Supreme Court New South Wales Medium Neutral Citation: Alucity Architectural Product Supply Pty Ltd -v- Australian Solutions Centre; Alucity Architectural Product Supply Pty Ltd -v- Paul J Hick [2016] NSWSC 608 Hearing dates: 28 April 2016 Decision date: 13 May 2016 Jurisdiction: Equity - Technology and Construction List Before: Hammerschlag J Decision: Proceedings dismissed Catchwords: BUILDING AND CONSTRUCTION – EQUITY – UNJUST ENRICHMENT – total failure of consideration – Building and Construction Industry Security of Payment Act 1999 (NSW) s 13 (5), s 19, s 22, s 28, s 29 – where a claimant makes a payment claim and then applies for adjudication – where the respondent to the payment claim argues that it is invalid under s 13(5) because it is the second claim in relation to a reference date under a building contract – where the adjudication application is referred by the authorised nominating authority to an adjudicator who accepts appointment and then determines that the payment claim is invalid and as a result he has no jurisdiction to determine the claim – whether the fees paid to the nominating authority and adjudicator are recoverable by the claimant on the basis that there has been a total failure of consideration and the authority and the adjudicator will be unjustly enriched if they are entitled to retain the fees paid to them – HELD: the doctrine of total failure of consideration has no application in the circumstances - the authority and the adjudicator have not been enriched and it is not unjust for them to retain the fees – no claim for restitution lies Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW) Civil Procedure Act 2005 (NSW) Interpretation Act 1987 (NSW) Competition and Consumer Act 2010 (Cth) Category: Principal judgment Parties: Alucity Architectural Product Supply Pty Ltd - Plaintiff Australian Solutions Centre Pty Ltd Paul J Hick Representation: Counsel: P Davenport, Solicitor – Plaintiff F P Hicks – For the authority and the adjudicator Solicitors: Phillip Davenport Solicitor - Plaintiff Nexus Lawyers - For the authority and the adjudicator File Number(s): 2015/209927; 2015/209936 Judgment THE PARTIES 1. HIS HONOUR: Before the Court are two sets of proceedings, both originally commenced by the plaintiff, Alucity Architectural Product Supply Pty Limited (Alucity), in the Local Court, Small Claims Division at Waverley, and transferred to this Court on 20 November 2015, pursuant to s 140(1) of the Civil Procedure Act 2005 (NSW) (the CPA). They were heard together on 28 April 2016. 2. Section 143(1)(a) of the CPA provides that the proceedings continue in this Court as if they had been duly commenced in this Court on the date on which they commenced in the Local Court. 3. The defendant in the first set of proceedings is Australian Solutions Centre Pty Limited (the authority), an authorised nominating authority under s 4(1) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act), being a person authorised by the Minister under s 28 of the Act to nominate adjudicators for the purposes of the Act. 4. The defendant in the second set of proceedings is Mr Paul Jason Hick (the adjudicator). 5. Unless the context otherwise indicates, all references to sections are references to sections of the Act. THE SCHEME OF THE ACT AND PERTINENT PROVISIONS 1. The Act seeks to ensure, amongst other things, that those who perform construction work pursuant to construction contracts have enforceable rights to progress payments. It gives a statutory right to progress payments despite any contractual provision to the contrary. In the event of disagreement, there is a mechanism, called adjudication, for the interim determination of entitlements to progress payments. 2. The Act provides for a claimant to make a payment claim for a progress payment on the person who, under a construction contract, is or may be liable to make the payment (s 13(1)). 3. Section 13(5) provides: A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract. 1. A reference date in relation to a construction contract is a date determined under the contract as the date on which a progress payment may be made, or if the contract makes no express provision, the last day of the named month on which the construction work was first carried out under the contract, and the last day of each subsequent named month (s 8). 2. The respondent to a claim may reply by providing a payment schedule, which must indicate the amount of the payment (if any) that the respondent proposes to make (s 14). Where no payment schedule is served, the claimant may recover the unpaid portion of the claimed amount as a debt due in a court of competent jurisdiction, or make an adjudication application in relation to the claim (s 17). It is not uncommon for a respondent to indicate a nil amount. 