[50] On 11 May 2009, Mr Ericson emailed in response:

“Spread sheet finished today, need to put costs to men?

…

By itemising claim & doing this complete breakdown of costs it will end up between $4.5 to $5m.”[51]

[61] On the same day, Mr Ringland emailed Mr Ericson a table showing hourly rates for various categories of workers. They were the same categories, for the most part, as those within the document described as Summary of Labour Rates, which was included in the adjudication application and to which I have referred above at [21]. Mr Ringland wrote that:

“Above figures based on COMMERCIAL project in far north Queensland.”[52]

The table was incomplete. Against each category of worker, there were gaps to be completed under the headings “Buildcorp”, “Plaza”, “Airport” and “Rawlinsons”. The last of those was a reference to the publication “Rawlinsons Construction Costs Guide”. The others appear to have been references to other sites on which Mr Ericson had worked. Again on the same day, Mr Ringland sent an email to BCPS asking for hourly rates from the Rawlinsons Guide.

[62] On 12 May 2009, Mr Ringland emailed Mrs Ericson asking for “that summary”, which was an apparent reference to the incomplete table he had sent to Mr Ericson on the previous day. She responded saying: “don’t have rates answer yet from flea”. At the same time, she attached a schedule of the hours worked by each employee over the project. The total was 51,170.75 hours.[53]

[63] Later on the same day, Mr Ringland emailed Mr Ericson with a draft of the summary of the claim, which showed an hourly rate of $67 against a total number of hours of 51,174. He then wrote to Mr Ericson:

“Rough calcs below – once time sheets rates and so forth get finished – can finalise and release.

What I DON’T understand: is [Ms Miles] is either doing a OVERALL cost claim or Going down the QS route – so WTF do we need all the Job QS’d? (as it will fall short of costs incurred) – don’t know where she is going with that??”[54]

This draft can be seen as the model for the ultimate claim. It followed essentially the same form. It was described as “Cost of Works”. It added 12 per cent for overheads and margin.

[64] On 14 May 2009, BCPS emailed Mr Ringland, attaching a page from the Rawlinsons Guide with the information that the figure should be multiplied by 1.09, that being the regional index for Cairns according to the Guide. This extract was ultimately included in the adjudication application. It did not show amounts precisely according to the categories of workers in Mr Ringland’s draft. But it showed amounts for labourers of various subcategories. The figures were set out under two columns. One was the “Av. Tender (Costing) Rate Incl. Overheads and Profit”. The second column was headed “Av. Contract Charge-Out Rate Incl. Overheads and Profit”. Under the first column, the rates for a labourer varied from $54 to $66.50. Under the second column the variation was from $62 to $77. The Guide had a notation as follows:

“The Contract Charge-Out rate assumes a negotiated rate, this should not be confused with the usually much higher rate charged for non-contract works.”[55]

[65] Although this extract was included in the adjudication application, its connection with the calculation of the claim is far from clear. The categories of workers do not correspond with those in the claim and different rates were provided by Rawlinsons for different categories of labourers, without it being apparent that one in particular of these categories was appropriate to Mr Ericson’s labourers on this job. And importantly, the Rawlinsons figures were inclusive of overheads and profit, whereas a total of 12 per cent was added to the hourly rates in the payment claim.

[66] Late on 13 May 2009, Mr Ringland emailed Mr Ericson, attaching a number of documents “for your review”.[56] One was a table in the form of the Summary of Labour Rates, which was ultimately included in the adjudication application. The rates in the draft were the same as those which appeared ultimately in the application, except that $65 per hour was shown for a carpenter ($70 in the application), $65 per hour and $2.50 per hour for a tool allowance was shown for a formworker (compared with $68 and $4.50 in the application) and $90 was shown for a crane operator (as compared with $80 in the application). In addition, the draft also contained this notation:

“above rates are DIRECT COST.”[57]

[67] On 14 May 2009, Mr Ringland emailed BCPS, with a copy to Mr Ericson. There were attachments in forms similar to those subsequently used in the payment claim. The Summary of Labour Rates was attached, but the amounts had been altered to those which ultimately appeared in the adjudication application. But for that notation referring to the rates being a “direct cost”, the document was identical to that which was within the adjudication application. In the email to BCPS, Mr Ringland said that the labour rates were “direct costs to engage personnel”, and that he believed that the summary of the claim provided “…evidence/support for the total cost incurred by Flea’s Concreting for this project …”.[58]

[68] On the following day, Ms Wiles wrote to Mr Ericson and Mr Ringland. She strongly recommended that he engage an independent quantity surveyor to go through each plan and drawing revision, identify the variations and “evaluate all costs”.[59] Mr Ericson replied immediately, rejecting that advice.[60]

[69] From that point the relationship between Mr Ringland and Mr Ericson on the one hand and BCPS on the other became strained. Mr Ringland was critical that BCPS had not met certain deadlines. Ms Wiles replied with a query as to how the amount of the claim had grown so much in the past two weeks. That was followed by an acrimonious response from Mr Ericson.

[70] On 16 May 2009, Mr Ringland emailed Mr Ericson and Ms Wiles. He complained that the proposed date for a claim had been postponed several times and that there were “indecisions and changing of directions”. As to the suggestion of a quantity surveyor’s report, Mr Ringland wrote:

“As for the QS he/she will never be able to calculate the true cost of the project compared to actual costs, and the simple argument of A Cost Claim vs a QS claim needs to be finalised and planed [sic] accordingly. I also note that there will be around a $2m discrepancy between such. Ie the cost claim is approx $7.5m whilst indicative estimates of plans to date are $4.8 to $5m.”[61]

On the same day, BCPS withdrew and made no further contribution.

[71] The payment claim was delivered on 29 May 2009. As I have mentioned, it claimed for labour at a “price” of $73.44 per hour. But the Summary of Labour Rates was not included in the payment claim.

[72] At this time Mr Ericson was facing large demands from his creditors. In November 2008, the Deputy Commissioner of Taxation filed a claim in this Court seeking to recover $2,885,882.40 from Mr Ericson. In addition, a company called Cemex Australia Pty Ltd filed a claim on 7 October 2008, seeking to recover from Mr Ericson a sum of $928,033.65 as money said to be owed for unpaid concrete. Mr Ericson agreed that by the end of March 2009 his obligations to the Australian Tax Office and to Cemex Australia were together in an approximate amount of $3,813,000 together with accruing interest. From this evidence, Hansen Yuncken contends that Mr Ericson’s circumstances made it necessary for him to recover more than something which was calculated according to his true costs with an appropriate margin for overheads and profit. That submission has some force. I do not have a complete picture of Mr Ericson’s financial position at the time. But clearly he was under particular pressure from creditors with large claims. And it is significant that those claims, in aggregate, exceeded any amount which he had previously alleged was the difference between his costs and what he had been paid for this job.

[73] In Mr Ericson’s favour, it can be said that the labour rates which he claimed did have some connection with labour charge-out rates. In preparing his draft, Mr Ringland had reference to the Rawlinsons Guide. But that would have provided limited assistance because, as I have explained, there was no close correlation between it and either the form or content of the Summary of Labour Rates as prepared by Mr Ringland.

[74] As the sequence of emails demonstrates, Mr Ericson was closely involved in the quantification of this claim, specifically as to the labour rates. In his evidence, he claimed that he was conservative in providing labour rates to be used for the claim, because he wanted to enhance his prospects of a successful claim, albeit through an adjudication. However, I infer that he instructed Mr Ringland to make the changes to Mr Ringland’s draft Summary of Labour Rates of 13 May, which I have discussed above at [66] to [67]. Four changes were there made, but three of them involved increases to the figures shown in that draft.

[75] It can also be said in his favour that the process of compiling this claim was far from ideal and a priority was put on expedition rather than precision. Of course, a reckless indifference as to the accuracy of what was put forward could constitute fraud, because it would represent the absence of a genuine belief in the truth of that case. On the other hand, the process involved here was also conducive to mere carelessness and some misconception of the nature of the claim. At least in the early stages, Mr Ericson and Mr Ringland were relying upon BCPS for advice in the formulation, as well as the ultimate presentation, of his case. Mr Ringland, and I would infer, Mr Ericson, seemed to be uncertain as to what BCPS had in mind. Even as late as 12 May 2009, Mr Ringland expressed his lack of understanding as to whether BCPS was proposing an “overall cost claim” or one which would use the opinion of a quantity surveyor.[62]

[76] The email from Mr Ringland of 16 May shows something of that confusion. His suggested comparison of “the true cost of the project” with “actual costs” is difficult to understand. But what Mr Ringland was saying, with the apparent endorsement, if not the direction, of Mr Ericson, was that a quantity surveyor would not provide an accurate picture of the real cost of this work. The point he was trying to make was that it was Mr Ericson, with his experience of this job and his knowledge of his own costs, who would be best equipped to assess the cost.

[77] But it appears Mr Ericson did not go to his own wage records to check what were his costs of employing the relevant workers. Instead, he provided figures which had some similarity to labour charge-out rates. Even then, there was no correlation between the rates in this claim and what Mr Ericson claims were his usual charge-out rates because he said that to some extent he discounted his usual rates by being conservative in the exercise.[63]

[78] In his evidence, he sought to explain the connection between his charge-out rates with his own costs, by reference to a publication of the Building Services Authority. He referred to a page which contained, under a heading which warned builders “Ensure you’re covered!”, a labour costing rate calculation together with some explanation. The text included the following:

“This rate will only recoup the net cost of employing the Carpenter. It makes no allowance for any overhead costs or profit, and only makes minimum allowances for lost productivity. You must allow for overhead costs, profit and any productivity losses (other than the minimum 30 minutes a day) separately in the estimate for the work.

