Supreme Court New South Wales

• Medium Neutral Citation: Denis McFadden & Anor v Daniel John Turnbull & Anor [2011] NSWSC 1294
• Hearing dates: Wednesday, 26 October 2011
• Decision date: 26 October 2011
• Jurisdiction: Equity Division - Commercial List
• Before: Brereton J

Decision

Adjudication declared void.

• Catchwords: BUILDING AND ENGINEERING CONTRACTS - Defendant obtains adjudication determining moneys owed pursuant to building contract - corporation and natural person promisees under building contract - corporation alone is owner of land - whether contract one for the carrying out of residential building work on premises for party whom resides in or proposes to reside in, for purposes of (NSW) Building and Construction Industry Security of Payments Act, 1999, s 7(2)(b) - construction of s 7(2)(b) - sufficient for one party to contract to reside or intend to reside in premises - contract falls within s 7(2)(b) and is not a contract to which Act applies - adjudication void.
• Legislation Cited: (NSW) Building and Construction Industry Security of Payment Act, 1999, s 4, s 7, s 15
• Cases Cited: Advance Earthmovers Pty Ltd v Fubew Pty Ltd [2009] NSWCA 337; Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 272 ALR 750; [2010] NSWCA 190; Kirk v Industrial Relations Commission of New South Wales (2010) 239 CLR 531; Levadetes v Iberian Artisans [2009] NSW SC 641
• Category: Principal judgment
• Parties: Denis McFadden (first plaintiff); Hickory Hill Pty Ltd (second plaintiff); Daniel John Turnbull (first defendant); Philip Martin (second defendant)
• Representation: Counsel: Dr A Greinke (plaintiffs); Mr B De Buse (first defendant); Solicitors: Turnbull Bowles Lawyers (plaintiffs); Mills Oakley Lawyers (first defendant)
• File Number(s): 2011/202283

Judgment (ex tempore)

1 HIS HONOUR: The second plaintiff Hickory Hill Pty Ltd ('Hickory Hill') is the registered proprietor of Lot XX in Deposited Plan 554106 known as Hickory Hill at Tuggalong Road, Canyonleigh in the State of New South Wales. Hickory Hill is the trustee of a family trust associated with the first plaintiff Denis McFadden, who at relevant times has resided in a farmhouse on the property, although he also occupies premises in Sydney during the week. On 1 July 2009, Mr McFadden and Hickory Hill as trustee of the McFadden Family Trust entered into a building contract with the first defendant Daniel John Turnbull, for the construction of a new home on the Hickory Hill property. As a result of an application under (NSW) Building and Construction Industry Security of Payment Act , 1999, made by Mr Turnbull, the second defendant, an adjudicator under that Act, issued on 14 June 2011 an adjudication determining that an amount of $211,824, inclusive of GST, was payable by Hickory Hill to Mr Turnbull. Subsequently, an adjudication certificate was registered in the District Court at Wollongong in proceedings 2011/209835, the consequence of which is that there is a judgment of that Court that Hickory Hill pay Mr Turnbull the sum of $222,619.35. Pending the hearing of the present proceedings, the enforcement of that judgment has been "stayed" by an interlocutory order of this Court.

2 By summons filed on 21 June 2011, Mr McFadden and Hickory Hill claim the following relief:

1, A declaration that the purported adjudication determination of the second defendant dated 10 June 2011 in adjudication application 2011ADJT263 (the Determination) is void, or alternatively an order under s 69 of the Supreme Court Act 1970 quashing the Determination.

2. An order that the first defendant by himself, his servants and agents be restrained from requesting any nominating authority to provide an adjudication certificate in respect of the determination, or from filing any step in relation to the enforcement of the determination.

3 The fundamental issue in the proceedings, which has been narrowed by commendable and sensible agreement between the parties, is whether s 7(2)(b) of the Act is engaged by the circumstances of this case, such that the construction contract is not one to which the Act applies. It seems to me, and the contrary was not suggested, that whether or not s 7(2)(b) is engaged is a matter going to the jurisdiction of the adjudicator, and that whether one takes the former narrower view of the scope of judicial review of adjudicators' determinations, or the broader view prevailing since the decision of the High Court of Australia in Kirk v Industrial Relations Commission of New South Wales (2010) 239 CLR 531 [see Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 272 ALR 750; [2010] NSWCA 190], it is open to the Court to examine whether the construction contract is one to which the Act applies and, if it concludes that it is not such a contract, to conclude that the adjudicator was without jurisdiction and give relief consequential on such a conclusion.

4 Section 7(2)(b) of the Act provides as follows:

This Act does not apply to:

...

(b) a construction contract for the carrying out of residential building work (within the meaning of the Home Building Act 1989) on such part of any premises as the party for whom the work is carried out resides in or proposes to reside in...

5 As I have said, the parties commendably and helpfully reduced the issues, it being agreed that Mr McFadden was a party to the construction contract; that the construction contract was for the carrying out of residential building work within the meaning of the Home Building Act ; and that, at all material times, Mr McFadden proposed to reside in the house to be built, and subsequently in fact built, by Mr Turnbull. The critical remaining question is whether it can be said that the construction work was carried out for Mr McFadden and, associated with that, whether because the second plaintiff, being the landowner, was, as a corporation, not entitled to the benefit of s 7(2)(b), the contract was outside the scope of the provision.

