Supreme Court New South Wales

• Medium Neutral Citation: Dewu Pty Ltd v Fabiano [2014] NSWSC 943
• Hearing dates: 14/07/2014
• Decision date: 14 July 2014
• Jurisdiction: Equity Division
• Before: McDougall J

Decision

Originating process dismissed with costs.

• Catchwords: BUILDING AND CONSTRUCTION - adjudication applications - where adjudicator makes an error within jurisdiction - whether error as to the terms, construction or application of the construction contract is an error within jurisdiction - whether adjudicator erred in any event
• Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW)
• Category: Procedural and other rulings
• Parties: Dewu Pty Ltd (Plaintiff); Dominic Fabiano (Defendant)
• Representation: Counsel: A Norrie (Plaintiff); A Di Francesco (Defendant); Solicitors: JurisBridge Legal (Plaintiff); MHW Legal (Defendant)
• File Number(s): 2013/365225

Judgment (ex tempore - revised 14 July 2014)

1 HIS HONOUR: This is an application for orders, amongst other things, quashing or, alternatively, declaring void a determination made by an adjudicator under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act). An immediate problem is that the adjudicator is not a party. I have no doubt that had he been joined, he would have submitted save as to costs; but since he has not been joined, it would not be proper to grant the relief sought without giving him an opportunity to be heard.

2 Having regard to the relatively small amount in dispute, the parties took the very sensible course that if I were to conclude that the determination was void, it would be sufficient to restrain the defendant (Mr Fabiano) from enforcing it (including by way of enforcement of the judgment recovered pursuant to it). Mr Fabiano accepted that in those circumstances it would be sufficient for the originating process to be amended and for an order to be made accordingly.

3 There is no doubt that the plaintiff (Dewu) and Mr Fabiano were parties to a construction contract made on 20 January 2013. Under that contract Mr Fabiano undertook to construct a number of townhouses for Dewu.

4 The dispute between the parties relates to Mr Fabiano's progress claim under the contract (and a payment claim for the purposes of the Security of Payment Act), a claim which in round figures was for $174,000.00.

5 Dewu did not at first provide a payment schedule. However, when it was given notice pursuant to s 17(2) of the Security of Payment Act, it did so. The dispute thereby constituted was referred to an adjudicator for determination. The adjudicator made his determination on 31 October 2013. He concluded that Mr Fabiano was entitled to be paid a little under $166,000, together with the costs of the adjudication. For reasons the adjudicator gave, the amount determined was, in substance, the claimed amount, there apparently having been some unexplained mathematical errors in the calculation of the claimed amount.

6 Dewu submits that the determination is void. It says that the adjudicator erred in determining the adjudicated amount because he proceeded pursuant to s 10(1)(a) of the Security of Payment Act and not, as Dewu submitted he should have done, pursuant to s 10(1)(b).

7 To enable that submission to be understood, I set out s 10.

10 Valuation of construction work and related goods and services

(1) Construction work carried out or undertaken to be carried out under a construction contract is to be valued:

(a) in accordance with the terms of the contract, or

(b) if the contract makes no express provision with respect to the matter, having regard to:

(i) the contract price for the work, and

(ii) any other rates or prices set out in the contract, and

(iii) any variation agreed to by the parties to the contract by which the contract price, or any other rate or price set out in the contract, is to be adjusted by a specific amount, and

(iv) if any of the work is defective, the estimated cost of rectifying the defect.

(2) Related goods and services supplied or undertaken to be supplied under a construction contract are to be valued:

(a) in accordance with the terms of the contract, or

(b) if the contract makes no express provision with respect to the matter, having regard to:

(i) the contract price for the goods and services, and

(ii) any other rates or prices set out in the contract, and

(iii) any variation agreed to by the parties to the contract by which the contract price, or any other rate or price set out in the contract, is to be adjusted by a specific amount, and

(iv) if any of the goods are defective, the estimated cost of rectifying the defect,

and, in the case of materials and components that are to form part of any building, structure or work arising from construction work, on the basis that the only materials and components to be included in the valuation are those that have become (or, on payment, will become) the property of the party for whom construction work is being carried out.

8 The significance of what Dewu submits was the adjudicator's error is that its payment schedule raised in substance two reasons for non-payment. The first was that the work done was defective and that rectification works were needed. The second was that the value of the works claimed was overstated in any event.

9 Had the adjudicator followed the path set out in s 10(1)(b), he would have been entitled to take account of those matters. However, because he decided that the contract included a "Scheduled Payment" document which set out the payments to be made and the occasions or milestones by reference to which they were to be paid, he proceeded in accordance with s 10(1)(a).

10 The contract between the parties was not particularly well prepared. It included, as Schedule 2, a statement as to the method of payment. That provided for a deposit. It then appears to have elected method "A". That method provided for the payment of establishment costs in a stated sum, and then "fortnightly for works completed to date".

11 There was also a method "C" and that method was:

C. As per the terms agreed by the parties. Those terms must be set out in writing and attached to the contract at the time of signing it. Such terms must be clear as to frequency of payment and what has to be achieved to require payment.

12 So far as the evidence goes, there were no attached terms set out in writing.

13 The contract included a Schedule 3. That schedule described the work to be done "as per attached quotation...and pages following 1 to 6." The reference to an attached quotation and pages was repeated twice more in Schedule 3. Nonetheless, on the evidence, there was no attached quotation.

