Supreme Court New South Wales

• Medium Neutral Citation: Cornerstone Danks Street v Parkview Constructions [2014] NSWSC 866
• Hearing dates: 19/06/2014
• Decision date: 19 June 2014
• Jurisdiction: Equity Division - Technology and Construction List
• Before: McDougall J

Decision

Declare adjudicator's determination void. Grant ancillary injunctive relief. First defendant to pay plaintiff's costs.

• Catchwords: BUILDING AND CONSTRUCTION - Adjudication determinations - application for declaration that adjudicator's determination is void - whether adjudicator failed to comply with statutory obligation imposed by s 21(3) of the Building and Construction Industry Security of Payments Act 1999 (NSW) - whether determination void where as at the date by which determination was to be made not all matters in dispute had been decided; PROCEDURE - costs - whether to grant indemnity costs where argument of contestable point of law and no relevant delinquency
• Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW)
• Category: Principal judgment
• Parties: Cornerstone Danks Street Pty Limited as Trustee for the Cornerstone Danks Street Unit Trust (First Plaintiff); Cornerstone Danks Street No1 Pty Limited (Second Plaintiff); Parkview Constructions Pty Limited (First Defendant); Adjudicate Today Pty Limited (Second Defendant); Max Tonkin (Third Defendant)
• Representation: Counsel: J B Simpkins SC / J A Wright (Plaintiff); M Christie SC / ARR Vincent (First Defendant); Solicitors: Colin Biggers & Paisley (Plaintiffs); Salim Rutherford Lawyers (First Defendant); Moray & Agnew (Second and Third Defendants)
• File Number(s): 2014/172448

Judgment (EX TEMPORE - REVISED 19 JUNE 2014)

1 HIS HONOUR: On 20 July 2011, the plaintiff (collectively, and in the singular, Cornerstone) made a contract with the first defendant (Parkview) under which Parkview agreed to design and construct a mixed-use development at Waterloo. There is no doubt that Parkview's obligations were "construction work", or that the contract was a "construction contract", for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

The dispute; reference to adjudication

2 On 7 March 2014, Parkview served its payment claim, number 32, on Cornerstone. On 21 March 2014, Cornerstone provided a payment schedule to Parkview. There was a significant disparity between the claimed amount and the scheduled amount.

3 On 4 April 2014, Parkview made application to the second defendant (the ANA) for adjudication of the payment claim. The ANA referred that application to the third defendant (the adjudicator). On 10 April 2014, the adjudicator gave notice accepting the nomination. On 14 April 2014, Cornerstone lodged its adjudication response.

4 It is common ground that, but for the matters to which I shall refer in a moment, the effect of s 21(3) of the Act, in the events that had happened, was that the adjudicator was required to determine the application by 29 April 2014.

Extensions of time

5 However, before that date arrived, the adjudicator appears to have realised that he would need more time to complete his statutory task. If I may say so, that is hardly surprising given the range and detail of the issues involved. He requested an extension of time of 10 business days. The parties agreed. The result is that, in terms of s 21(3)(b) of the Act, the adjudicator was required to determine the application by 13 May 2014.

6 On that day, the adjudicator requested a further extension of time. Cornerstone agreed. Parkview said that it would agree if the adjudicator made no determination with respect to two identified groups of issues. The adjudicator replied, saying among other things, that he had in fact, dealt with those issues but would still need an extension of time. He suggested an extension of at least 2 business days. The adjudicator drafted his reply (which was sent through the ANA) on 13 May 2014. However, it was not sent to the parties until the following day, 14 May 2014.

The application is withdrawn

7 Cornerstone said that it would consent to the further extension. Parkview was not prepared to do so. On 14 May 2014, it wrote to the ANA. The letter noted (correctly) that Parkview had a right pursuant to s 26 of the Act to withdraw its application. The letter stated that it was Parkview's "preference" to do so, and then said:

...please consider this letter as our notice to the Adjudicator that pursuant to section 26 of the Act, Parkview withdraws its application.

...no determination with respect to any part of the subject matter of the adjudication application may be made by [the adjudicator].

8 Nothing seems to have happened thereafter for a few days (of course, the ANA had notified the adjudicator of Parkview's letter) until on 19 May 2014, the adjudicator prepared a letter which he sent to, and apparently discussed with, the ANA.

9 In due course later on 19 May 2014, the ANA wrote to the parties setting out what had been comprised in the adjudicator's draft. The adjudicator made the following points:

(1) "It is not correct for the claimant to say that I failed to determine the adjudication application within the time allowed by section 21(3)..."

(2) "In the fax issued... on 14 May 2014, I stated that I was finalising "other matters".