Smaller projects incur proportionally high overhead costs and a higher proportion of non-productive time. Where overheads costs are not separately calculated, you can use a rate of 2 – 2.5 times the hourly labour rate. For example, where overhead costs have not been separately calculated, an hourly charge out rate on a small job could be quoted based on: 2 to 2.5 x $33/hr = $66 to $85 per hour.

At first glance, $66 to $85 per hour might seem excessive. If so, take some time to calculate the reduced productivity, overhead costs and profit that would be applicable to this type of small job. Start with the $33/hr, add in any time lost due to poor productivity associated with the small job (eg travelling) then add on all overhead costs associated with the work and an appropriate amount to cover your office overhead costs. Finally add on a suitable percentage for profit and risk. You may find the $66 to $85 per hour is not so unrealistic after all!”[64]

This publication was a guide to builders in calculating a labour charge-out rate for “smaller projects”. On no view could this job be put in that category. The calculation in this publication showed the components of the cost of employing a carpenter. They were the carpenter’s wage, site allowance (if any), leave loading, travelling allowance and other allowances including, if applicable, a tool allowance. Those components showed the totals paid to the employee. There were further components then added, described as “statutory on costs”, which were payroll tax, compulsory superannuation, workers’ compensation, long service leave and provision for severance pay. The total was then divided by the number of hours over a year to reach a calculated $33 per hour as “total labour cost per hour”. That explains the reference to $33/hr in the text I have extracted. It can be seen that the components of that calculation are substantially those which make up the true actual costs incurred by Mr Ericson, as I have explained above at [44]. The particular point made by this publication was that on smaller jobs, the charge-out rate had to be at least double the actual cost of the employee to allow for overheads and profit.

[79] In the present case, Mr Ericson used labour rates which were equivalent to about double his actual costs. He sought to justify that multiple by this BSA publication. But Mr Ericson added 12 per cent again for overheads and profit. And the publication’s suggestion of a multiple of 2 – 2.5 was for the case of a “smaller project”. I do not accept that he used the BSA publication as he claimed in his evidence.

[80] Mr Ericson’s case did not attempt to establish that there were specific costs within his business, which could be attributed to the employment of his workers, from which there could be calculated the overall costs of labour in amounts even approximating those charged by his payment claim. This non-specific aspect of his case arose upon an interlocutory application, when Hansen Yuncken sought further particulars of what was then paragraph 17 of Mr Ericson’s Defence, which I have set out above at [47]. Hansen Yuncken sought particulars as to the basis upon which he alleged that the hourly rates as claimed had been his estimates of his hourly costs. I declined to order particulars, because I held that Mr Ericson was entitled to advance the case, based merely on his say so, that these had been his genuine estimates of the relevant hourly costs. For the same reason, I did not order particulars of paragraph 20 of the Defence, in which Mr Ericson pleaded at 20.7 that “[h]e knew that the Adjudication Application did not set out actual wage rates for his employees, but he honestly intended to convey and did in fact convey by the Adjudication Application that the rates applied to labour hours [were] his estimate of the hourly cost to [him] of the particular employees”.[65] Consistently with the absence of a particular explanation for the quantification of these rates, his case at the trial did not seek to show any calculation by which he went from what he paid to or for his employees to something equivalent to a discounted charge-out rate.

[81] At one point in his examination in chief he gave this evidence:

“If I can take you back to actual costs. What was your belief or definition of what actual costs were or included?– My understanding of actual costs was – is that it includes the costs associated for me to produce that – the men on that – that job.

Now, how would you describe costs like the hourly rate that you paid and – with the statutory – like superannuation, WorkCover and payroll tax?– Direct cost.

Now, you’ve explained the general term for actual costs. What, in your interpretation of actual costs, is included in actual costs?– It includes direct costs like we just explained. It then has the other costs that are associated with running a business. In – it’s – you’ve got a lot of contingencies and – like when you discuss like direct cost of WorkCover, it’s not just that cost of the four to four and a half or five per cent, you have also a lot – continuing liability that continues on for years in relation to claims and then potentially pushing up your other WorkCover rates, and also – so that one, and you’ve got all your – there’s different insurances, there’s – sorry, your Honour, I’m trying to – thinking about it too much.

Well, the Gordonvale yard –?– Yes.

—- did you own that?– No.

So how were you occupying it? On what basis were you there?– It was a leased yard.

Where was that in your costs?– That’s part of my costs to my men.

Did you have any other offices?– We had an office in town that we moved into when we took over this project. When we commenced this project, we had to move into a bigger office.

And did you buy that or was it some other basis that you occupied it?– No, it was leased.

And where was the cost for that?– Cost for that was attributed some into the overheads and some into the men.

In producing the steel that went into the job, how was that done?– That was done out at the Gordonvale yard.

Where did the steel come from, the actual steel bars or—-?– Come from Brisbane or Sydney.

And how did it arrive?– We’d freight it up.

And after it arrived, what was done with it?– It was then stored in our yard, then processed, then transported to site.

How was it processed?– It was processed by my own men in our processing facility at Gordonvale.

How many men did you have working there?– Four, sometimes five in the steel shed.

And how many of them were working on this job?– Actually on site, none.

No, in the shed?– Probably 50 per cent of their time was towards this job.”[66]

At this point counsel for Hansen Yuncken objected that the case was being expanded beyond the unparticularised one which had been pleaded. That was as far as the evidence went in Mr Ericson’s attempts to identify other sources of costs which, at least as he would contend, were relevant for the calculation of labour costs. That passage of evidence was of no assistance to Mr Ericson’s case. He identified costs which were either overheads (for which he separately charged in the payment claim) or the costs of other workers, who supposedly were inexplicably omitted from the group upon which he had made his claim for labour costs. If Mr Ericson did advert to these areas of costs within his business, when quantifying the labour rates for this claim, it would be extraordinary that he would be able to properly bring them into account without creating any document in the exercise. No such document was disclosed. Nor was there disclosure of documents which would be relevant to the costs of things mentioned in that passage of evidence, such as the Gordonvale plant.

[82] I have referred to the Summary of Cost of Works within the payment claim, and to the notation on that document which was: “Below are Direct Costs where applicable”.[67] That represented that the labour costs were “direct costs”, which Mr Ericson, in his evidence, said was a description of the types of costs which can be attributed to a particular employee, namely wages, allowances, superannuation, payroll tax and workers’ compensation. His case is that he had to claim on the basis of charge-out rates because he needed to recover also his costs which were not direct costs. Yet he represented there that these were direct costs.

[83] It is of some significance that he did not include within the payment claim the Summary of Labour Rates nor the Summary of Labour Hours, both of which had been prepared by then. This gives the impression that he had decided to save these documents for the adjudication application. Then when he did use the Summary of Labour Rates, the reference to “direct costs” was deleted. The apparent explanation is that by this stage, he had decided to use the expression “actual costs”, one which he had not used in the payment claim but which Hansen Yuncken had used in its payment schedule. In particular, it had there said that “[t]he payment claim purports to include the Claimant’s actual costs for trade labour. Off-site personnel and site management …”.[68]

[84] Although the inspiration for his use of the term “actual costs” may have been that reference by Hansen Yuncken, Mr Ericson could have been under no misunderstanding as to what he was representing by the use of that term. He must have understood that he was referring to costs in fact incurred by him. He must have realised that this was different from claiming, for example, a fair charge for the use of his employees. There are several references within his adjudication application which demonstrate that he meant to have these figures understood by the adjudicator as being what in fact the relevant labour had cost him. For example, in paragraph 8.1.2, he wrote:

“The payment claim represents the actual costs to the claimant of the works carried out. This includes substantial increases over the course of the contract not only of the costs of both labour and primarily steel faced by the claimant …”[69]

This was not a representation that his charge-out rates had substantially increased over the course of the contract. Then in 10.1c, he said that “[t]he rates contained within the Payment Claim are costs actually incurred by the claimant… [t]hese rates represent market rates in fact facing the claimant plus the margin claimed”.[70] The “market rates” to which he referred were those “facing” him, rather than his own charge-out rates. In paragraph 10.1d, he wrote that the claim was for “the actual costs incurred by the claimant plus a margin”.[71] In each of those passages he emphasised, by italics and bold type, the references to actual costs.

[85] He could not maintain that he innocently misrepresented the actual costs by misconceiving what was involved in that expression. Ultimately, his case seems to recognise that he believed that labour charge-out rates, discounted as he claimed that they were here, were a reasonable estimate of his actual costs in the true sense of that term. I am unable to accept that evidence. I find to the contrary.

[86] There are three principal reasons for that conclusion. The first is that he seemed to understand that ordinarily a charge-out rate included components for profit and overheads. Yet he added profit and overheads to these labour rates. In theory, it is possible that in the apparent urgency of presenting this claim, he overlooked that difference. But that is quite unlikely. He had been operating this large enterprise for some years. He impresses as an intelligent businessman who would have a detailed knowledge of his overheads and profit margins.

[87] Secondly, there is no process of calculation which he can claim to have undertaken in order to relate what he would describe as the direct costs of employing these men to these so-called charge-out rates. Put another way, he provides no evidence of the correlation between what he claimed were his costs overall and his so-called charge-out rates.

[88] Thirdly, his claim was very substantially more than what he had previously asserted were his costs upon this job. In his email to Mr Norton on 27 August 2008, on the subject of “cost”, the amount shown for labour was “55,000 man hours = $2,750,000”, an equivalent of $50 per hour. And as I have discussed, he sent another email to Mr Norton on 4 September 2008, saying that he had spent all up about $5.5 million on the project, a claim which he repeated on 10 September 2008.[72] The claim which was upheld by the adjudicator was upon the premise of a total project cost of more than $7.5 million. It may be observed that had he claimed as his actual costs what were in truth his actual costs, his claim would have been quite close to that estimate of $5.5 million. It is very difficult to accept that when he left the site in September 2008, he could have been so seriously mistaken in underestimating his costs. As appears from the course of the preparation of this claim in April and May 2009, it was only at the eleventh hour that it became a claim of this order.