3. The adjudication process entails the making of an adjudication application by the claimant and the appointment by an authorised nominating authority of an adjudicator. The respondent may lodge an adjudication response (s 20). The Act provides for adjudication procedures (s 21) and for the adjudicator to determine the amount of the progress payment (if any) to be paid by the respondent to the claimant (s 22) and the issue of an adjudication certificate (s 24). 4. Section 19 provides: 19 Appointment of adjudicator (1) If an authorised nominating authority refers an adjudication application to an adjudicator, the adjudicator may accept the adjudication application by causing notice of the acceptance to be served on the claimant and the respondent. (2) On accepting an adjudication application, the adjudicator is taken to have been appointed to determine the application. 1. Sections 22 (1),(2) and (3) provide: 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). 1. Section 28(3) provides: An authorised nominating authority may charge a fee for any service provided by the authority in connection with an adjudication application made to the authority. The amount that may be charged for any such service must not exceed the amount (if any) determined by the Minister. 1. Section 28(4) provides: The claimant and respondent are: (a) jointly and severally liable to pay any such fee, and (b) each liable to contribute to the payment of any such fee in equal proportions or in such proportions as the adjudicator to whom the adjudication application is referred may determine. 1. Section 29 provides: 29 Adjudicator's fees (1) An adjudicator is entitled to be paid for adjudicating an adjudication application: (a) such amount, by way of fees and expenses, as is agreed between the adjudicator and the parties to the adjudication, or (b) if no such amount is agreed, such amount, by way of fees and expenses, as is reasonable having regard to the work done and expenses incurred by the adjudicator. (2) The claimant and respondent are jointly and severally liable to pay the adjudicator's fees and expenses. (3) The claimant and respondent are each liable to contribute to the payment of the adjudicator's fees and expenses in equal proportions or in such proportions as the adjudicator may determine. (4) An adjudicator is not entitled to be paid any fees or expenses in connection with the adjudication of an adjudication application if he or she fails to make a decision on the application (otherwise than because the application is withdrawn or the dispute between the claimant and respondent is resolved) within the time allowed by section 21 (3). (5) Subsection (4) does not apply: (a) in circumstances in which an adjudicator refuses to communicate his or her decision on an adjudication application until his or her fees and expenses are paid, or (b) in such other circumstances as may be prescribed by the regulations for the purposes of this section. WHAT HAPPENED 1. On 13 October 2014, Alucity made a payment claim on Empire Windows Pty Ltd (Empire Windows), which was the subject of adjudication on 26 November 2014, in favour of Alucity for $146,668.26, which amount Empire Windows paid to Alucity. 2. On 22 December 2014, Alucity served another payment claim dated 19 December 2014 on Empire Windows claiming $692,626.27. This payment claim stated that it included the unpaid value of previous claims. 3. Empire Windows did not at that time provide any payment schedule in reply to the payment claim. 4. On 4 March 2015, Alucity gave notice (under s 17) to Empire Windows of its intention to make an adjudication application for adjudication of a payment claim. 5. On 10 March 2015, Empire Windows provided a payment schedule, which indicated that the amount owing was a negative $424,761.50 or $Nil. The payment schedule gave a number of reasons for Empire Windows stance. One of those reasons was that: "Contrary to Section 13(5) of the Act more than one payment claim has been served in respect to a reference date". 1. On 24 March 2015, Alucity made an adjudication application to the authority. 2. In the adjudication application, Alucity answered Empire Windows contentions. It took issue with the contention that more than one payment claim had been served in respect of a reference date, contrary to s 13(5). 3. The authority referred the adjudication application to the adjudicator on 25 March 2015. 4. On 30 March 2015, the adjudicator signed a notice of acceptance of the appointment. The notice stated that the adjudicator's fee would be based on a rate of $350 (ex GST) per hour, plus disbursements at cost and unless otherwise agreed, the adjudicator's fee should be paid in full prior to the release of the adjudication determination. The adjudicator also advised the parties that the adjudicator's fee would include the authority's administration fee. The authority sent the adjudicator's acceptance to Alucity and Empire Windows under cover of a letter dated 30 March 2015. 