(3) "The "other matters" that were not finalised on 13 May 2014, that would have formed part of my determination if the claimant agreed to extend the period, were:

1. Item 25 of the original contract items: "Profit & Overhead".

2. V57: "FC sheet in lieu of Recycled Timber to Cloister Soffit."

3. "Shopfront Deletions".

4. Determining the apportionment of liability for adjudication fees."

(4) "I am satisfied that matters 1, 2, 3 and 4 cannot be determined after expiry of the period specified in section 21(3)(b) of the Act. Therefore I have made no determination of these matters. However I had determined all other matters relevant to my determination of the application on or before 13 May 2014."

(5) "Other matters, that are not part of my determination of the adjudication application, that I had intended to finalise in the extended period were.

5. Inserting adjudicated amounts in the spreadsheet at Annexure 1 in respect of items determined on or before 13 May 2014.

6. Adding explanatory paragraphs 1, 2, 3, 207 and 208.

7. Completing the cover sheet and footer.

8. Proof reading."

The adjudicator makes a determination

10 Also on 19 May 2014 (so it appears, from documents produced by the ANA), the adjudicator sent to the ANA what he said was his determination, an invoice for his fees and a letter to go to the parties. The ANA appears to have proof-read the determination and suggested some changes, which the adjudicator accepted.

11 On 4 June 2014, the fees apparently having been paid, the ANA sent to the parties "the adjudicator's determination".

12 The determination (as I shall call it for convenience) started with a cover sheet which set out a number of details including the adjudicated amount, the due date for payment and the rate of interest. In respect of apportionment of the adjudication fee, it stated "no determination made".

13 On the next page, under the heading "Determination", the determination stated the following matters:

Determination

This is a determination made under the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act").

In respect of the claimant's Payment Claim, I determine that:

• the amount of the progress payment to be made to be made by the respondent to the claimant is the Adjudicated Amount shown above;
• the date upon which the payment became due is the due date for payment shown above; and
• The rate of interest on the Adjudicated Amount is the rate shown above.

14 In other words, there was no separate statement of the three amounts indicated by the bullet points. It was necessary to return to the cover sheet to find out what had been determined in respect of the amount of the progress payment, the due date for payment and the interest rate.

15 As the letter of 19 May 2014 indicated, paras 1, 2, 3, 207 and 208 of the reasons were added after 13 May 2014. Nothing much turns on paras 1, 2, or 3. However, para 207, and para 208 including the heading preceding it, are of some significance. I set them out:

207. The claimant elected to not grant an extension of time for my determination. For this reason I have not made any determination in respect of Item 25 in the contact items, variation V57, and the respondent's shop front deletions. I have adopted the scheduled amounts for these items as I did with the disputed items not pressed.

Adjudicated amount

208. For the reasons above, I have determined that the claimant is entitled to a progress payment of $1,492,034.68 including GST as set out in Annexure 1.

16 Finally, the spreadsheet that was also said (in the letter of 19 May 2014) to have been completed after 13 May 2014 was annexed, as Annexure 1, to the determination. It contained four headings for each of the items that it covered. They were: "Claimant value to date", "Claimant claimed this period", "Respondent scheduled this period", and "Adjudicated".

17 The last line in the spreadsheet read as follows:

Claimant value to date

Claimant claimed this period

Respondent scheduled this period

Adjudicated

...

Claimed / Scheduled / Adjudicated incl GST

$4,481,205.30

$77,528.00

$1,492,034.68

18 As will be apparent, Parkview, although it had acted to withdraw its application, has seized upon the determination and claimed payment of the adjudicated amount.

The real issues for decision

19 Cornerstone disputes that the determination is effective to impose on it any liability to pay the adjudicated amount.

20 There were three principal strands of argument. The first was whether the adjudicator had complied with the statutory obligation imposed by s 21(3) to determine the application, in the events of this case, within the further time agreed by the claimant and the respondent - that is to say, 13 May 2014. The second issue was whether, in proceeding the way he did, the adjudicator had turned his mind in good faith to the task entrusted to him by statute. The third was whether, in some way, the adjudicator had denied (the submissions were somewhat unclear, but it must be Cornerstone) natural justice.

Decision: the adjudicator had no power

21 To understand how the adjudicator was able to derive an adjudicated amount, notwithstanding that he had not finalised item 25 (profit and overhead), variation 57, and the set-off for shop front deletions, it is necessary to understand what he did. Clearly, the adjudicator worked through the issues that the parties had posed. Clearly (and this appears from the reasons), as he reached a decision on each issue or group of issues, he finalised his decision and set out its monetary impact. No doubt, the adjudicator intended, when he had worked through all the issues in dispute, to produce a spreadsheet, similar to Annexure 1, setting out his determination on each of the disputed issues, and thus arriving at an adjudicated amount.