[89] Hansen Yuncken submitted that I should draw a Jones v Dunkel[73] inference from the fact that Mr Ringland was not called as a witness in Mr Ericson’s case. It is said that it is Mr Ringland with whom Mr Ericson would have discussed his understanding of the terms “actual costs”, “direct costs” and “charge-out rate”, so that he was a witness capable of saying something about Mr Ericson’s understanding of the meaning of those terms. However, if an inference is to be drawn, it would be that the evidence of Mr Ringland would not have assisted Mr Ericson’s case rather than an inference that it would in fact have been damaging to it.[74] Secondly, it is far from clear that Mr Ringland would have been able to give relevant evidence. It may be the case that Mr Ericson said things to Mr Ringland, which Mr Ringland could remember, which were relevant to these issues. It may also be the case that their discussions failed to reveal Mr Ericson’s true state of mind. As I have said, the payment claim was compiled in circumstances of urgency and with a degree of confusion and misconception. I am not prepared to draw an inference that Mr Ringland’s evidence would have been relevant but of no assistance to Mr Ericson’s case. But as it happens, this has not affected my conclusion as to the fraudulent nature of the adjudication application in this respect. Hansen Yuncken has proved that Mr Ericson fraudulently represented that the amounts claimed for on site labour were his actual costs.

The Appendix C Workers

[90] Appendix C is a reference to that part of the Statement of Claim where Hansen Yuncken identifies the workers whom it says did not work at the Airport site, but for whom there is a claim for labour costs. There are 26 workers listed in Appendix C. The amounts claimed for their labour costs (including margins for overhead and profits) was $108,244.88. On the amount which should have been claimed as the “actual costs”, the total amount from these workers would be $54,694.89.

[91] There can be little doubt that none of these 26 men worked on the Airport site. Hansen Yuncken maintained a Site Induction Register, to record the identity of those workers who had completed the induction process, which was required for people working on the site, including Mr Ericson’s workers. None of these 26 names appears in that register. Mr Ericson maintained a daily Site Diary, on which these workers were required to sign in and sign out for every day on the Airport site. It was kept in Mr Ericson’s site office. Again, none of these 26 names appears on any day within that diary.

[92] Each employee completed timesheets. But in respect of these 26 workers, there was nothing written by the employee on the face of his timesheets to indicate on which of Mr Ericson’s jobs he had worked. Mr Moody, an employee of Mr Ericson, wrote “A” on the timesheets for these employees, to designate that they had worked at the Airport site, for the purpose of the compilation of Mr Ericson’s claim. He admitted to having some doubt as to whether these workers had worked at the Airport. But it was by that designation that the relevant timesheets were used by other staff so as to include these workers within the claim.

[93] Therefore, there is no contemporaneous record of any of these men being on the airport job and there are contemporaneous documents which evidence that none of them was there. Hansen Yuncken’s case was then further strengthened by the evidence of three of these 26 men, Mr McCarthy, Mr Ryan and Mr Christensen, each of whom gave evidence that he worked for Mr Ericson on the days in question, but at another of Mr Ericson’s jobs. Each was able to say this upon the basis that he had never worked at the Airport site. I accept their evidence.

[94] Mr Ericson’s foreman at the Airport site was Mr Van Diemen. He was shown the list of names in Appendix C and recognised only four of them. One was Mr Christensen, whom I have just mentioned. Mr Van Diemen was unable to say whether any of these four had worked on the Airport site. It is likely that he recognised the names from other jobs.

[95] Mr Ericson suggested that one of the Appendix C group, a Mr Franklin, worked at the site. He said he recalled that this employee had difficulty getting to work at Mr Ericson’s Gordonvale premises which made Mr Ericson think that he had been sent to the Airport site. He also recalled that another of the list, Mr Black, was sent to the Airport site to do some work. But in neither case did Mr Ericson say that he saw this man on the site. Significantly, there was no employee from this list who was called in Mr Ericson’s case.

[96] Therefore, I find that none of the Appendix C workers worked at all on the subject site. The question then is whether the representation that they each worked there was fraudulently made.

[97] The case in this respect seems to be that Mr Ericson was recklessly indifferent as to the truth of the matter. It is said that he was aware of a doubt as to whether these men had worked on the site, but made the claim for them anyway. I have mentioned that Mr Moody had a doubt of that kind when he was writing “A” on the timesheets. But he said that it was his decision to do so. Hansen Yuncken questions that evidence, given Mr Moody’s statement that, in preparing this claim, he acted under the instruction of Mr Ringland. But that general statement does not detract from his specific evidence that he made these notes on the timesheets of his own volition. Mr Moody also told Mr Ringland that he had this doubt. I accept that evidence and find therefore that Mr Ringland was aware of the doubt.

[98] I have referred to an enquiry made by Mr Megson of Mr Ericson’s office on 5 May 2009, when he sent an email to Mr Norton seeking the site induction records of all of Mr Ericson’s employees at the Airport site.[75] Mr Megson sent a further email and facsimile making effectively the same request on 9 June 2009.[76] Again, I infer that the purpose of this request was to obtain documents which would show whether particular workers were on the site.

[99] Mr Megson’s emails were copied to Mr Ericson. I infer that Mr Ericson was aware of some uncertainty as to who had worked on the site.

[100] But it is not demonstrated that Mr Ericson was aware of a particular uncertainty as to these 26 employees. Further, the proof of some uncertainty is not sufficient to establish a reckless indifference constituting fraud. It must be proved that Mr Ericson made the claim, and in turn the adjudication application, without believing that it was true, insofar as it set out details of who had worked on the site and when they had done so.

[101] Each of the 26 workers was in fact an employee of Mr Ericson. Remarkably, what was claimed was not a large part of the employee’s work history. The highest claim amongst this list was for a Mr Nicholls, for whom was claimed a total of 206 hours over five weeks. In another case, the claim in total for a worker was only 3.5 hours and in another, it was for four hours. The small size of these amounts as components of the overall claim indicates that these were not fraudulent claims. There would be a different impression from a claim that these employees had worked on the airport site for at least many months at a time. Here the claim has included only a small (and sometimes minute) fraction of their time. It was not as if there was a doubt about whether over a substantial period a worker had been on the airport job or instead upon some other site, and a claim was made for all of his hours as being at the airport. Instead the odd time sheet here and there seems to have found itself in the wrong bundle. Mr Ericson did not do all of this work himself. The specific task of allocating timesheets to his various work sites seems to have been done by Mr Moody. As I have said, he claimed to have allocated these timesheets to the airport site of his own volition. As I will discuss in relation to the next question,[77] Mr Moody’s evidence was not entirely reliable. Nevertheless, he did this exercise and it is not particularly suggested that Mr Ericson directed him to allocate these workers as he did. As I have said, the case here is put upon the basis of recklessness.

[102] Ultimately, I am not persuaded that recklessness in the relevant sense is a more probable explanation for these errors than simple carelessness. The compilation of this claim was a substantial and detailed exercise, performed by people with no special training and in circumstances of urgency. It would be remarkable if no innocent error was made. It is not so unlikely that Mr Ericson would have left it to others, particularly Mr Moody, to perform the detailed clerical task by which these items were included.

Denial of natural justice – the missing letter

[103] The letter to which I refer was that included in the adjudication application but which Hansen Yuncken says it did not receive.[78]

[104] The copy of the adjudication application, as served upon Hansen Yuncken, was compiled by Mr Moody at Mr Ericson’s Gordonvale premises. That work took some time. He says that this letter was the last of the documents which he added to the compilation. That is consistent with the fact that the letter was sent by an email from Mr Ringland only late on the morning of 22 June, which was the day the application was lodged and a copy was served upon Hansen Yuncken. Mr Norton acknowledged receipt of the application at 1.45pm on that day. It was delivered by Mr Van Diemen to Mr Norton at the airport, some distance from Gordonvale. Nevertheless, there would have been time for Mr Moody to have included a paper copy of the letter within the documents which were served.

[105] Ms MacGregor then worked for Hansen Yuncken as a contracts administrator. She now works for an unrelated building company. At the time she had some years of experience in building contracts administration. She was also a law graduate. She was given the task of responding to any payment claim that came from Mr Ericson and of preparing the adjudication response.

[106] She recalls being at her desk when the adjudication application was served, and that it was within “an A4 photocopier [paper] box”. The box was put on her desk and she was immediately given instructions by Mr Norton on what to do with the application. She was told to give this task every priority. For the next week she worked on nothing else. At one stage, she took the documents home with her but she says they were kept secure in her home office.

[107] She recalls taking the documents out of the box. They were in bundles of various sizes, all separately bound by bulldog clips. The documents remained with her until they were handed to Mr Reynolds, another Hansen Yuncken employee. Mr Reynolds had been involved with this dispute, but he was on holiday when the adjudication application was served. He returned to the office on the following Monday, 29 June 2009. By that stage, she had prepared a draft response to the application. During that day the application and her draft were with Mr Reynolds in his office. It was only after the adjudication response was delivered that Hansen Yuncken made a photocopy of the application. Ms MacGregor did the photocopying herself.

[108] She said that she could not recall any loose pages, such as a single sheet, in the box which was delivered by Mr Van Diemen. Over that week as she drafted the response, she reviewed the documents a few times, going through all of the bundles. In her evidence in chief, she was taken to several parts of the application, asking whether she could recall seeing them at this time. She recalled seeing some parts of the application, and had no specific recollection of seeing other parts. She was shown the subject letter. Her evidence was that the first time she saw this document was when lawyers for Hansen Yuncken had shown it to her in about January 2010. She was adamant that she did not see the document at the time that she prepared the adjudication response. She said that had it been with the documents, she would have seen it and she would have “taken it to Ross Norton and sought direction as to what he wanted to do with it”.[79]

[109] Ms MacGregor was an apparently independent and reliable witness. She gave considered responses to all questions and her evidence was not entirely helpful to Hansen Yuncken on all issues. There is nothing about her evidence, including the manner in which it was given, which suggests some reason to doubt its accuracy.