5. Empire Windows lodged its adjudication response on 31 March 2015, and served a copy on Alucity. In paragraphs 36-45 of the response, Empire Windows specifically dealt with s 13(5), concluding with the statement, "The payment claim is invalid". 6. The issues which the adjudication application and adjudication response raised were complex. 7. On 13 April 2015, the adjudicator called for further submissions on a number of matters from the parties, including as to what the reference date or dates were under the construction contract. He asked for an extension of time until 20 April 2015 to make his determination. Alucity and Empire Windows consented to the extension. 8. Both parties provided further submissions on 15 and 16 April 2015. It is not necessary to deal with the substance of their submissions, suffice it to say that Empire Windows maintained, and Alucity disputed, that s 13(5) had been offended. (Alucity proffered an interpretation of s 13(5) which it conceded "had not been tested in the Courts"). 9. On 20 April 2015, the adjudicator issued, under his signature, what on its face is stated to be an Adjudicator's Determination. Using the term neutrally, I will refer to it as 'the determination'. 10. Clearly, the adjudicator applied himself assiduously to the task before him. The determination runs to 27 pages and is comprehensive and detailed. In it, the adjudicator carefully considered all the submissions made to him. 11. He concluded that the reference date under the construction contract was 30 November 2014, and that Alucity had previously issued two payment claims after this reference date. He determined that there was no available reference date for the payment claim under consideration, and that because it was a further claim in respect of the same reference date, it was not valid. 12. In paragraph 79 of the determination, under the heading Conclusion, the adjudicator stated: Given that I have found the Payment Claim invalid by virtue of s13(5) of the Act and the Claimant having previously served payment claims in respect to the 30 November 2014 reference date, I have no jurisdiction to determine this Application. Therefore, there is no basis nor reason for me to consider any further part of this Application. I have included my reasons for determination in respect to the other issues set out above because it was necessary to consider all of those matters in the process of getting to this point of determining that I do not have jurisdiction and because the parties may gain a better understanding as to why I have reached the determination I have. 1. The adjudicator ended by saying that Alucity had been wholly unsuccessful and that he considered it appropriate for it to pay his and the authority's fees, and he so determined. 2. The front page of the determination gives the decision details. They include: Adjudicated amount: $0.00 1. On 21 April 2015, the authority sent a letter to Alucity and Empire Windows captioned with reference to the adjudication application, in which it said, relevantly: Please be advised the above adjudication application has now been determined dated 21st April 2015 is ready for release (sic). We refer to Section 29 of the Building & Construction Industry Security of Payment Act (1999) and advise it is our company policy that no determination is released until full payment of adjudicator fees is received. The total amount of adjudicator fees is $16,555.00 (inclusive of GST). Accordingly, we now give both parties the opportunity to provide to the undersigned option of payment of the adjudicators (sic) fees for the purposes of release. 1. Alucity paid the fees on or about 21 April 2015. 2. The authority apparently paid over to the adjudicator $10,105.00 as his fees and expenses, and retained $6,450.00 as its fee for services provided in connection with the adjudication application. THESE PROCEEDINGS 1. Alucity's reaction was not (as perhaps one might have expected) to challenge the adjudicator's determination in this Court, but rather, to sue the authority and the adjudicator in the Local Court for damages or restitution of the fees paid to them. 2. As against the authority, in its Statement of Claim, Alucity alleged that when on 21 April 2015 (apparently a reference to the letter of that date), the authority informed Alucity that the adjudication application had been determined, this was a misrepresentation because contrary to what it was told, the adjudicator had found that he had no jurisdiction, with the result that he had not made a determination under the Act. Alucity alleged that it had paid the fees in reliance upon this misrepresentation, and claimed $10,000.00 as restitution (this being the relevant Local Court jurisdictional limit). In the alternative, it claimed damages for misleading or deceptive conduct in trade or commerce under Sch 2, s 18 of the Competition and Consumer Act 2010 (Cth) and in the further alternative, damages of $10,000.00 for the "tort of deceit". 