Supreme Court New South Wales

• Medium Neutral Citation: GMW Urban v Alexandria Landfill [2012] NSWSC 237
• Hearing dates: 15/03/2012
• Decision date: 15 March 2012
• Jurisdiction: Equity Division - Technology and Construction List
• Before: McDougall J

Decision

Interlocutory injunctions continued.

• Catchwords: BUILDING AND CONSTRUCTION - interlocutory injunctive relief - legislative purpose of the Building and Construction Industry Security of Payment Act 1999 - whether plaintiff should be restrained from enforcing adjudication determination - whether defendant should be restrained from calling upon bank guarantees - whether summons claims declaratory relief which is capable of being regarded as final relief.
• Legislation Cited: Building and Construction Industry (Security of Payment) Act 1999 (NSW)
• Cases Cited: Dualcorp Pty Ltd v Remo Constructions Pty Ltd (2009) 74 NSWLR 190
• Category: Procedural and other rulings
• Parties: GMW Urban Pty Limited (ABN 52 084 753 113); Alexandria Landfill Pty Limited (ACN 098 849 971) (First Defendant); Westpac Banking Corporation (ABN 33 007 457 141) (Second Defendant)
• Representation: Counsel: BAM Connell (Plaintiff); JR Clarke (First Defendant); Solicitors: CCL Pty Ltd (Plaintiff); Esplins Solicitors (First Defendant)
• File Number(s): 2012/50410

Judgment - Ex tempore (revised 15 march 2012)

1 HIS HONOUR: The plaintiff (GMW) and the first defendant (ALF) made a construction contract, for the design and construction of a waste facility at Eastern Creek, on about 23 December 2009. GMW has given ALF security, in the total value of $695,000, pursuant to the contract. The security is given by two bank guarantees, each unconditional in form, in favour of ALF.

2 GMW made a number of progress claims and they have been paid. The seventeenth progress claim was referred to adjudication under the Building and Construction Industry (Security of Payment) Act 1999 (NSW) (the Act). The adjudicator made a determination. Nothing now turns on that.

3 However, the parties are in dispute as to a second adjudication application, relating to progress claim 18. That progress claim was for an amount of more than $2.9 million. The scheduled amount proposed by ALF was negative more than $700,000. The adjudicator determined that the adjudicated amount was about $805,000. That determination, given on 3 February 2012, has not been satisfied.

4 GMW has recovered judgment for a debt in this court pursuant to the disputed determination. It has sought to enforce its rights by garnishee.

5 ALF has called upon the security given by (now) the second defendant. The occasion for the call upon the security was said to be that, according to the determination of the superintendent under the contract, GMW was

6 indebted to ALF for $360,000 for liquidated damages.

7 It should be noted that the dispute as to liquidated damages was included in the reasons why ALF said that it did not owe GMW any money in respect of the eighteenth progress claim, and why in fact GMW owed it money. The adjudicator dealt with that and other disputes. He concluded, in brief, that the superintendent had not exercised his powers in good faith, that there were strong grounds for supporting the extension of time claimed by GMW, and hence that this reason for refusing payment was invalid.

8 I should mention, further, that GMW had claimed extensions of time totalling 187 days. The superintendent allowed only eleven of those days. The adjudicator considered that GMW was entitled to the full extension claimed, and thus to very substantial delay costs. Those delay costs form over half the total of the adjudicated amount.

9 When GMW became aware that ALF had sought to call upon the bank guarantees, it approached the court for ex parte interlocutory relief. I granted orders restraining ALF from calling upon the guarantees and restraining the second defendant, the bank, from paying out. I imposed, as a condition upon the grant of relief, a term that GMW should not seek to enforce the garnishee notice that it had caused to be issued. I did so because I wished to hold the "status quo" until the court could have a clearer picture of the competing claims. That interlocutory regime has continued, by consent but without admissions, until today.

10 GMW claims that it is entitled to enforce the determination in its favour, which has now become a judgment of this court. It opposes any continuation of the term as to non-enforcement. It also seeks an order that ALF be restrained, until the hearing of the matter, from making claim on the guarantees.

11 ALF says that it should be at liberty to exercise its rights pursuant to the guarantees because it has the benefit of the superintendent's determination as to liquidated damages. It says, further, that GMW should be restrained from enforcing its rights under the judgment.