[110] Mr Norton said that he did not see the letter and that the first time he saw any reference to 24 to 30 folders of material was when he read the adjudicator’s reasons. Similarly, Mr Reynolds said that he was unaware of any reference to 24 to 30 folders until a day or two after the adjudicator’s decision was delivered.

[111] At the same time as the hard copy of the adjudication application was served, Hansen Yuncken was served with an electronic copy on a disc. The letter was not included on the disc.

[112] Mr Moody claimed to have an extraordinary recollection of his particular work in compiling documents as the hard copy of the application to be served on Hansen Yuncken. He said that he recalled the precise number of bulldog clips which he used, although he offered no explanation as to how he had that recollection. He purported to have a recollection of the order in which the documents had been arranged by him. He said that this was different from the order of the documents in the compilation which had been shown to him, in the preparation for this trial, as Hansen Yuncken’s copy. He referred to the fact that in that copy, Annexure R was out of place (i.e. it was not behind Annexure Q). However, within the email from Mr Ringland to him which had attached this material, (for the purposes of his compiling the service copy of the application), there was the same misplacement in the order of attachments.

[113] Similarly, he referred to an error in the page order of a document of Davis Langdon. He said that this error was not in the compilation as served by him. That he would have a specific recollection about that matter is difficult to accept. But as it happens, the disc which was served with the hard copy of the application contains the Davis Langdon document, which is a single PDF document, out of order in the same way. All of this made Mr Moody a somewhat unreliable witness, at least on this point. In fairness to him, he was not an office worker. He was a steel fixer. He had to compile a large amount of material which came to him in a largely unassembled form.

[114] On the day in question, Mr Ringland sent many emails to Mr Moody about the documents to be delivered to Hansen Yuncken. Over the previous week, he had been sending various parts of the adjudication application to Mr Moody by emails attaching PDF files with instructions as to how they were to be compiled. But as of that morning, Mr Ringland was still preparing parts of the application. Mr Ringland was on the Sunshine Coast and he was proposing to leave late that morning to go to Brisbane to deliver the application to the adjudicator. In an email sent at 8.30 that morning, he told Mr Moody:

“I am still working on application – will be done in say 2 hrs and will be the LAST document sent.

Ensure you have everything by say 10am and that you use check sheets to confirm.”[80]

He sent another email at 8.47am with several attachments. Then at 10.05am, he emailed two further documents for the application, saying:

“Two annexures to be put in annexure files – Last ones.

Plus application.

Put in application files/directories.”[81]

Mr Moody may well have thought that this was the last of the documents to be printed and included in the compilation.

[115] Then there was this further email, with the draft letter set out in the body of the message rather than as an attachment. Above the draft Mr Ringland wrote simply “Please put this as page 16 on the adjudication”.[82] Mr Moody says that when he received this email, he cut and pasted that part which was the draft letter into a new electronic file, from which he printed the hard copy which he included in Hansen Yuncken’s copy of the application. But there is no electronic file which has been tendered to show that Mr Moody did just that. Mr Moody says that he did not save a copy of this electronic file.

[116] In my conclusion, it is more probable that the letter was not included in the box which went to Hansen Yuncken. There is no reason to reject Ms MacGregor’s evidence. There is no realistic possibility that the document was lost from the box before Ms McGregor had begun to study its contents. It is possible, of course, that the document became misplaced in the course of her work and before she had reached it. But against that, it is more than merely possible that Mr Moody neglected to include the letter, either because he did not open the email until after the documents had been packed and given to Mr Van Diemen or because having opened the email, he neglected to do what was necessary to convert part of it into a paper document. He had been told by Mr Ringland in the email at about 10.00am that the attachments to that email were the last documents for inclusion in the application. It is quite likely that he was not looking for any further documents and rather than checking his emails, he was applying himself to the task of compiling the application. And as I have discussed, there are aspects about his purported recollection of this process which make his evidence about it less than entirely persuasive.

The missing letter – consequences

[117] Hansen Yuncken said that it was denied procedural fairness because the missing letter was important for the adjudicator’s decision. Clearly it was relevant in his reasoning although that is not to say that the decision would have been different had the letter not been included.

[118] There was no unfairness merely in putting the letter before the adjudicator. The potential unfairness, if any, was putting the document before the adjudicator without Hansen Yuncken’s knowledge, so that it was deprived of the chance to make whatever would have been its response to the document (if any).

[119] Hansen Yuncken says that its response would have been to demand access to the 24 to 30 odd folders. It says also that it might have submitted to the adjudicator simply that he should not accept the claimant’s quantification of his actual costs unless the adjudicator inspected the 24 to 30 folders, as he could have done under s 25(4) of the Act. As to that possibility, it is clear that the adjudicator would have found that submission quite unpersuasive. In his reasons, the adjudicator said that he saw no reason for him to inspect the documents and he remarked that, in effect, his view about that matter was fortified by the fact that Hansen Yuncken had not bothered to inspect the material. So had Hansen Yuncken told the adjudicator that it should look at the documents although it would not do so, this would have been a point of irritation rather than persuasion.

[120] In truth, the inclusion of the missing letter in Hansen Yuncken’s copy of the application would not have made any difference to its response. I accept Ms MacGregor’s evidence that she would have referred the matter to Mr Norton. But I do not accept Mr Norton’s evidence that Hansen Yuncken would then have taken steps to look at the documents in the course of preparing its response. Because of the very limited time allowed for an adjudication response under the Act, there would not have been sufficient time for any study of such extensive material. According to Ms MacGregor’s evidence, she was occupied full time in preparing the response and it is clear that she had little or no time to spare before it was due to be delivered. Mr Reynolds, who may have assisted had he been there, returned to work only on the day on which it was thought that the response was due. Perhaps an organisation such as Hansen Yuncken could have found other people to undertake this work, but they would have required extensive briefing on the dispute in order to know what to look for in the 24 to 30 folders.

[121] Hansen Yuncken had decided to contest the application by other arguments. It had decided that it had a complete answer to the application which was that the payment claim had not been made according to what it said was its contract. Had its case as to what constituted the contract been upheld, the claim would have failed. For that reason it did not investigate the apparent evidentiary basis for the claim. Most significantly, in its adjudication response, it volunteered that the claim had been quantified by Mr Ericson honestly, according to what he believed had been his actual costs. The inclusion of the letter could not have made it think otherwise because there was nothing in the missing letter which suggested that Mr Ericson’s estimates or calculations of his costs were other than genuine. In these circumstances, there was no real possibility that the inclusion of the letter would have made Hansen Yuncken attempt to go through the documents to check the substantial accuracy of the calculations.

[122] Accordingly, the omission of the missing letter had no practical consequence for the adjudication response. In this case it can be said that a denial of natural justice, by the respondent being deprived of an opportunity to address a piece of the evidence presented to the adjudicator, could not possibly have produced a different result. In these circumstances, it is said that a denial of natural justice still renders a decision void but that, as a matter of discretion, relief might be declined: see, in particular in relation to the New South Wales equivalent of this Act, Fifty Property Investments Pty Ltd v O’Mara.[83] Similarly in this Court, Applegarth J said in John Holland Pty Ltd v TAC Pacific Pty Ltd:

“In addition, the Court’s concern is with the practical effect of the alleged denial of natural justice. Reference to the High Court’s decisions in Stead v State Government Insurance Commission[84] and Ex parte Aala[85] supports the proposition that even if the Court is satisfied that there has been a denial of natural justice, relief may be denied if it can be shown that compliance with the requirements of natural justice could have made no difference to the outcome.”[86]

In Re Refugee Review Tribunal; ex parte Aala, Kirby J said that relief would be withheld only where an affirmative conclusion is reached that compliance with the requirements of procedural fairness could have made no difference to the result, and that such an outcome will be a rarity.[87] In Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd,[88] McDougall J noted that in Brodyn Pty Ltd v Davenport,[89] Hodgson JA had said that an essential condition of a valid adjudication was the absence of a “…substantial denial of the measure of natural justice that the Act requires to be given”.[90] McDougall J referred also to Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam,[91] where Gleeson CJ had said that procedural fairness was not abstract but practical and that “[w]hether one talks in terms of procedural fairness or natural justice, the concern of the law is to avoid practical injustice”.[92] Accordingly, McDougall J said, there must be a “material” denial of natural justice, requiring some analysis of the importance or otherwise of the relevant subject matter and, in particular, its significance to the actual determination.[93]

[123] Accordingly, I would refuse relief to Hansen Yuncken if its case was limited to the missing letter.

Fraud – the consequences

[124] I will first discuss the consequences in fact of this fraud. The immediate and obvious consequence was that the adjudicator was induced to accept that Mr Ericson’s actual labour costs were in the amounts which he had claimed. That appears to have been critical for the outcome. However, the argument for Mr Ericson is that this was inconsequential. The first submission in that respect was based upon Hansen Yuncken’s decision to contest the claim upon essentially one basis, which was that the entire claim was inconsistent with what was said to have been a lump sum contract. It was submitted for Mr Ericson that this involved an implied admission of the facts which were relevant to the quantification of his claim and reference was made to Bezzina Developers Pty Ltd v Deemah Stone (Qld) Pty Ltd.[94] It was said that “accordingly, the judgment was not obtained or tainted by fraud, because it was the inevitable consequence of the rejection of Hansen Yuncken’s Subcontract Document argument”.

