Supreme Court New South Wales Medium Neutral Citation: Bouygues Construction Australia Pty Ltd v Southern Cross Electrical Engineering Ltd [2017] NSWSC 1665 Hearing dates: 29 November 2017 Decision date: 30 November 2017 Jurisdiction: Equity - Technology and Construction List Before: Stevenson J Decision: Interlocutory injunction to be granted Catchwords: BUILDING AND CONSTRUCTION – determination under Building and Construction Industry Security of Payment Act – whether serious question to be tried that adjudicator acted beyond jurisdiction Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW) Cases Cited: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 Minister for Immigration and Citizenship v Li [2013] HCA 18; 249 CLR 332 Pacific General Securities Ltd v Soliman & Sons Pty Ltd [2006] NSWSC 13 Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (No S145 of 2017) Richard Crookes Construction Pty Ltd v CES Projects (Aust) Pty Ltd (No 2) [2016] NSWSC 1229 Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379 Texts Cited: Rawlinsons Process Engineering Handbook (2nd ed 2015, Rawlinsons) Category: Procedural and other rulings Parties: Bouygues Construction Australia Pty Ltd (Plaintiff) Southern Cross Electrical Engineering Limited (First Defendant) Jennifer Wyatt (Second Defendant) Representation: Counsel: S Robertson (Plaintiff) I G Roberts SC (Defendant) Solicitors: Maddocks Lawyers (Plaintiff) HWL Ebsworth Lawyers (Defendant) File Number(s): SC 2017/358543 Judgment 1. The defendant, Southern Cross Electrical Engineering Ltd, entered into three contracts with the plaintiff, Bouygues Construction Australia Pty Ltd, to provide electrical services in respect of three solar farms to be erected near Dubbo, Griffith and Parkes. 2. On 25 September 2017, Southern Cross served on Bouygues three payment claims pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the "Act"); one in respect of each subcontract. 3. On 11 October 2017, Bouygues served on Southern Cross a payment schedule in response to each claim. 4. On 24 October 2017, Southern Cross made an application for an adjudication in respect of each payment claim. 5. On 17 November 2017, the adjudicator, who is the second defendant, determined that the amount due by Bouygues to Southern Cross on 8 November 2017 was $4,152,146.69 comprising: 1. $667,516.17 for the Dubbo contract; 2. $1,521,741.95 for the Griffith contract; and 3. $1,962,888.57 for the Parkes contract. 1. By proceedings commenced on 27 November 2017, Bouygues seeks a declaration that the adjudicator's determinations are void and, alternatively, an order in the nature of certiorari, quashing those determinations. 2. On 29 November 2017, I heard Bouygues's claim for interim relief pending final determination of that claim. 3. The particular relief sought by Bouygues was an order restraining Southern Cross, until the final hearing of these proceedings, from: 1. requesting from the adjudicator the provision of an adjudication certificate pursuant to s 24(1) of the Act; 2. filing an adjudication certificate (or purported adjudication certificate) as a judgment for a debt in any court pursuant to s 25 of the Act; or 3. serving (or purporting to serve) a notice on Bouygues pursuant to s 24(1)(b) of the Act, in connection with any of the determinations made by the adjudicator. 1. Argument before me proceeded by reference to the adjudicator's determination in respect of the Dubbo contract. It is common ground that there is no material difference between the adjudicator's determination in respect of that contract, and that made in respect of the Parkes and Griffith contracts. Decision 1. I am satisfied that there is a serious question to be tried as to whether the adjudicator had jurisdiction to make the determinations and that the balance of convenience favours making the orders sought by Bouygues. A serious question to be tried – the "liquidated damages" point 1. Clause 13.7 of the relevant contracts provided that if Southern Cross failed to reach "Completion" by the "Date for Completion", Southern Cross was liable to pay Bouygues the "Delay Liquated Damages Rate" for every day up to and including the Completion Date. 2. Before the adjudicator, Bouygues contended that it was entitled to deduct from the amounts otherwise due by it to Southern Cross amounts on account of liquidated damages for the period 21 August 2017 to 11 October 2017. 3. An issue has arisen between the parties as to statements or representations said to have been made on behalf of Bouygues at a meeting on 28 September 2017 concerning its claim for liquidated damages. 4. Thus, the adjudicator recorded that: "[Southern Cross] asserts deduction of [liquated damages] are [sic] contrary to confirmation held at a meeting on 28 September 2017 in Sydney, but provides no substantive evidence (e.g. meeting minutes, statutory declaration)". 1. The adjudicator concluded that Bouygues was not entitled to deduct such entitlement as it had for liquidated damages from the amount otherwise due by it to Southern Cross for two reasons. 2. The first was: "[Southern Cross] asserts [Bouygues] at a meeting of 28 September 2017 made an agreement not to deduct [liquidated damages]. Although [Southern Cross] provided no written evidence to support its assertion, [Bouygues] provided nothing to persuade me it denies making any agreement as asserted by [Southern Cross]…". 1. In this passage, the adjudicator appears to have construed Southern Cross's assertion that Bouygues had, at the meeting of 28 September 2017, given some sort of "confirmation" concerning "deduction of [liquidated damages]" (see [14] above) as being an assertion of "an agreement not to deduct [liquidated damages]". 2. The adjudicator noted that: 1. Southern Cross had provided "no written evidence to support its assertion" that there was any such "confirmation" or "agreement"; and 2. Bouygues had not persuaded her that it denied making any such "agreement". 