12 There are alternative and intermediate positions to those basic statements of each party's contentions.

13 The starting point, it seems to me, is to be found in the Act and in the legislative purpose underlying it. That appears quite clearly from s 3. By subs (1) the object of the Act is said to be to ensure that a person who carries out construction work (I omit irrelevancies) under a construction contract has both an entitlement to receive, and the ability to recover, progress payments. By subs (2) that entitlement prevails over any provisions of the construction contract. Subsection (3) states, in summary form, the machinery (expanded in particular in Parts 2 and 3 of the Act) for the enforcement of that statutory entitlement.

14 A series of decisions in this court, and in other courts in other States on substantially similar legislation, has reinforced the primacy of the legislative purpose and the entitlements given in pursuance of that purpose. Thus, it has been held consistently that the court should not interfere, in the determinations of adjudicators, except in very limited circumstances. The position currently reached is that the court's interference is justified only when the determination reveals that the adjudicator has in some way acted without or in excess of jurisdiction. For that purpose, acting in excess of jurisdiction includes acting in defiance of the rules of procedural fairness, to the extent that those rules are consistent with the scheme of the Act.

15 It has been observed both in the Court of Appeal of Queensland and in the Court of Appeal of this State that one of the features of the legislative scheme is that it involves a conscious decision to transfer the risk of insolvency from proprietors or head contractors, to contractors, or subcontractors, as the case may be. Under the old system, it was the contractor or subcontractor that carried the risk of the proprietor's or head contractor's insolvency, because the only entitlement was to be paid under the terms of the contract. Under the legislative scheme, the obligation to make payment has the effect that if the proprietor or head contractor later succeeds on a final hearing in showing that it is owed money, it carries the risk that the party having the money will not be able to pay. Final rights are expressly preserved by s 32 of the Act.

16 Those considerations suggest very strongly that GMW should not be kept out of the enjoyment of the fruits of its relative success in the determination. However, ALF raises a number of reasons as to why this is not so. First, it says, the adjudicator's determination is void for various reasons. It submits that there was not a valid payment claim (because certain contractual preconditions to payment were not met); that the adjudicator could not override the superintendent's determination of the date for practical completion; that the adjudicator ignored what is said to be GMW's non-compliance with various contractual preconditions to payment; and that the adjudicator awarded damages for breach of contract rather than delay costs.

17 I express no view as to whether any of those points has any substance. What is of significance, for present purposes, is that ALF has taken no step in this court to assert the invalidity of the determination. It has not commenced its own proceedings for this purpose. Nor has it filed a cross-claim in these proceedings asserting invalidity. The court has been provided with a draft cross-summons by which ALF, if it proceeds, will assert that the determination should be the subject of relief in the nature of certiorari . It has not as yet provided a draft list statement in support of that, although I was informed, and of course accept, that the list statement is in the final stages of preparation. Nonetheless, the fact is that some six weeks have elapsed during which ALF has taken no step in court to vindicate the position that it now asserts as to the invalidity of the determination.

18 When the matter came before me on an ex parte basis, I expressed the view, based on the contemporaneity of the relevant events, that it was open to infer that the call on the guarantees was made not for any proper purpose but as an attempt to thwart, so far as possible, the determination. I was not then aware of the grounds on which ALF asserts that the contractual requirements for calling on the guarantee have been satisfied. Nonetheless, the written submissions for ALF confirm that there is more than a coincidence of timing between the actions of GMW seeking to enforce the determination and its own actions in seeking to call on the guarantees. See para 18 of the written outline.

19 Further, it may be noted, although the available inference was clearly stated (and has been adumbrated in correspondence between the parties' lawyers) there is no evidence to rebut it.

20 It is submitted for ALF that there is a risk that any judgment that it may recover in respect of its cross-claim (including for liquidated damages, as well as return of the adjudicated amount) might be rendered fruitless because "there is a real risk of insolvency of the plaintiff" (written outline, para 26(4)). It is suggested, further, that the absence of evidence of the position as between GMW and its subcontractors supports this inference, as does the failure of GMW (so it is said) to comply with contractual prerequisites to payment.

21 Accepting, for the sake of argument (but not deciding), that those fears have substantial bases, the position nonetheless is, as I have said, that decisions of intermediate appellate courts make it clear that one of the deliberate intentions of the legislature was to transfer the risk of insolvency pending a determination of final rights.