[125] The present question is not whether the adjudicator was entitled to reason as he did. Rather, Hansen Yuncken’s case is that he was induced to do so by Mr Ericson’s fraud. Undoubtedly the adjudicator was entitled to accept Mr Ericson’s case. But the question is whether the fraudulent element of that case should disturb the outcome.

[126] There was a related argument for Mr Ericson, which also came from Hansen Yuncken’s confining its response to the contractual issue. It was that the decision of the adjudicator should not be set aside upon the basis of evidence which was discovered after, but discoverable before, the decision. In Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (No 2), the Full Court of the Federal Court (Spender, Gummow and Lee JJ) appeared to accept that a final judgment could be set aside on this ground only where the truth could not have been found by the time of the trial by the exercise of reasonable diligence.[95] Hansen Yuncken submits that this is not an essential condition for which it cites McDonald v McDonald,[96] and Toubia v Schwenke.[97]

[127] In McDonald v McDonald, there were several references in the judgments to the difference between setting aside a judgment upon the basis of fresh evidence and doing so upon the fraud ground. It was there said that a condition of the existence of the “fresh evidence” ground of appeal is that the evidence was not known notwithstanding the exercise of reasonable diligence prior to the trial. But it was also said that it is not a condition of the power to set aside a judgment which is shown to have been procured by fraud.[98]

[128] Toubia v Schwenke was a decision of the New South Wales Court of Appeal about the application of s 66 of the Motor Accidents Act 1988 (NSW), which provided a statutory remedy to a person who had paid an amount to a claimant (including under a judgment) where the claim was fraudulent. However, Handley JA saw fit to extensively discuss the authorities as to the general law affecting the setting aside of a judgment obtained by fraud. In particular, he discussed whether it was necessary for the innocent party to prove that the truth had not been able to be discovered prior to the trial with reasonable diligence. Handley JA referred to the obiter dicta in Monroe Schneider and in Owens Bank Ltd v Bracco[99] and in Owens Bank Ltd v Etoile Commerciale SA,[100] to the effect there is such a condition.[101] However, Handley JA concluded, the issue was foreclosed by the judgments in McDonald v McDonald.[102] I respectfully agree.

[129] In Wentworth v Rogers (No 5),[103] Kirby P defined the essential conditions for the exercise of the equitable jurisdiction to set aside a judgment which was obtained by fraud. But he did not say that one of those conditions was the non-discoverability of the truth with the exercise of reasonable diligence prior to the trial.

[130] I accept then the submission for Hansen Yuncken that the equitable jurisdiction does not depend upon this “reasonable diligence”. But the legal issue here is probably irrelevant, because in the circumstances of this case, it is difficult to see that Hansen Yuncken could have discovered the truth by the exercise of reasonable diligence. Unlike the course of civil litigation, where there are procedures by which a party can learn of the other’s case, most notably that of discovery or disclosure of documents, there was no such procedure available to Hansen Yuncken. It had no entitlement to see Mr Ericson’s documents prior to the adjudication application being made. And it is far from apparent that it had any right to see Mr Ericson’s documents after the application was made, albeit with its reference to the 24 to 30 folders of documents. Had the adjudicator looked at the documents, Hansen Yuncken would have been entitled to see them, because of the requirement for procedural fairness. But that did not occur. Perhaps more importantly, within the very short time available under this statutory scheme, there was no opportunity to investigate the claimant’s case as there would be in civil litigation.

[131] Mr Ericson also pleaded that Hansen Yuncken knew or ought to have known that the hourly rates which he advanced in the payment claim and the adjudication application represented charge-out rates rather than amounts paid to or in respect of his employees. That factual allegation is not established. Mr Reynolds’s evidence was that he thought at the time that the rates were high but said that he did not know that they were other than the actual costs. Ms MacGregor also regarded the rates as high but believed that the so-called actual costs were what Mr Ericson had paid out. As she put it, she thought the amounts represented “…what he’s paid out of his pocket for that person to attend site and to undertake the work…”.[104] I accept her evidence in that respect also. It is consistent with the terms of the adjudication response which she drafted. And her evidence and that of Mr Reynolds is consistent with the terms of the payment schedule. In each of these documents, Hansen Yuncken referred to what were claimed as Mr Ericson’s actual costs. With the benefit of hindsight and a very extensive factual enquiry within this litigation, the extent of the disparity between actual costs and charge-out rates (if these labour rates were in any sense derived from charge-out rates) is clear. But in the circumstances in which Hansen Yuncken had to respond so quickly not only to the claim for labour, but to the whole of the claim, the truth would not have been obvious. It is likely that, as Mr Reynolds and Ms MacGregor testified, the labour rates were thought to be high. It is another thing to say that the truth was known to Hansen Yuncken.

Relief

[132] Previously in this proceeding, I dismissed an application to strike out part of Hansen Yuncken’s Statement of Claim which pleaded the fraud case.[105] The argument then made for Mr Ericson was that relief in the nature of certiorari was unavailable to quash a determination of an adjudicator, and that the Court’s jurisdiction was limited to cases where an adjudicator’s determination was void rather than voidable. That argument was largely based upon the decision of the New South Wales Court of Appeal in Brodyn Pty Ltd v Davenport.[106] Reliance was also placed upon judgments in this Court which were to the effect that by s 18 of the Judicial Review Act 1991 (Qld), no relief in the nature of or to the effect of certiorari could be made under Part 5 of that Act (‘the JR Act’). I referred to the apparent impact of Kirk v Industrial Court of New South Wales[107] upon those arguments.[108] But I said that the impact of Kirk need not be decided within that strike-out application because of the equitable jurisdiction to set aside a judgment obtained by fraud. I noted that although a judgment had not yet been obtained upon this adjudication, it was apparently accepted in the argument for Mr Ericson that there would be a like jurisdiction to give relief against the consequences of an adjudication decision obtained by fraud, such as by setting it aside or restraining any step to enforce it.[109] That remained the case in the ultimate argument for Mr Ericson at this trial.

[133] In Brodyn, Hodgson JA was inclined to the view that a decision of an adjudicator which was obtained by fraud, but with no fraud on the part of the adjudicator, was voidable and was “…liable to be set aside by proceedings of the kind appropriate to judgments obtained by fraud”.[110]

[134] The impact of Kirk upon the review of an adjudication under the Act has now been considered by the Court of Appeal in this State in Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd[111] and by the Court of Appeal in New South Wales in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd.[112] To the extent that the JR Act would purport to remove this Court’s power to grant relief for jurisdictional error on the part of an adjudicator, it is invalid as beyond State legislative power. Certiorari may be granted where a relevant decision has been obtained through fraud, including where the fraud is that of a party which is subject to the decision: SZFDE v Minister for Immigration and Citizenship.[113] In Kirk,[114] the joint judgment quoted this passage from Colonial Bank of Australasia v Willan where the Privy Council said:

“It is, however, scarcely necessary to observe that the effect of [such a privative provision] is not absolutely to deprive the Supreme Court of its power to issue a writ of certiorari to bring up the proceedings of the inferior Court, but to control and limit its action on such writ. There are numerous cases in the books which establish that, notwithstanding the privative clause in a statute, the Court of Queen’s Bench will grant a certiorari; but some of those authorities establish, and none are inconsistent with, the proposition that in any such case that Court will not quash the order removed, except upon the ground either of a manifest defect of jurisdiction in the tribunal that made it, or of manifest fraud in the party procuring it.”[115]

So whilst certiorari could be granted for the “manifest fraud in the party procuring [the decision]”, that was a distinct ground from jurisdictional error. The same distinction was made in Kirk, where in the joint judgment, fraud as a ground for certiorari was expressly put aside from consideration.[116] Neither Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd nor Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd involved the fraud ground. Therefore, on the present authorities, the expressed exclusion of judicial review of an adjudicator’s decision, according to s 18 of the JR Act (and its Schedule 1, Part 2), may still be in place so far as the fraud ground is concerned.

[135] Accordingly, I consider that the established jurisdictional basis for the relief which is sought by Hansen Yuncken is the equitable one.

[136] Hansen Yuncken argues that the appropriate relief is simply to set aside the adjudicator’s decision and to restrain Mr Ericson from making another payment claim. For Mr Ericson, it is argued that if I concluded that there should be relief on account of fraud but not for a denial of natural justice, then I should quash or set aside the decision but also require the adjudicator to reconsider the matter. His argument is that it would be unjust for the fraud to affect the entirety of the adjudication, when it was confined to a discrete component of the claim.

[137] Hansen Yuncken submits that there is no power for the matter to be sent back to the adjudicator because he would have no power to reconsider the application. It says that it is not unjust that Mr Ericson should lose the benefit of the adjudication and he should be left to his rights under the general law.

[138] Section 25(3) of the Act provides that except where the parties agree otherwise, an adjudicator must decide an adjudication application within 10 business days from the receipt of the adjudication response. Section 32(1)(b) permits a claimant to make a new application if the adjudicator does not decide the application within the time allowed by s 25(3). In that circumstance, a claimant may withdraw the application and make a new application under s 21. Section 32(3) provides that any new adjudication application may be made at any time within five business days after the claimant becomes entitled to withdraw the previous application. Section 32(1)(a) also permits a new application to be made where a claimant does not receive an adjudicator’s notice of acceptance of an adjudication application within four business days after it is made.

[139] Other than in the circumstances within s 32, the Act makes no provision for an adjudication application to be made outside the time period prescribed by s 21(3)(c). There is a question here as to whether the setting aside of the adjudicator’s decision would have the result that s 32 was engaged upon the basis that the adjudicator would not have decided the application within the time allowed. The arguments here referred to several cases in New South Wales dealing with an apparently equivalent provision, although there is some difference in the language.[117] Section 32(1)(b) of the Act applies where an adjudicator accepts an adjudication application but “…does not decide the application within the time allowed…”. The New South Wales provision applies where the adjudicator accepts an application but “…fails to determine the application within the time allowed …”.[118] The difference in wording seems immaterial.