3. As against the adjudicator, it made the same claims, but in addition, alleged as a further alternative that whilst he was entitled under s 29(1)(b) to a reasonable amount by way of fees and expenses, the fees charged by the adjudicator were unreasonable. It claimed a refund of $10,000.00. 4. On the application of the adjudicator and the authority, both sets of proceedings were transferred to this Court, having regard to the significance of the issues to which they give rise. 5. On 11 December 2015, I set both matters down for hearing together on 28 April 2016, and I made procedural directions which included the provision, in advance, of written submissions. 6. Alucity's written submissions (received late) communicated (apparently for the first time) that Alucity would "not be pursuing the damages claims that Alucity has made in the alternative". In other words, it abandoned all allegations of misrepresentation, misleading or deceptive conduct, and deceit. The written submissions on behalf of the authority and the adjudicator (also received late) dealt appropriately, and comprehensively, with the damages claims. 7. It is not remarkable that these claims, especially the one alleging deceit, were abandoned. What is remarkable is both that they were made in the first place, and that they were abandoned without any explanation. I will say more about this later. ALUCITY'S CASE 1. At the hearing, Mr P Davenport, solicitor, appeared for Alucity. Mr F P Hicks of Counsel appeared for the authority and the adjudicator. 2. In open Court Mr Davenport confirmed the abandonment and withdrawal of all allegations of misrepresentation, misleading or deceptive conduct and deceit. 3. Alucity puts its case as follows. 4. First, it says it is entitled to restitution of all fees paid (although it restricts its claim against the adjudicator to $10,000.00) because there has been a total failure of consideration. It says that if the adjudicator and the authority are permitted to retain the fees, they will be unjustly enriched. 5. The total failure of consideration comes about, it says, because the adjudicator never had any entitlement to payment under the Act. It says that the adjudicator, "has no entitlement to payment for doing anything except produce a determination within the meaning of s 22 of the Act", and the consequence of him having found that he had no jurisdiction is that "he did not produce a determination within the meaning of s 22". 6. It adds that it paid $16,555.00 to the authority "in the belief" that it was paying adjudicator's fees "under s 29 of the Act", whereas this was in fact, not the case, because the adjudicator never became entitled to the payment of any fees under the section. 7. This contention does not distinguish between the entitlement of the adjudicator to be paid under s 29(1), and the entitlement of the authority to charge under s 28(3). 8. Second, it puts that if, contrary to its contention, the adjudicator did make a determination within the meaning of the Act the amount paid to the adjudicator is unreasonable "in so far as concerns the number of hours claimed [43] and in so far as it includes the [authority's] fee of $6,450.00". 9. Third, it puts that: 1. the amount retained by the authority is not a fee which it was entitled to charge under s 28(3) because it was not for a service provided by the authority in connection with an adjudication application; and 2. the authority "has put on no evidence to show that it is such a fee or to show the services allegedly provided to whom or how the amount is calculated". It puts that there is no evidence that $6,450.00 is a fee within the meaning of s 28(3). DISCUSSION Total failure of consideration - unjust enrichment 1. This claim is without merit. 2. Each of the premises upon which it rests is false. 3. The first premise is that the adjudicator did not make a determination under s 22. 4. Section 22(1)(a) requires the adjudicator to determine the amount of the progress payment (if any) to be paid by the respondent to the claimant. A determination that no amount is to be paid because the claim is invalid is no less a determination than one which determines that no money is payable for some other reason. 