14 The contract also included a Schedule 4. That schedule entitled the parties to add special conditions; if there were none it was to be ruled through.

15 Schedule 4 was not ruled through, and did state that there were special conditions:

SCHEDULE 4

SPECIAL CONDITIONS

If the parties have any terms they wish to add, they should be detailed here as a special condition. If there are no special conditions a diagonal line should be placed across this page.

Special Condition 1. Preliminaries & Labours Schedule attached

Special Condition 2 Schedule of payment attached

Home owners warranty limited to all work done by builder.

16 A document headed "Preliminaries and Labour Schedule" was signed by the parties. However, on the evidence it was not attached to the contract.

17 Further, on the evidence, "schedule of payment" was attached.

18 I should have noted that all pages of the contract document, including Schedules 2, 3 and 4, were signed on behalf of Dewu and by Mr Fabiano.

19 It could be concluded from the form of the contract and the fact of signature that the parties did intend to include, as part of their contract, a "schedule of payments".

20 On 21 March 2013 an email was sent on behalf of Mr Fabiano to Dewu. That email attached a "revised payment schedule and project schedule". The revised payment schedule was a document headed "Scheduled Payment". It set out various occasions or milestones for payment, and the amounts payable upon achievement of those occasions or milestones.

21 Cutting to the chase, the "contract" on which Mr Fabiano relied in his adjudication application included both the contract document itself, special condition 1, and the "Scheduled Payment" document. In that respect, I do not accept the submission put by Mr Norrie of counsel for Dewu that the form of the adjudication application (more accurately, of the submissions supporting it) shows that the contract was limited to the written contract document itself and special condition 1.

22 The adjudicator concluded that the contract did include the "Scheduled Payment" document. Having so concluded, he took the view that it was not open to Dewu to seek to vary what he considered to be the parties' agreement or, as he put it, for Dewu to "abrogate its obligations under the contract in relation to progress payments."

23 On that basis, the adjudicator took the view that the claim should succeed because it was a claim made in accordance with the contract, as authorised by s 10(1)(a) of the Security of Payment Act.

24 In addition, the adjudicator said the material put before him by Dewu to substantiate its claim of defective work was insufficient to satisfy him either as to the extent of the defective work, or as to the method for rectification of any work that was defective, or as to the cost of any such rectification. It followed, in his view, that in any event no set-off for rectification of defective work should be allowed even if, contrary to what appeared to be his primary view, that course were open to him.

25 As to the valuation of the work, the adjudicator appears to have concluded also that the report relied upon did not satisfy him that the work should be valued otherwise than as claimed. However, it seems to me, his dominant reason for dismissing this aspect of Dewu's adjudication response was his conclusion that Mr Fabiano was entitled to be paid in accordance with the terms of the contract, including, on the adjudicator's view, the "Scheduled Payment" document.

26 If the adjudicator were wrong in that view of the contract, that of itself would not be sufficient to entitle Dewu to the relief that it claims. It would have to be shown either that the adjudicator's error was jurisdictional in nature or that in some way, in coming to the conclusion that he did, he failed to exercise his powers in good faith, taking into account the purpose for which they were given. In my view, neither of those arguments can be made out.

27 In general, where an adjudicator makes an error within jurisdiction, it does not lead to an invalidation of the determination. In my view, an error as to the terms, or the proper construction or application, of a construction contract is at least in general or in principle an error within jurisdiction.

28 By contrast, there would be jurisdictional error, by the absence of a jurisdictional fact, if there were no construction contract at all between the parties but an adjudicator had concluded erroneously that there was such a contract.

29 In this case, as I have said, there is no doubt that there was a construction contract. The dispute was as to what were its terms. To my mind, an error by the adjudicator in deciding that the terms included the "Scheduled Payment" document would not be jurisdictional.

30 However, I do not think that the adjudicator erred in any event. There are two reasons for this. First, the contract demonstrated clearly that there was to be a "schedule of payment" attached. The page stating that was, as I have said, signed on behalf of Dewu and by Mr Fabiano.

31 The only question is, what was that "schedule of payment"? The document identified for the adjudicator was the "Scheduled Payment" document to which I have referred. That was stated clearly in the submissions supporting the adjudication application. No submissions to the contrary were put by Dewu in or in support of its adjudication response. Thus, in my view, it was open to the adjudicator to proceed on the basis that there was no dispute as to the relevant terms of the contract but, rather, a dispute as to entitlement based on the two matters raised in the payment schedule.

32 Secondly, focus on the terms of the written contract overlooks what it is on which the Security of Payment Act fastens: that is, "a contract or other arrangement under which one party undertakes to carry out construction work...for another party." That is made clear by the definition of "construction contract" in s 4 of the Security of Payment Act.

33 On any view of the facts, it was, in my view, open to the adjudicator to conclude that the construction contract, understood in its statutory sense, included an arrangement that there was to be a payment schedule and that the "Scheduled Payment" document was intended to fulfil that purpose.

34 Thus, in my view, as a matter of reality the conclusion to which the adjudicator came was correct. It must follow that the question of "good faith" does not arise.

35 For those reasons, Dewu fails in its claim for relief. I order that the originating process filed 4 December 2013 be dismissed with costs. The exhibits are to be handed out once the revised version of these reasons has been prepared and made available to the parties.

36 I reserve liberty to apply on three days' notice.

**********

Decision last updated: 24 July 2014