[140] The first of these judgments is Multiplex Constructions Pty Ltd v Luikens,[119] where an adjudicator’s decision was quashed for jurisdictional error.[120] In obiter dictum, Palmer J said that this circumstance would be within the requirement of (the equivalent of) s 32, entitling the claimant to withdraw its application and make a fresh application within five days of the quashing order.[121] That was referred to with apparent approval by Barrett J in Quasar Constructions NSW Pty Ltd v Demtech Pty Ltd.[122] It was followed by Bergin J (as she then was) in Emergency Services Superannuation Board v Sundercombe[123] and by Nicholas J in John Holland Pty Ltd v Made Contracting Pty Ltd.[124]

[141] In Cardinal Project Services Pty Ltd v Hanave Pty Ltd,[125] there had been a consent declaration to the effect that a prior adjudication decision was “void and of no effect”. McDougall J held that the declaration simply described what had always been the absence of any legal effect in the purported determination of the adjudicator. So whilst there had been a failure to determine the application, that had occurred at the expiry of the time limit fixed for an adjudicator to reach a decision, rather than at the (later) date of the making of the Court’s declaration. Therefore, it was too late for the application to be withdrawn and a fresh application made.

[142] In Spankie v James Trowse Constructions Pty Ltd, these cases (with the exception of Cardinal Project Services which was decided after this case was heard), were said to support the view that the respondent there was entitled to make a new application under s 32 of the Act where the decision upon the previous application was declared to be void for a denial of natural justice.[126] The remarks there were obiter dictum and, as I have mentioned, the conflict in the New South Wales cases as a result Cardinal Project Services was not considered.

[143] Each of these cases was one where the adjudicator’s determination was affected by the adjudicator’s failure to decide the application according to the rules of natural justice or otherwise according to law. In that way, the adjudicator could be regarded as not having decided the application. In the present case, I have held that relief should be refused upon the natural justice ground. The question then is whether the adjudicator here could be said to have not decided the application, because unknown to him, the application was affected by the applicant’s fraud. The fraud provides a basis for setting aside the decision. But it is straining the language of s 32(1)(b) to say that the adjudicator has not decided this application, because there has been no act or omission by the adjudicator by which he has failed to discharge his duty in any respect. I am not persuaded that s 32(1)(b) would be engaged if this decision were set aside.

[144] For Mr Ericson, it was submitted that there was an alternative to a fresh application under s 32, which was that the matter be referred back to the adjudicator with an order, in the nature of mandamus, that he consider the application according to law. That submission is supported by obiter dictum of McDougall J in Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd.[127] Hansen Yuncken does not dispute that, in theory, such an order could be made. But again, the availability of relief in the nature of the prerogative remedies remains at least in doubt, notwithstanding Kirk, where the basis for disturbing the relevant decision is the fraud ground. The position is different from that in New South Wales, because in this jurisdiction (subject to Kirk) the availability of relief in the nature of mandamus, prohibition or certiorari has been apparently precluded in the present context by s 18 of the JR Act and the inclusion of decisions of adjudicators within Schedule 1, Part 2 of that Act. It is preferable that the matter not be sent back to the adjudicator if the validity of his further determination could be in doubt.

[145] For Mr Ericson it was submitted that, as an alternative to mandamus, equitable relief could be granted upon conditions. It was said that the Court should order, as a condition of setting aside the decision, that Hansen Yuncken pay Mr Ericson “the undisputed portion” of the adjudication sum. Hansen Yuncken correctly takes issue with the term “undisputed portion”. All of the payment claim was disputed, upon the threshold argument that there was a lump sum contract according to written terms, which did not permit any of the claim which was made. The adjudicator decided that issue adversely to Hansen Yuncken. But because of the provisional nature of an adjudication,[128] it remains an issue which can be litigated, and in that way all of Mr Ericson’s claim remains in dispute.

[146] In the present case, the fraud which was alleged and proved relates to a discrete component of the claim and the impact of the fraud upon the amount of the claim has been precisely proved. The consequence of the fraud can be quantified, as therefore can the relief which is necessary to avoid that consequence. This suggests that it would be unjust for Mr Ericson to lose the whole of the benefit of this adjudication. But Hansen Yuncken submits that the decision ought to be set aside in its entirety, because “a finding of fraud undermines confidence in the reliability of the representations made by Mr Ericson in the payment claim and the adjudication application and in turn undermines confidence generally in the decision”. It is said that “the Court cannot make a positive finding that the rest of the claim and the application are not affected by fraud”. It is also argued that Mr Ericson should not have the benefit of the fast track system offered by the Act when he has abused the process by making a fraudulent claim.

[147] I do not accept Hansen Yuncken’s submission that there may be other parts of the claim which were affected by fraud so that Mr Ericson should be left with nothing from the adjudication. In theory, it is possible that some other part of the claim has been unduly inflated. But after the adjudication, Hansen Yuncken conducted an extensive investigation into this claim before prosecuting a fraud case only upon two aspects of the labour costs.[129] It has confined itself to a discrete part of the claim when, as it appears to me from its thorough presentation of its case, it would have pursued any further argument for challenging the quantification of the claim had that been suggested by the evidence which became available to it.

[148] Nor am I persuaded that the subject matter of the fraud is not easily severable from other components. It is said that “the overhead and profit margin applied not just to the fraud components, but to the claim generally”. But the extent of the overcharge can be calculated by adding to what is proved to be the excessive charge for labour, the increments for profit and overheads totalling 12 per cent.

[149] In Johns v Cosgrove, Thomas JA (with whom de Jersey CJ and McMurdo P agreed) held that there was a discretion to refuse to exercise the equitable jurisdiction to set aside a judgment obtained by fraud, but a discretion which would be exercised rarely.[130] In that case, the respondent suffered personal injuries in a motor accident. He successfully sued the appellants, a hotel owner who allegedly supplied liquor to him before he was injured and the driver of the vehicle. He was found guilty of contributory negligence and the trial judge apportioned responsibility amongst the three parties in differing proportions. Subsequently, the judgment was proved to have been obtained by the respondent’s fraud. Each appellant sought to have the judgment against it or him set aside. The respondent argued that only the judgment against the hotel owner should be set aside, because the fraud was directed to that case and not to the case against the driver. But it was held that the false evidence was relevant also to the case against the driver, because the fraudulent evidence of the responsibility for and state of the respondent’s intoxication was relevant also to the assessment of contributory negligence with respect to his claim against the driver, so that the outcome against both defendants could be seen as tainted or affected by the fraud. Thomas JA said:

“[98] The effect of the fraud cannot be extracted with any precision leaving discrete segments of the trial intact. The situation more resembles a cracked windscreen than damage to a discrete unit.”[131]

The argument for Hansen Yuncken cites that passage and says that the present case is similar. That cannot be accepted. In the present case, the consequence of the fraud has been identified and measured. The equitable relief should not extend beyond that which is necessary to avoid that consequence.

[150] As I have said, Hansen Yuncken submits that Mr Ericson should be left to his rights (if any) to payment outside the statutory scheme of the Act. In one way, that might be thought to be reasonable, because an adjudication is provisional as the Act by s 100 preserves the rights of the parties to litigate about the final state of the account. But the intended beneficial purpose of this statutory scheme cannot be overlooked. In R J Neller Building Pty Ltd v Ainsworth, Keane JA said:

“[39] It is evidently the intention of the BCIP Act, and, in particular, s 31 and s 100 … that the process of adjudication established under that Act should provide a speedy and effective means of ensuring cash flow to builders from the parties with whom they contract, where those parties operate in a commercial, as opposed to a domestic, context. This intention reflects an appreciation on the part of the legislature that an assured cash flow is essential to the commercial survival of builders, and that if a payment the subject of an adjudication is withheld pending the final resolution of the builder’s entitlement to the payment, the builder may be ruined.

[40] The BCIP Act proceeds on the assumption that the interruption of a builder’s cash flow may cause the financial failure of the builder before the rights and wrongs of claim and counterclaim between builder and owner can be finally determined by the courts. On that assumption, the BCIP Act seeks to preserve the cash flow to a builder notwithstanding the risk that the builder might ultimately be required to refund the cash in circumstances where the builder’s financial failure, and inability to repay, could be expected to eventuate. Accordingly, the risk that a builder might not be able to refund moneys ultimately found to be due to a non-residential owner after a successful action by the owner must, I think, be regarded as a risk which, as a matter of policy in the commercial context in which the BCIP Act applies, the legislature has, prima facie at least, assigned to the owner.”[132]

Thus, where most of this claim is unaffected by the fraud, it is no small thing to deprive Mr Ericson of the substantial benefit of the adjudicator’s decision. To say that he can be left to an ultimate determination of all issues by a court is to disregard the policy behind and the intended effect of this statutory scheme. Moreover, the unsuccessful party, Hansen Yuncken, has not sought since the adjudication to litigate the threshold question, and to thereby establish that according to the ultimate merits, nothing is owing to Mr Ericson.

[151] It is true that equity should not look kindly upon a fraudulent claimant. Mr Ericson should be deprived of the benefit of his fraud. But to deprive him of the benefit of the entirety of the adjudicator’s decision would be to penalise him.

[152] The outcome should be one under which Hansen Yuncken pays the amount of the claim less the overcharges for labour costs. In the overcharges, I would include the overcharge for the Appendix C Workers, although I was not persuaded that Mr Ericson was fraudulent in that respect. The overcharge for the Appendix C Workers would not of itself warrant equitable relief. But as equitable relief is to be granted, it should not be on terms whereby the Court would require Hansen Yuncken to pay for a cost which has been demonstrated to have been wrongly claimed.