5. It is to be observed that s 29(1) provides that an adjudicator is entitled to be paid "for adjudicating an adjudication application". That is what the adjudicator did. 6. Empire Windows raised the question of s 13(5) invalidity in each of its payment schedule, adjudication response, and supplementary submissions. Alucity responded by dealing with the merits of the contention, and without any suggestion that the adjudicator should not, or was not empowered, at least in the first instance, to determine the issue because it went to his jurisdiction. To the contrary, Alucity and Empire Windows joined issue on the question, with the consequence that the adjudicator had to, and did, deal with it. 7. Ironically, not only does Alucity not challenge his finding, it embraces it for the purposes of these proceedings. It does not fairly lie in its mouth to suggest that its adjudication application has not been adjudicated. 8. The second premise is that what Alucity alleges is capable of constituting a total failure of consideration. 9. Alucity did not favour the Court with a reference to any authority, or indeed any legal reasoning, in support of the notion that the doctrine of total failure of consideration has application in these circumstances. 10. The doctrine applies where there has been a total failure of an agreed return for a payment made under a contract. In those circumstances, retention of the payment may unjustly enrich the payee, who may be required to give restitution of it. 11. Here, there is no contract. The relationship between Alucity on the one hand, and the authority and the adjudicator on the other, is statutory. The entitlement of the authority and the adjudicator to payment arises as a consequence of Alucity having invoked the procedures under the Act, and because ss 28 and 29 give the authority and the adjudicator a statutory right to payment. There was no contractual promise given by the authority or the adjudicator, in consideration for the money paid, for which consideration has failed wholly or at all. The authority was not prepared to release the determination unless the fees were paid. Once they were paid the authority released it. 12. In its written submissions, Alucity put that it paid the fees in the belief it was an "adjudicator's fee under s 29". There does not appear to be any relevant role for this contention in the context of total failure of consideration. In so far as it is to be construed as a contention that restitution is available because Alucity paid under a mistake, I reject it because there was no mistake. The payment was for adjudicator's fees. But even if it was not, Alucity led no evidence as to the state of mind of any relevant person who caused the payment to be made, and I am far from satisfied that it would not have paid for the release of the determination even if it had known the outcome. 13. The third premise is that the authority and the adjudicator have been relevantly enriched by the payment of the fees. 14. As to the authority, it provided services in connection with the adjudication application made by Alucity to it. It received the application, referred it to the adjudicator, took receipt of his determination, advised Alucity and Empire Windows accordingly, released the determination against payment of the fees, and paid the adjudicator. 15. Section 28(3) entitles the authority to charge a fee not exceeding the amount, if any, determined by the Minister. There was no evidence to suggest that the fee charged exceeded any such amount. Additionally, the evidence led by Alucity provides no basis for any suggestion that the services were not reasonably worth what the authority was paid for them. 16. As to the adjudicator, there is in evidence an adjudication timesheet, which shows that he charged on the basis that he spent 43 hours, whereas he actually spent more than 53 hours. It is entirely unsurprising that he would have spent 53 hours, given the complexity of the matter, and the attention which he deservedly gave it. The evidence led by Alucity provides no basis for any suggestion that the services were not reasonably worth what the adjudicator was paid for them. 17. The final premise is that there would be injustice, unfairness, or inequity, were the authority and the adjudicator to keep the payments. The contrary is the case. 18. The authority dealt with Alucity's application strictly in accordance with the Act. The adjudicator discharged his duty (or on any view what he properly saw as his duty) entirely. 19. Far from there being any injustice, unfairness or inequity in the authority and the adjudicator being permitted to retain what they have been paid, there would be injustice, unfairness and inequity, were Alucity to be given any restitution. 20. When during the hearing, Alucity was faced with the difficulty that there has been no challenge to the appointment of the adjudicator, it put that once the adjudicator had reached the conclusion that he had no jurisdiction to further deal with the adjudication application because of s 13(5), he came under a duty to revoke his own appointment. 