22 As is apparent from para 207, what the adjudicator did, in respect of the three matters that I have identified, was adopt what he called the "scheduled amounts" specified in respect of each of them: that is to say, he adopted Cornerstone's valuation of those amounts. It is clear, and I do not think that for Parkview it was argued otherwise, that the adjudicator must have done this after 13 May 2014.

23 The adjudicator, in para 207, referred to those amounts as "the scheduled amounts for those items". However, I do not think that this is a correct description. When one goes to s 13 of the Act, it requires a payment claim to identify a number of things, including (s 13(2)(b)) "the amount of the progress payment that the claimant claims to be due (the claimed amount)".

24 Correspondingly, s 14(2)(b) requires a payment schedule, among other things, to "indicate the amount of the payment (if any) that the respondent proposes to make (the scheduled amount)".

25 In other words, the scheduled amount is not a term that the statute intended to be used in respect of each and every item set out in the payment schedule as part of the reasons for withholding payment, and part of the justification of whatever amount (if any) the respondent proposes to pay. Instead, the scheduled amount is the amount (if any) that the respondent proposes to pay: that is to say, the amount calculated in the way that I have briefly described.

26 Nonetheless, reading para 207 fairly, it is reasonably clear that the adjudicator said that because he could not make any determination in respect of the items referred to in the paragraph, he adopted the valuations of them that were contained in the payment schedule.

27 In those circumstances, did the adjudicator, in the language of s 21(3) determine the application within the required time?

28 It is necessary to pay some attention to what it is that an adjudicator is to do. That task is described in s 22:

22 Adjudicator's determination

(1) An adjudicator is to determine:

(a) the amount of the progress payment (if any) to be paid by the respondent to the claimant (the adjudicated amount), and

(b) the date on which any such amount became or becomes payable, and

(c) the rate of interest payable on any such amount.

(2) In determining an adjudication application, the adjudicator is to consider the following matters only:

(a) the provisions of this Act,

(b) the provisions of the construction contract from which the application arose,

(c) the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim,

(d) the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule,

(e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates.

(3) The adjudicator's determination must:

(a) be in writing, and

(b) include the reasons for the determination (unless the claimant and the respondent have both requested the adjudicator not to include those reasons in the determination).

(4) If, in determining an adjudication application, an adjudicator has, in accordance with section 10, determined:

(a) the value of any construction work carried out under a construction contract, or

(b) the value of any related goods and services supplied under a construction contract,

the adjudicator (or any other adjudicator) is, in any subsequent adjudication application that involves the determination of the value of that work or of those goods and services, to give the work (or the goods and services) the same value as that previously determined unless the claimant or respondent satisfies the adjudicator concerned that the value of the work (or the goods and services) has changed since the previous determination.

(5) If the adjudicator's determination contains:

(a) a clerical mistake, or

(b) an error arising from an accidental slip or omission, or

(c) a material miscalculation of figures or a material mistake in the description of any person, thing or matter referred to in the determination, or

(d) a defect of form,

the adjudicator may, on the adjudicator's own initiative or on the application of the claimant or the respondent, correct the determination.

29 There is a distinction between the primary function of determining the matters set out in sub-s (1) and the obligation to justify that determination in writing and with reasons, being the obligation imposed by sub-s (3).

30 In performing the obligation to determine (among other things) the amount of the progress payment (if any) to be paid, it was necessary for the adjudicator to go through all the disputes and, in a rational and considered way, to deal with them. It was then necessary for the adjudicator to reduce his reasons for doing so to writing, along with the determination itself.

31 The determination that the adjudicator produced clearly recognised this. It contained two separate sections, one headed "Determination" and one headed "Reasons". Clearly enough, as will be seen from what I have set out above, it was the former of those sections that the adjudicator intended to be his performance of the s 22(1) task, on the facts of this particular case. Equally clearly, what follows was intended to comprise his reasons, for the purposes of s 22(3)(b).

32 The essential point, however, is that the adjudicator could not have determined the amount of the progress payment without working his way through all the disputed issues that the parties had raised. What is equally apparent is that, as at 13 May 2014, he had not completed that task in respect of item 25 (profit and overhead), variation 57 and shop front deletions.

33 Thus, if one were to ask, hypothetically, what had been decided as at 13 May 2014, the answer could only be: "The great bulk, but not all, of the matters in dispute." And until all the matters in dispute were decided, the determination of the amount of the progress payment could not be made.