[153] At paragraph [40], I have referred to the difference between the total of what were truly the actual costs ($1,838,788.67) and the sum claimed and allowed ($3,764,814), the difference being $1,926,025.33. To that should be added the amount for the Appendix C Workers, which as I have said at [89] is $54,694.89. Those amounts total $1,980,720.22. To that sum should be added 12 per cent for overheads and margin, resulting in $2,218,406.65. Then an amount of 10 per cent for GST should be added to that sum, resulting in $2,440,247.31. Subtracting that figure from the adjudicated amount, the balance is $2,363,619.29.

[154] Mr Ericson should also have interest on the amount of $2,363,619.29 calculated according to the adjudicator’s decision. He ruled that the adjudicated amount carries interest at the “penalty rate” according to s 67P(3)(a) of the Queensland Building Services Authority Act 1991 (Qld), accruing from 13 June 2009.

[155] On 23 July 2009, Mr Ericson was restrained from taking any steps to obtain an adjudication certificate or otherwise enforcing the decision until further order of the Court. That order was made on the undertaking by Hansen Yuncken to provide, to the Registrar of the Court, bank guarantees securing the adjudicated amount. On 6 December 2010, I ordered that unless Hansen Yuncken provided to the Registrar a bank guarantee securing interest upon the adjudicated amount, in the sum of $1,392,000, the restraining order made on 23 July 2009 would be set aside.[133] Each guarantee was provided. In total, this security will more than meet the amount to be paid to Mr Ericson, being $2,363,619.29 together with interest. Hansen Yuncken should be given some time to arrange the payment of that sum rather than the bank guarantees being called upon immediately. A reasonable time is, in my view, 21 days.

[156] It will be ordered that upon the applicant paying to the first respondent by 25 November 2011 an amount which is the total of $2,363,619.29 and interest on that sum from 13 June 2009 at the rate according to s 67P of the Queensland Building Services Authority Act 1991 (Qld):

(a) the first respondent will be restrained thereafter permanently from taking any steps to obtain an adjudication certificate or to otherwise enforce the adjudication decision of the second respondent;

(b) the Registrar will unconditionally release to the applicant any bank guarantee provided under the orders of 23 July 2009 or 6 December 2010.

[157] I should make some provision for the contingency that payment is not made by 25 November. It will be further ordered that if payment of that total sum is not made by 25 November 2011:

(a) the order within paragraph 1 of the orders made on 23 July 2009 will be set aside;

(b) the first respondent will be restrained from recovering more than an amount which is the total of $2,363,619.29 together with interest on that sum from 13 June 2009 until the date of recovery at that rate of interest, by recourse to one or more of the said bank guarantees or otherwise;

(c) upon the recovery of that total, the first respondent will thereafter be restrained from taking any further steps to enforce the adjudication decision of the second respondent and such of the bank guarantees which then remain in place will be unconditionally released to the Registrar and any moneys paid under any bank guarantee which are surplus to the funds recovered by the first respondent in accordance with these orders will be paid to the applicant.

[158] My intention by these orders is to allow Hansen Yuncken 21 days to make the required payment (rather than the bank guarantees being called upon immediately), so that if payment is then made, the bank guarantees could be returned and there would be no adjudication certificate or consequential judgment in favour of Mr Ericson. If payment is not made within 21 days, Mr Ericson would be able to obtain an adjudication certificate, necessarily for the entire adjudicated amount, and lodge that with the Court resulting in a judgment for that amount. But having done that, he would be able to recover no more than the reduced sum. I have not taken what might be seen as the simpler course of making an order purporting to reduce the adjudicated amount. In my view, there is some doubt as to the Court’s power to affect the operation of the Act in that way, because according to the Act an adjudicated amount is one which can be fixed only within an adjudication.

[159] There will be liberty to apply. I will hear the parties as to other orders, including costs.

[1] [2011] QCA 22.

[2] (2004) 61 NSWLR 421 at 442.

[3] (1992) 37 FCR 234.

[4] (2002) 54 NSWLR 46.

[5] Hansen Yuncken Pty Ltd v Ericson [2010] QSC 156.

[6] Exhibit 2, Vol 1, Tab 1.

[7] Ibid.

[8] Exhibit 2, Vol 1, Tab 2.

[9] Ibid.

[10] Ibid.

[11] Exhibit 2, Vol 1, Tab 3.

[12] Ibid.

[13] Ibid.

[14] Ibid.

[15] At [17] above.

[16] See Exhibits 50 and 52.

[17] Exhibit 2, Vol 2, Tab 4.

[18] Ibid, paragraph 6.1.

[19] Ibid.

[20] Ibid.

[21] Ibid.

[22] Ibid.

[23] Exhibit 2, Vol 2, Tab 5.

[24] Ibid.

[25] MFI 1.

[26] MFI 2.

[27] (1995) 183 CLR 563 at 578.

[28] (1889) 14 App Cas 337.

[29] [1891] 2 Ch 449.

[30] (1882) 9 Rettie 807 at 854.

[31] (1889) 41 Ch D 348.

[32] [1959] AC 789 at 805, 806.

[33] Defence and Counterclaim filed 23 July 2010.

[34] MFI 4.

[35] Exhibit 2, Vol 5, Tab 15.

[36] Exhibit 2, Vol 17, Tab 71.

[37] Ibid.

[38] Exhibit 2, Vol 17, Tab 72.

[39] Exhibit 2, Vol 17, Tab 73.

[40] Exhibit 2, Vol 17, Tab 74.

[41] Exhibit 2, Vol 5, Tab 19.

[42] T 8-69.

[43] Exhibit 2, Vol 5, Tab 20.

[44] An apparent reference to s 21(3)(c)(i) of the Act.

[45] Exhibit 2, Vol 5, Tab 22.

[46] Exhibit 2, Vol 5, Tab 23.

[47] T 10-40.

[48] Mr Ericson’s evidence T 9-71.

[49] Exhibit 2, Vol 5, Tab 25.

[50] Exhibit 2, Vol 5, Tab 26.

[51] Exhibit 2, Vol 5, Tab 27.

[52] Exhibit 2, Vol 5, Tab 28.

[53] Exhibit 2, Vol 5, Tab 30.

[54] Exhibit 2, Vol 5, Tab 31.

[55] Exhibit 2, Vol 5, Tab 38.

[56] Ex 2, Vol 5, Tab 38.

[57] Ibid.

[58] Exhibit 2, Vol 5, Tab 37.

[59] Exhibit 2, Vol 5, Tab 41.

[60] Exhibit 2, Vol 5, Tab 42.

[61] Exhibit 2, Vol 5, Tab 43.

[62] See above at [63].

[63] See [74] above.

[64] Exhibit 34.

[65] Defence and Counterclaim filed 23 July 2010.

[66] T 8-17 to 8-18.

[67] Above at [11].

[68] Exhibit 2, Vol 1, Tab 2, paragraph l.m.

[69] Exhibit 2, Vol 1, Tab 3.

[70] Ibid.

[71] Ibid.

[72] Exhibit 2, Vol 5, Tabs 16 and 17.

[73] (1959) 101 CLR 298.

[74] HML v The Queen (2008) 235 CLR 334 at 437, 438.

[75] See above at [58].

[76] Exhibit 2, Vol 5, Tab 50.

[77] The missing letter.

[78] Discussed above at [24].

[79] T 12-68.

[80] Exhibit 56.

[81] Ibid.

[82] Ibid.

[83] [2006] NSWSC 428 at [53].

[84] (1986) 161 CLR 141 at 147.

[85] Re Refugee Review Tribunal; ex parte Aala (2000) 204 CLR 82 at 91 [17], 130-131 [131].

[86] [2010] 1 Qd R 302 at 315, 316 [40].

[87] (2000) 204 CLR 82 at 130, 131 [131].

[88] [2008] NSWSC 399.

[89] (2004) 61 NSWLR 421 at 441, 442.

[90] [2008] NSWSC 399 at [41].

[91] (2003) 214 CLR 1 at 13, 14 [37].

[92] [2008] NSWSC 399 at [49].

[93] Ibid at [52].

[94] [2008] 2 Qd R 495 at 506-508 [26] to [36].

[95] (1992) 37 FCR 234 at 240, 241.

[96] (1965) 113 CLR 529.

[97] (2002) 54 NSWLR 46.

[98] (1965) 113 CLR 529 at 533 per Barwick CJ, 535 per Taylor J and 541 to 543 per Menzies J.

[99] [1992] 2 AC 443.

[100] [1995] 1 WLR 44.

[101] Toubia v Schwenke (2002) 54 NSWLR 46 at 52, 53, 54.

[102] Ibid at 55, 56 [42].

[103] (1986) 6 NSWLR 534.

[104] T 13-29.

[105] Hansen Yuncken Pty Ltd v Ericson [2010] QSC 156.

[106] (2004) 61 NSWLR 421.

[107] (2009) 239 CLR 531 (‘Kirk’).

[108] [2010] QSC 156 at [12], [13].

[109] Ibid at [18].

[110] (2004) 61 NSWLR 421 at 443 [60].

[111] [2011] QCA 22.

[112] (2010) 272 ALR 750.

[113] (2007) 232 CLR 189 at 197 [18].

[114] (2010) 239 CLR 531 at 580 [97].

[115] (1874) LR 5 PC 417 at 442.

[116] (2010) 239 CLR 531 at 567 [56].

[117] Building and Construction Industry Security of Payment Act 1999 (NSW), s 26.

[118] Section 26(1)(b).

[119] [2003] NSWSC 1140.

[120] Before the decision in Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421.

[121] [2003] NSWSC 1140 at [103].

[122] [2004] NSWSC 116 at [38].

[123] [2004] NSWSC 405 at [23].