6 In Advance Earthmovers Pty Ltd v Fubew Pty Ltd [2009] NSWCA 337, the Court of Appeal held that a corporation could not "reside" in the relevant sense for the purposes of s 7(2)(b), and accordingly was not entitled to the benefit of that section. Young JA, with whom Tobias JA agreed, concluded that the word "residence" was used in its natural sense (and not in the extended sense in which a corporation is sometimes said to be resident in a particular location or jurisdiction (at [69])) and that, therefore, residential building work performed for a corporation would not fall within s 7(2)(b), of the Act, so as to abrogate the right of a contractor to proceed under s 15 (2)(a)(i) to obtain summary judgment for the amount claimed. No doubt His Honour's reasoning was not limited to the right to proceed under s 15(2)(a), and extended to other rights of contractors under the Act.

7 However, it is to be noted that, in Fubew , the corporation was the only party to the contract other than the builder, and the only promisee so far as receiving the benefit of the building work is concerned. There was no-one else for whom it might be said that the building work was carried out. As Sackville AJA observed (at [117]), Fubew was a party to the construction contract with Earthmovers, but the directors of Fubew were not. As it could not be said that Fubew, being a corporation, resided or proposed to reside in the premises, it was not to the point that the directors of Fubew resided in the premises. It seems to me that the rationale reflected in Young JA's judgment in Fubew is not so much that there was no legislative intention that a corporation could ever benefit from s 7(2)(b), but that where work was done for a corporation, it would not qualify under s 7(2)(b) because the corporation could not "reside" in the premises constructed. Sackville AJA's reasoning was that the circumstance that the directors of the company resided on the premises was of no avail, because it could not be said, in the context of that contract, that the construction work was done for directors who were not parties to the contract.

8 In Levadetes v Iberian Artisans [2009] NSWSC 641, McDougall J (at [59]) observed that the definition of "construction contract", in referring to one party undertaking to carry out construction work or supplying related goods and services to another party, was apt to include not merely bilateral but also multilateral contracts or arrangements, and that s 7(2)(b) when speaking of a construction contract for the carrying out of residential building work did not do so in terms that specified that there could be no more than two parties to such a contract, namely, the builder and the resident. His Honour concluded (at [62]) that it was entirely consistent with the scheme of the Act that there could be a contract or arrangement of a tripartite character, and that it was sufficient for the purposes of s 7(2)(b) that the construction work under the contract be carried out for at least one of those parties. What his Honour was conveying was that it is sufficient that at least one of the parties for whom work is carried out under the contract resides, or intends to reside, in the premises.

9 It is true that Hickory Hill alone is the landowner, but that is far from dispositive of the question "for whom is the residential building work being done?" The Act, in its definition of "construction contract", directs attention to the parties to the contract. Thus, in s 4, "construction contract" is defined to mean:

... a contract or other arrangement under which one party undertakes to carry out construction work ... for another party .

10 The concept is therefore of work being performed for another party under the contract . The definition directs attention to the promisee in respect of the undertaking to carry out construction work.

11 Although it is not this case, analysis is assisted by considering a circumstance, far from unknown, in which a person contracts with a builder to erect a building on property owned by someone other than the contracting party. If, for example, Mr McFadden alone had contracted with the builder to erect the building on Hickory Hill's property, even though Hickory Hill's land would be enhanced by the building, for the purposes of the definition of "construction contract" the building work would be carried out for Mr McFadden, not for Hickory Hill. Mr McFadden, not Hickory Hill, is the person to whom the undertaking to carry out the construction work would have been given in that hypothetical context.

12 In the present case, the undertaking to carry out the construction work was given to two parties: Mr McFadden and Hickory Hill. Both were promisees under the contract, and both were liable under the contract, as clause 3.2 of the contract makes clear:

3.2 If there is more than one owner:

(a) the obligations in this contract apply to each of them individually and to all of them as a group...

13 (Mr McFadden was described in the contract as an Owner).

14 On that basis, I conclude that the construction contract was one for the carrying out of residential building work on premises in which Mr McFadden, being one of the parties for whom the work was carried out, proposed to reside. Consistently with McDougall J's decision in Levadetes , that has the consequence that s 7(2)(b) is engaged and the construction contract is therefore one to which the Act does not apply.

15 It follows that the adjudicator had no jurisdiction to entertain or determine the adjudication application. The adjudication which underpins the registered judgment is void.

16 My orders are:

1. Declare that the purported adjudication determination of the Second Defendant dated 10 June 2011 in adjudication application 2011ADJT263 is void.

2. Order that the first defendant be permanently restrained from by himself, his servants or agents, taking any step to enforce the judgment registered on 28 June 2011 in proceedings 2011/209835 in the District Court of New South Wales at Wollongong.

3. Order that the first defendant pay the plaintiffs' costs.

4. Order that the funds paid into court to the credit of these proceedings including any accrued interest be paid out to the plaintiffs.

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Decision last updated: 13 December 2011