1. It appears that, for these reasons (none other was given), the adjudicator concluded that there was in fact an "agreement" between Southern Cross and Bouygues such as to deny Bouygues the right to deduct from the amount otherwise due by it to Southern Cross an entitlement to liquated damages. 2. I am satisfied that there is a serious question to be tried that this decision by the adjudicator was legally unreasonable in the sense discussed by the High Court in Minister for Immigration and Citizenship v Li [2013] HCA 18; 249 CLR 332, such as to bespeak jurisdictional error. 3. In Li the plurality (Hayne, Kiefel and Bell JJ) said: "[63] … The legislature is taken to intend that a discretionary power, statutorily conferred, will be exercised reasonably. … [68] … The legal standard of unreasonableness should not be considered as limited to what is in effect an irrational, if not bizarre, decision — which is to say one that is so unreasonable that no reasonable person could have arrived at it — nor should Lord Greene MR be taken to have limited unreasonableness in this way in his judgment in [Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223]. This aspect of his Lordship's judgment may more sensibly be taken to recognise that an inference of unreasonableness may in some cases be objectively drawn even where a particular error in reasoning cannot be identified. … [77] … Unreasonableness is a conclusion which may be applied to a decision which lacks an evident and intelligible justification." 1. Bouygues summarised its case in its Technology & Construction List Statement as follows: "Specifically, it was legally unreasonable in the sense discussed in Li for the Adjudicator to conclude…that [Bouygues] was not entitled to deduct liquidated damages…because of an 'agreement not to deduct [liquidated damages]' said to have been communicated by [Bouygues] at a meeting on 28 September 2017. That conclusion was legally unreasonable and not open to be reached by the Adjudicator in circumstances where: a. [Southern Cross] did not allege that the Contracts (or any of them) had been varied and did not allege that [Bouygues] was estopped from relying on any particular rights under the Contracts (or any of them); b. the making of a representation does not, without more, operate to alter the rights and obligations for which parties have stipulated by contract [see Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 at [96]]; c. there was no evidence before the Adjudicator to support [Southern Cross's] assertion that [Bouygues] had 'confirm[ed]' that it would not attempt to impose liquidated damages on [Southern Cross]." 1. I am satisfied that this case is, at least, arguable and that there is accordingly a serious question to be tried that the adjudicator's legal analysis and conclusion was "legally unreasonable", in the sense described in Li and that, for that reason, the adjudicator's determination was beyond jurisdiction. 2. The second reason that the adjudicator concluded that Bouygues was not entitled to set off its liquidated damages against Southern Cross's claim was that Bouygues had made an "erroneous calculation" of those damages. 3. The adjudicator found that the error was that Bouygues had erroneously claimed damages from 21 August 2017 to 11 October 2017 whereas any entitlement that Bouygues might have to liquidated damages was only until the reference date (25 September 2017). 4. Thus the adjudicator concluded: "b. [Southern Cross] raised an argument [Bouygues] has deducted [liquidated damages] erroneously i.e. up to 11 October, whereas the reference period is September 2017; c. [Bouygues] did not make any submissions on [Southern Cross's] erroneous calculation', and did not make any alternative calculation for the adjudication to readjust its deduction to the reference date; d. In the absence of any contractual argument to persuade me otherwise, I accept [Southern Cross's] erroneous calculation argument." 1. But Southern Cross's "erroneous calculation" argument, if accepted, did not itself have the result that Bouygues was not entitled to any liquidated damages. Acceptance of the argument merely had the consequence that, all other things being equal, Bouygues's claim for liquidated damages could only be maintained for the period 21 August to 25 September 2017 (and not to 11 October 2017). 2. In those circumstances, simply to dismiss Bouygues's claim to an entitlement to liquidated damages, rather than confine it to the shorter period, at least arguably, bespoke a misconception by the adjudicator of what was required of her, and thus, at least arguably, bespoke jurisdictional error (cf Pacific General Securities Ltd v Soliman & Sons Pty Ltd [2006] NSWSC 13 at [82] and [86] (Brereton J); and see Richard Crookes Construction Pty Ltd v CES Projects (Aust) Pty Ltd (No 2) [2016] NSWSC 1229 at [19] and [20] (McDougall J)). 3. Bouygues also contended that, in the circumstances I have described, the adjudicator made an error of law on the face of the record of the proceedings. 4. Bouygues, however, accepted that, in light of the decision of the Court of Appeal in Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379, it is not open to me to set aside an adjudication on this basis. 5. The High Court of Australia is presently reserved on an appeal from the Court of Appeal's decision (Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (No S145 of 2017)). However, unless and until the High Court overturns the decision of the Court of Appeal, I am bound to follow it. Serious question to be tried - the s 20(2B) issue 1. Section 20(2B) of the Act provides: "The respondent cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant." 1. Bouygues contends that the adjudicator's reasons show that she erroneously refused to consider certain material as a result of her misconstruction of s 20(2B) and thereby acted without jurisdiction. 