21. In support of this submission, reference was made to an unidentified section of the Interpretation Act 1987 (NSW) which, it was put, authorised the adjudicator to take this course on the footing that as the person who made the appointment, he was empowered to revoke it. The reference was presumably a reference to s 47(1) of that Act, which provides as follows: 47 Powers of appointment imply certain incidental powers (1) If an Act or instrument confers a power on any person or body to appoint a person to an office: (a) the power may be exercised from time to time, as occasion requires, and (b) the power includes: (i) power to remove or suspend, at any time, a person so appointed, (ii) power to appoint some other person to act in the office of a person so removed or suspended, (iii) power to appoint a person to act in a vacant office, whether or not the office has ever been filled, and (iv) power to appoint a person to act in the office of a person who is absent from that office, whether because of illness or otherwise. 1. I consider the submission to have no foundation, and indeed, to be eccentric. No basis for why such duty would arise was identified. If the submission were correct, it would have the remarkable consequence that adjudicators would be put to the effort of determining their own jurisdiction, and if they concluded there was none, they would be doing so at their own cost. Anyway, an adjudicator does not appoint himself or herself. An adjudication application is submitted to him or her under s 19(1), and when he or she accepts it, he or she is taken to have been appointed to determine the application. If the submission were correct, another remarkable consequence would be that an adjudicator would, under s 47(1), have the power to suspend his or her own appointment, or appoint someone else. Given, amongst others, the strict time limits imposed by the Act, this could not have been the legislative intention. THE FEES The Authority's fees 1. No foundation was provided for the submission that the amount of $6,450.00 claimed by the authority is not a fee it was entitled to charge under the Act because it was not for a service provided by the authority in connection with an adjudication application. This is sufficient to reject it. 2. If what is intended to be argued is that because Alucity served an invalid payment claim, its own adjudication application was a nullity, with the consequence that the fee charged by the authority was not for a service provided in connection with an adjudication application, I reject it. The services provided were in connection with what on its face was an adjudication application, valid or not. The authority was obliged to deal with it because Alucity had invoked (or purported to invoke) the machinery of the Act. There is no basis in law or in equity, which would entitle Alucity to recover what it has paid, where the services were provided in effect at its specific instance and request, because of the application which it made. To order restitution would be to permit Alucity to take advantage of its own wrong. 3. As to the contentions that the authority put on no evidence to show that it was such a fee, or to show that the "services allegedly provided, to whom, or how the amount is calculated", the authority bears no onus to do this. Alucity bears the onus on all issues, and it has failed to discharge it. In any event, the evidence demonstrates that the authority provided services, and as has been said above, there was nothing to suggest that the fee charged exceeded any statutory limit. Adjudicator's fees 1. I have already dealt with the adjudicator's fees. One matter worthy of observation is that Alucity provided no evidentiary basis for the suggestion that his fee was unreasonable, "in so far as the number of hours claimed" is concerned. It provided no basis for any suggestion that the adjudicator did not spend the hours he claimed, or that his rate was excessive. CONCLUSION AND ADDITIONAL OBSERVATIONS 1. It follows that the proceedings against both the authority and the adjudicator are to be dismissed and I so order. 2. I consider that I should not let the occasion pass without making a number of additional observations. 3. First, Alucity made allegations of misrepresentation, misleading or deceptive conduct, and deceit, for which there was no proper foundation and for which it is difficult to see how it could have been thought that there was. 4. Second, its remaining claims have no foundation, and are entirely unmeritorious. 5. The Court marks its disapproval of groundless proceedings such as these, which if not discouraged, will have the effect of deflecting adjudicators from accepting important appointments, and properly discharging their duties under the Act. 6. I will hear the parties on costs and on any other issues required to be determined. Amendments 16 May 2016 - The word Produce on cover page amended to Product DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 May 2016