34 I have taken some time over that issue because Mr Christie of Senior Counsel, who appeared with Mr Vincent of Counsel for Parkview, submitted that if one stripped out the "post 13 May" items from the determination, there would be sufficient left to enable a careful reader, armed with a calculator, to work out what the adjudicated amount was. However, as will be apparent from what I have said, I am unable to accept that submission. I cannot accept it because, as at 13 June 2014, the adjudication had not dealt with all the issues in dispute. It was only once he had dealt with the remaining issues, after 13 June 2014, that he was able to arrive at an adjudicated amount. The fact that he arrived at the adjudicated amount by deciding some of the matters in the way for which Cornerstone had contended, does not detract from the self-evident proposition that, as at 13 May 2014, he had not done so at all.

35 The statement in the "Determination", that the adjudicated amount was the amount "shown above", only makes sense if it is read in conjunction with the cover sheet. But the cover sheet, too, was something that had not been completed as at 13 May 2014; nor could it have been.

36 Equally, the statement in para 208 of the amount of the entitlement "as set out in Annexure 1" could only have been meaningful once Annexure 1 itself was completed. Completion of Annexure 1 was possible only because the adjudicator, after 13 May 2014, completed his consideration of the matters in dispute, not by turning his mind independently to the issues that had not been dealt with, but, rather, by the expedient of adopting Cornerstone's position as stated in its payment schedule in respect of each of those items.

37 In the circumstances, it seems to me that the adjudicator did not comply with his statutory obligation to determine the amount of the progress payment within the time fixed by s 21(3) of the Act. It follows that it was open to Parkview to do as it did on 14 May 2014, and withdraw the application. That right flowed from s 26 of the Act, which reads as follows:

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.

38 Because the adjudicator had not completed the task by 13 May 2014, it necessarily follows, in my view, that he had failed to determine the application by that date. Thus, s 26(1)(b) was enlivened.

39 There can be no dispute but that Parkview's letter of 14 May 2014 was an express and clear exercise of the right that, in my view, it then had.

40 It follows inevitably, the adjudication application having been withdrawn on 14 May 2014, that it was not open to the adjudicator to do thereafter as he did (or purported to do) and complete his task, finalise the determination and reasons, and, through the ANA and once his fees had been paid, make them available to the parties. To put it another way, at the point in time when the adjudicator purported to make his determination on the matters in dispute, his power to do so had been revoked.

41 I have not overlooked that the cover sheet suggests that the determination was made on 13 May 2014. However, that can be no more than a statement of what the adjudicator understood to be the effective date of the determination. It is clear from the evidence, including the material produced by the ANA, that the document which was ultimately issued was not finalised, in the form that it was ultimately issued, until 19 May 2014 at the earliest. Nor was the actual balance owing, being (in the adjudicator's mind) the adjudicated amount determined until that date at the earliest.

Conclusion and orders

42 For those reasons, I conclude that Cornerstone has made good its case to the relief sought. It is unnecessary to address the alternative bases on which it pressed for relief. Its reasons for doing so are articulated with reasonable clarity in its Technology and Construction List statement, and with extreme clarity in its outline of submissions. There are no facts that require to be found, and in those circumstances it seems to me, that there is no point in taking up time with consideration of matters that are moot.

43 I make a declaration in terms of prayer 1 of the summons filed on 10 June 2014 and orders (on a permanent basis) in terms of prayers 3 and 4. For greater precaution I make a declaration in terms of prayer 5.

44 I will hear the parties on costs and whether any other relief is required.

[Counsel addressed.]

Costs and other matters

45 There is no dispute that Cornerstone should have its costs against Parkview (ANA and the adjudicator of course, have submitted). However, those costs are sought on the indemnity basis.

46 It is correct to say, as Mr Simpkins of Senior Counsel, who appeared with Ms Wright of Counsel for Cornerstone, pointed out, that a letter had been written before action setting out the arguments that were raised, and in respect of which Cornerstone has succeeded. However, it is necessary I think, if indemnity costs are to be awarded, to show that there was some "relevant delinquency" in the conduct of the litigation on the part of Parkview. There are many circumstances in which that may be shown, but it seems to me that arguing a fairly contestable point of law, as I regard the issue in this case, is not one of them.

47 In addition, there was money paid into court as a condition of obtaining the benefit of an undertaking from Parkview, and that money ought be paid out.

(1) I order the first defendant to pay the plaintiff's costs.

(2) I order that the sum of $1,492,034.68 paid into court by the second plaintiff on about 12 June 2014 be paid out to it forthwith.

(3) I order that the exhibits be handed out.

(4) I direct that these orders be entered forthwith.

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Decision last updated: 30 June 2014