22 I acknowledge, of course, that where there are strong grounds to think that a payer has a substantial cross-claim, and to think that both the fruits of that cross-claim and of any recovery of the adjudicated amount may be denied because of the financial position of the payee, that is a discretionary ground for restraining enforcement. But in this case, the evidence falls well short of that. On the contrary, I do not find it difficult to believe that the withholding of a prima facie entitlement of more than $800,000 would cause some cashflow embarrassment to a payee in the position of GMW. That observation is confirmed if, which I note but do not decide, GMW's case as to delay and delay costs is wholly or partially successful.

23 Turning to the call upon the guarantees: the suggested basis of the call is the entitlement, said to have been established by the superintendent's determination, to liquidated damages. One of the arguments put for GMW is that there was no contractual basis for that entitlement. ALF submits that there has been a sufficient requirement, because of the contentions raised in its adjudication response. Whether or not that is correct is, obviously enough, something for a final hearing. However, the matter of present significance is that the adjudicator has considered the question of delay costs (and the converse question of practical completion) and has decided it, the issue having been joined in the payment claim and payment response, in favour of GMW.

24 Whilst I do not suggest that the adjudicator's determination is final, there is nonetheless the consideration that the determination carries with it the benefit of "principles akin to res judicata". See Macfarlan JA (with whom Handley AJA agreed) in Dualcorp Pty Ltd v Remo Constructions Pty Ltd (2009) 74 NSWLR 190 at [68] to [72]. The thrust of his Honour's reasoning is that, although considerations of res judicata strictly speaking are irrelevant to the determinations of adjudicators, "the principles of issue estoppel" are (see at [68]). In substance, his Honour's view was that the determination of an adjudicator on issues necessarily raised in deciding the entitlement to a payment claim were dispositive in respect of the entitlement to the interim payment, but not, of course, in any final dispute as to merits (see, again, s 32 of the Act). His Honour noted at [70] "the policy of the Act to render adjudicator's determinations final on issues which they resolved, subject only to provisions of the Act conferring limited rights of correction of determinations".

25 In those circumstances, I think it is demonstrated that the actions of ALF, in seeking to enforce its alleged entitlement to delay costs by calling upon the bank guarantees, are an attempt, through actions rather than otherwise, to dispute the limited finality of that issue which was considered and resolved by the adjudicator in this case.

26 Thus, without going into the merits of the other arguments raised by GMW and the merits of the responses to them, I conclude that GMW is entitled to a continuation of the interlocutory relief that it seeks.

27 That leaves for consideration the claim by ALF for an injunction restraining GMW from enforcing its rights, or the imposition of a term to that effect on the injunctive relief which I have just concluded should be continued. Essentially for the reasons that I have given in discussing the policy underlying the legislation, and taking into account that although some six weeks have elapsed there has not as yet been any formal challenge to the essential validity of the determination, I do not think that this is an appropriate case for the grant of such relief or the imposition of such a term. I do not think that it is for this court to stand in the path of enforcement of the rights which, clearly, the legislature intended persons in the position of GMW should have, once those rights have been vindicated by the determination of an adjudicator.

28 I should note that there was a separate argument raised by ALF as to the nature of the relief claimed in the summons. The submission was, in effect, that what the summons sought was only interlocutory relief, with no prayer to an entitlement to final relief the benefit or efficacy of which would be preserved by the grant of that interlocutory relief. It was submitted, further, that there were no material facts asserted in support of any claim for final relief.

29 The summons does claim declaratory relief which is capable of being regarded as final relief, even though it relates to the stage that things had reached (at the time the summons was filed) under the contract and in the performance of the contract works. I accept that the list statement is not particularly clear in spelling out the basis on which there is an entitlement to this final relief, but that is not a matter which, in my view, justifies either the withholding of the interlocutory relief that GMW seeks or the grant of the relief, or imposition of a term, that ALF seeks.

30 For those reasons, if the plaintiff gives the usual undertaking as to damages, I will grant interlocutory relief in terms of prayers 1 and 2 of the summons. The notice of motion filed by ALF on 29 February 2012 should be dismissed. The parties should have directions for the further conduct of the proceedings. What I propose to do is to stand the matter down so that counsel can consider the reasons just given and attempt to agree on orders.

[Counsel addressed.]

31 I note that the plaintiff by counsel gives to the court the usual undertaking as to damages.

32 I make orders in terms of prayers 1 and 2 of the summons filed on 22 February 2012.

33 I stand the matter over to the Technology and Construction List for directions on 23 March 2012.

34 I order that the costs of the application for interlocutory relief and of the first defendant's notice of motion filed on 29 February 2012 be the plaintiff's costs in the proceedings. The exhibits on the application are to be handed out.

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Decision last updated: 21 March 2012