[124] [2008] NSWSC 374 at [31], [32].

[125] [2010] NSWSC 1367.

[126] [2010] QCA 355 at [29].

[127] [2008] NSWSC 399 at paras [80] to [89].

[128] Section 100 of the Act.

[129] I.e. the actual costs issue and the Appendix C workers.

[130] [2002] 1 Qd R 57 at 92, 93 [94], [95].

[131] Ibid at 93, [98].

[132] [2009] 1 Qd R 390 at 400-401.

[133] Hansen Yuncken Pty Ltd v Ericson (No 2) [2010] QSC 457.

Since then, there has been some back tracking. First the government put out its Code of Conduct for ANAs, where the red card criterion was watered down to 2 instances of want of good faith in the last 5 years (this is significant because the track record of Philip Davenport – chief adjudicator for Adjudicate Today -  includes two such instances, one of which was 6 years ago (Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd & Anor [2005] NSWSC 1129 and Laing O’Rourke Australia Construction v H&M Engineering and Construction  [2010] NSWSC 818).

Secondly, the yellow card suspension only now applies unless and until “the ANA is satisfied that the cause of the error has been resolved” – the requirement for retraining has been dropped. That is a provision that looks certain to attract judicial attention, but it seems unlikely that the courts will treat this as a subjective test, and if an adjudicator has repeatedly got things wrong, it is unlikely that the courts will – absent some pretty compelling evidence of rehabilitation – regard further appointments of such adjudicator as properly or lawfully made.

Thirdly, the new Regulations make no mention of the red/yellow card provisions at all, so challenges to adjudications on this ground are likely to have to be made in court, instead of being dealt with administratively.

The text of the Code of Conduct is as follows:

Code of Conduct for Authorised Nominating Authorities
Building and Construction Industry Security of Payment Act 2009

Introduction
The Building and Construction Industry Security of Payment Act 2009 (the Act) was created to improve payment practices and cash flow in the construction industry. It creates a right to progress payments and establishes a system of private adjudication of payment disputes.
Authorised Nominating Authorities (ANAs) and adjudicators play key roles in the security of payment scheme. Adjudication determinations are legally binding decisions that can significantly affect the financial position of businesses and so it is essential that they are made competently and fairly. This Code of Conduct sets some guidelines to assist ANAs in meeting their obligations.
ANAs receive their authorisation from the Minister for Business Services and Consumers under Section 29 of the Act. This may be reviewed at any time. Any breach of this Code of Conduct or other general failure to meet their obligations may lead to a review of authorisation for an ANA.
General requirements
An ANA must:
•       Comply with the requirements of the Building and Construction Industry Security of Payment Act 2009 and Regulations at all times;
•       Maintain a physical address within Australia and facilities to receive documents by personal delivery, email, post or fax;
•       Maintain a web site that includes:
o General information about the Act’s requirements and procedures, and o Information on the services offered by the ANA and how to access
these services, and o Information on the fees charged by the ANA and adjudicators, including
details of any fee charged by the ANA to adjudicators relating to the
appointment and handling of adjudication matters;
•       Establish and maintain quality assurance systems;
•       Establish and maintain an effective complaint handling system;
•       Advise all applicants of the application and adjudication fees before accepting an application;
•       Refund any application fee paid if a claimant withdraws their application under section 26 of the Act;
•       Upon request and without fee, allow a staff member from Consumer and Business Services to attend any training provided to adjudicators, for the purposes of monitoring training quality.

Professional Conduct
An ANA must, at all times, act ethically and without favour to any party to an adjudication matter.
An ANA must not act in a matter where it will have an actual or apparent conflict of interest.
An ANA must not accept an application for adjudication involving one of its directors, managers, members, shareholders, staff or a close relation or business associate of one of these people, other than in the following circumstances:
•       Where the applicant is a person who is not a member of the ANA, the respondent is a member and the applicant gives specific written acknowledgement that they are aware of the potential conflict of interest and wish for the application to proceed, or
•       Where the applicant and respondent are both members of the ANA and both have given specific written acknowledgement that they are aware of the potential conflict of interest and wish for the application to proceed.
Appointment of Adjudicators
An ANA must maintain access to a pool of adjudicators who (combined) have the competence and experience to properly adjudicate the full range of adjudication applications covered by the Act. Any eligibility criteria prescribed in relation to section 18 of the Act must be considered a minimum level. It is the responsibility of the ANA to ensure that the adjudicators it nominates have suitable qualifications and experience for each particular application, as well as ensuring that they meet any eligibility criteria in the Regulations.
An ANA must not nominate a person to act as an adjudicator where it is aware, or reasonably should be aware, that a real or perceived conflict of interest exists between the adjudicator and the claimant or respondent. An example of such a circumstance is where the adjudicator would be nominated to perform adjudication in relation to a dispute:
•       Involving a close relative, business associate or person that they have been in a contractual relationship with within the previous 12 months, or
•       Referred to them by an ANA in which they have a financial interest (eg they own shares in the ANA or receive some share of the profits), or
•       From an ANA that they are an employee of.
An ANA must not nominate an adjudicator that has been found, by a court in Australia, to have made technical errors in performing adjudications unless the ANA is satisfied that the cause of the error has been resolved.
The making of unbiased decisions is of utmost importance and so an ANA must not, without the written approval of the Minister for Business Services and Consumers, appoint a person as an adjudicator if that person has been found to have acted not in good faith, twice or more, by a Court in Australia within the last 5 years in relation to adjudication duties.
Provision of Information to the Regulator
If there is a change to any of the following details of the ANA, it must send notification within 7 days:
•       Organisation name or business name
•       Business address
•       Director (or board member for an incorporated association)
•       Fee levels or structure
The following events must also be notified within 7 days:
•       If the ANA becomes insolvent or ceases to carry on business as an ANA
•       If any director (or board member for an incorporated association) is charged with an offence involving dishonesty
•       If the ANA becomes aware of the commencement of any court action in relation to or affecting an adjudication application made to that ANA
•       If a complaint about the ANA or an adjudicator is received or finalised, including details of outcome of the complaint
Quarterly Reports
An ANA must submit quarterly reports (within 1 month of the end of the quarter) in a form approved by the Minister for Business Services and Consumers. These reports will provide mainly statistical information and be in the form of a spreadsheet. The quarterly reports are for the periods ending:
•       30 September
•       31 December
•       31 March
•       30 June
A copy of all adjudication determinations made during the quarter must accompany the quarterly report. The copies should be in .pdf format.
Annual Reports
An ANA must submit an annual report for the period up to 30 June each year. This must be submitted by 31 July and contain:
•       The name and qualifications of each adjudicator nominated by the ANA,
•       Details of any training provided to adjudicators,
•       Details of any changes to policies and procedures with respect to:
o Administrative arrangements for processing and managing adjudication
applications, o Quality assurance,
o   Complaint handling,
o   Adjudicator training and selection,
o   Nomination of adjudicators,
o   Identifying and managing actual or perceived conflicts of interest,
o   A summary of adjudication outcomes and trends.
Delivery of Reports
All reports and notifications must be sent via email to securityofpayment@sa.gov.au.

No surprises; the Regulations are extremely sparse.

1 December 2011

THE SOUTH AUSTRALIAN GOVERNMENT GAZETTE
4785
South Australia
Building and Construction Industry Security of Payment Regulations 2011 under the Building and Construction Industry Security of Payment Act 2009
Contents
1              Short title
2             Commencement
3             Interpretation
4             Recognised financial institutions
5             Related goods and services
6             Eligibility criteria for adjudicators

1—Short title
These regulations may be cited as the Building and Construction Industry Security of Payment Regulations 2011.

2—Commencement
These regulations will come into operation on the day on which the Building and Construction Industry Security of Payment Act 2009 comes into operation.

3—Interpretation
In these regulations—
Act means the Building and Construction Industry Security of Payment Act 2009.

4—Recognised financial institutions
Each person or body that is a body regulated by the Australian Prudential Regulation Authority under the Australian Prudential Regulation Authority Act 1998 of the Commonwealth is prescribed for the purposes of the definition of recognised financial institution in section 4 of the Act.

5—Related goods and services
Services of the following kind are prescribed for the purposes of section 6(1) of the Act:
(a)     project management services in relation to construction work;
(b)     contract management services in relation to construction work;
(c)     consultancy services in relation to construction work.

6—Eligibility criteria for adjudicators
Pursuant to section 18(l)(b) of the Act, a natural person is eligible to be an adjudicator in relation to a construction contract if—
(a)     the person has successfully completed a formal course of training of at least 2 days duration in adjudication of payment disputes in the building and construction industry that required the person to pass a written examination; and
(b)     the person—
(i)    holds a degree, diploma or other qualification in—
(A)    architecture; or
(B)    building surveying; or
(C)    building; or
(D)    construction; or
(E)    law; or
(F)     project management; or
(G)    quantity surveying,
from a university; or
(ii)    is, or is eligible to be, a member (other than a student member) of any 1 or more of the following professional bodies:
(A)    The Royal Australian Institute of Architects;
(B)    Engineers Australia;
(C)    Australian Institute of Building Surveyors;
(D)    The Institute of Arbitrators and Mediators Australia;
(E)    The Australian Institute of Building;
(F)     Australian Institute of Project Management; or
(iii)   holds registration as a building work supervisor under the Building Work Contractors Act 1995 that authorises the person to supervise construction work of a kind carried out, or to be carried out, under the construction contract.

Note-As required by section 10AA(2) of the Subordinate Legislation Act 1978, the Minister has certified that, in the Minister’s opinion, it is necessary or appropriate that these regulations come into operation as set out in these regulations.

Made by the Governor’s Deputy
with the advice and consent of the Executive Council on 1 December 2011
No 251 of 2011
MCA0001/11CS