2. An issue arose between the parties concerning the rates Southern Cross could charge for the installation of certain wiring. Southern Cross contended it was entitled to charge for this work at the rates published by the National Electrical and Communications Association ("NECA"). 3. In its payment schedule, Bouygues contended, without elaboration, that the rates claimed by Southern Cross for this task were "wildly inflated". 4. In its adjudication response, Bouygues relied upon opinions expressed by a quantity surveyor, Mr David Quincey, on that matter. 5. Mr Quincey opined that, because the relevant work was to be carried out "in an external environment", rather than "within a metropolitan area", it was not appropriate to use the NECA rates, and that, rather, the rates published in Rawlinsons Process Engineering Handbook (2nd ed 2015, Rawlinsons) should be used. 6. The adjudicator found: 104. [By reason of s 20(2B) of the Act] I decide I cannot consider Mr Quincy's [sic] opinion evidence as to the applicable rates for the take out of the original 3C 185mm cable nor the put back of the varied 3C 300mm2 MV cable because these are entirely new rates not indicated in the Payment Schedule, and derived using entirely new resources e.g. Rawlinsons Process Engineering Handbook not relied on in the Payment Schedule. I am also not permitted to consider Mr Quincy's [sic] opinion evidence as to [Southern Cross's] use of NECA rates because it goes beyond the ambit of the Payment Schedule. [Southern Cross] provided specific supporting comments on its election to use NECA rates in its 22 August 2017 letter included in the Payment Claim, but a particularised objection to the use of NECA rates was not raised in the Payment Schedule despite that this issue was previously ventilated." 1. Thus, the adjudicator concluded that s 20(2B) of the Act had the effect that: 1. it was necessary for Bouygues to include in its payment schedule a "particularised objection" to Southern Cross's claim in respect of the cable installation; and 2. because Bouygues had not included in its payment schedule the rates that it contended Southern Cross should charge for the cable installation (and had merely stated, as one of its reasons for resisting the claim, that the rates contended for were "wildly inflated"), it was not open to Bouygues to include in its adjudication response a contention that the Rawlinson rates (rather than the NECA rates) were appropriate. 1. I am satisfied that there is a serious question to be tried that these conclusions show that the adjudicator has misconstrued s 20(2B), and that the correct position is as stated in Bouygues's List Statement as follows: "On its proper construction, s 20(2B) of the Act does not prohibit a respondent from including, in an adjudication response (and does not prohibit an adjudicator from considering) evidence which has not been included in a payment schedule provided that such evidence is logically probative of one or more of the reasons for withholding payment included in the payment schedule". 1. For that reason, I am satisfied there is a serious question as to whether the adjudicator acted beyond jurisdiction in relation to this aspect of the matter. Balance of convenience 1. The balance of convenience favours the granting of an interlocutory injunction. 2. This is for a number of reasons. 3. First, Bouygues has agreed that, if an interlocutory injunction is granted, it will: 1. give the usual undertaking as to damages; 2. pay into Court the disputed amount; and 3. undertake expeditiously to prosecute the proceedings. 1. Second, refusal to grant interlocutory relief would in this case amount to a final determination of the proceedings as, absent restraint, Southern Cross would be entitled to enforce the determination in accordance with the provisions of the Act and thus render nugatory the final relief sought by Bouygues. 2. Third, Southern Cross has adduced no evidence to suggest that it would suffer undue prejudice by not receiving immediate payment of the amounts the subject of the determination. 3. As Southern Cross itself has pointed out in its submissions, it has: 1. a strong balance sheet with net cash of $40.3 million; 2. an order book of $480 million; and 3. revenue of $199.9 million. 1. Southern Cross's strong financial position also means that there is no reason to doubt that it could repay any amount paid to it by Bouygues should that be the final result of the dispute between these parties. That factor must also, of course, weigh in the balance. 2. Further, there is a prospect (I can put it no higher than that) that a refusal to grant Bouygues interlocutory relief might have an adverse effect on its prospects of tendering for future government and private work. I do not place great weight on that possibility as the evidence suggests that Bouygues would only be obliged to disclose to prospective tenderees any judgment entered against it, or any payment that it is required to make under an adjudication certificate under the Act. That issue would only arise if Bouygues were required to pay the adjudicated amount but failed to do so. Southern Cross has stated it would be prepared to allow Bouygues a short time to allow it to process the administrative steps required to make any payment. 3. Overall, however, my conclusion is that the balance of convenience, especially when considered in light of my conclusions as to whether there is a serious question to be tried, warrants the making of an interlocutory order. Conclusion 1. I invite the parties to confer and agree on the orders necessary to give effect to these reasons. 2. The costs of this application are to be Bouygues's costs in the proceedings. 3. I will place the matter before the Technology & Construction List Judge for allocation of a hearing date. ********** Amendments 30 November 2017 - [31] Typographical error in last sentence corrected 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: 30 November 2017