Supreme Court New South Wales Medium Neutral Citation: Laing O'Rourke Australia Construction Pty Ltd v Monford Group Pty Ltd [2018] NSWSC 491 Hearing dates: 19 April 2018 Decision date: 20 April 2018 Jurisdiction: Equity - Technology and Construction List Before: Stevenson J Decision: Adjudication void Catchwords: BUILDING AND CONSTRUCTION – Building and Construction Industry Security of Payments Act 1999 (NSW) – adjudication determination – whether adjudicator failed to perform statutory function – whether adjudicator failed to determine for himself the construction work that had been carried out whether it constituted a variation and its value Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW) Cases Cited: Asian Pacific Building Corp Pty Ltd v Aircon Duct Fabrication Pty Ltd [2010] VSC 300 Coordinated Construction Co Pty Ltd v J.M. Hargreaves (NSW) Pty Ltd (2005) 63 NSWLR 385; [2005] NSWCA 228 McNab Developments (Qld) Pty Ltd v MAK Construction Services Pty Ltd [2013] QSC 293 Pacific General Securities Ltd v Soliman & Sons (2006) 196 FLR 388; [2006] NSWSC 13 Richard Crookes Construction Pty Ltd v CES Projects (Aust) Pty Ltd (No 2) [2016] NSWSC 1229 Category: Principal judgment Parties: Laing O'Rourke Australia Construction Pty Ltd (Plaintiff) Monford Group Pty Ltd (First Defendant) Ian Hillman (Second Defendant) Representation: Counsel: S Robertson (Plaintiff) I G Roberts SC (First Defendant) Solicitors: Colin Biggers & Paisley (Plaintiff) ITC Law (First Defendant) File Number(s): SC 2017/364488 Judgment 1. An adjudicator making a determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act") has a "duty…to come to a view as to what is properly payable" on, relevantly, the "true merits of the claim" (Coordinated Construction Co Pty Ltd v J.M. Hargreaves (NSW) Pty Ltd (2005) 63 NSWLR 385; [2005] NSWCA 228 at [52] (Hodgson JA) (Ipp and Basten JJA agreeing)). 2. The mere absence of material adduced on behalf of a respondent to an adjudication application does not, without more, mean that an adjudicator can simply award the amount of the claim without addressing its merits. 3. As Brereton J said in Pacific General Securities Ltd v Soliman & Sons (2006) 196 FLR 388; [2006] NSWSC 13 at [82]: "…the absence of [material put forward by the respondent] does not entitle the adjudicator simply to award the amount of the claim without addressing its merits, which as a minimum will involve determining whether the construction work identified in the payment claim has been carried out, and what is its value." 1. An adjudicator who acts otherwise, has not performed his or her statutory function and his or her determination must be set aside. 2. These principles have been applied on numerous occasions both in this state and elsewhere: see Asian Pacific Building Corp Pty Ltd v Aircon Duct Fabrication Pty Ltd [2010] VSC 300 at [12] (Vickery J), McNab Developments (Qld) Pty Ltd v MAK Construction Services Pty Ltd [2013] QSC 293 at [8] (Mullins J), and Richard Crookes Construction Pty Ltd v CES Projects (Aust) Pty Ltd (No 2) [2016] NSWSC 1229 at [19]-[20] (McDougall J). 3. The question in this case is whether the adjudicator acted this way. 4. In my opinion he did, and the adjudication must for that reason be quashed. Background 1. The plaintiff, Laing O'Rourke Australia Construction Pty Ltd, is the head contractor in relation to the Transport Interchange Facility Project at Wickham, near Newcastle. Laing O'Rourke engaged the defendant, Monford Group Pty Ltd, as a subcontractor. 2. On 22 September 2017 Monford served a payment claim on Laing O'Rourke under s 13 of the Act claiming $2,476,977.33. 3. On 6 October 2017 Laing O'Rourke served a payment schedule pursuant to s 14 of the Act, indicating that it did not propose to pay any amount to Monford in response to the payment claim. 4. On 20 October 2017, Monford made an adjudication application for adjudication of the payment claim under s 17 of the Act. That adjudication application was referred to the adjudicator for determination. In the adjudication application Monford claimed a total of $2,724,675.06 both for contract works and variations. 5. On 28 November 2017 the adjudicator purported to determine the adjudication application. 6. The adjudicator determined that Monford was entitled to a progress payment of $1,173,056.24. 7. The dispute before me relates to Monford's claim for variations. In its payment claim, Monford claimed variations totalling $2,006,796.67. The adjudicator determined that Monford was entitled to $590,288.97 of this amount. 8. Monford made a total of 68 variation claims. 9. Laing O'Rourke contends that, in relation to 12 of those variation claims (totalling in value $346,525.72), the adjudicator allowed Monford's claim without consideration of their merits. Rather, Laing O'Rourke contends, the adjudicator rejected Laing O'Rourke's contentions as to why the variations should not be allowed (and Mr Robertson, who appears for Laing O'Rourke, accepts that any errors the adjudicator may have made in this regard were within jurisdiction and thus not amendable to challenge before me) without considering whether the various claims were otherwise made out by Monford. 10. In its payment schedule, Laing O'Rourke summarised its reasons for disputing the payment claim by reference to a document it called the "Monford-Variation Matrix". 11. In that document, Laing O'Rourke specified, amongst many other matters, 2 reasons it disputed many of the 68 variation claims. One was whether Monford had complied with the procedures specified by the relevant contract to make a variation claim. The second was whether Monford had complied with a mandatory dispute procedure in the underlying contract. I will call these the "Preliminary Points". 12. The adjudicator determined that neither of the Preliminary Points was available to Laing O'Rourke to resist Monford's claim. Mr Robertson accepts that that decision is not amenable to challenge in these proceedings. 13. The adjudicator went on to consider each of the 68 variation claims in turn. 14. As to 6 of those 12 claims (claims 6, 9, 19, 30, 63 and 67), Laing O'Rourke accepted that there had been a variation. 15. The adjudicator dealt with those 6 claims as follows. 16. As to claims 6 and 63, the adjudicator rejected Laing O'Rourke's Preliminary Points and concluded: "Other than the above, I note [Laing O'Rourke] has not disputed the claimed amount. Based on the above, I find in favour of [Monford] and award the claimed amount." 1. As to claims 9, 19 and 30, the adjudicator simply said: "[Laing O'Rourke's] payment schedule…assess an amount of $nil but has failed to provide a reason for withholding payment. Based the above in favour of [Monford]." 1. As to claim 67, the adjudicator rejected Laing O'Rourke's Preliminary Points and concluded: "In the alternative [Laing O'Rourke] has assessed the claim at $3,746,80 and has provided hand-written comments against [Monford's] claim. The comments are made of substantiated and in some cases illegible comments. Based on the above I find in favour of Monford." 1. In relation to the other 6 variations challenged by Laing O'Rourke (variations 11, 35, 46, 47, 55 and 57) Laing O'Rourke had disputed that the work said to have been done by Monford constituted a variation. 2. The adjudicator dealt with those variations as follows. 3. As the variation 11, the adjudicator rejected Laing O'Rourke's Preliminary Points and concluded: "I note [Laing O'Rourke] has not disputed the work was performed. Based on the above I find in favour of [Monford]." 1. As to variation 35 the adjudicator simply said: "[Laing O'Rourke's] payment schedule…assess an amount of $nil but has failed to provide a reason for withholding payment. Based on the above I find in favour of [Monford]." 1. As to variation 46 the adjudicator rejected with Laing O'Rourke's Preliminary Points and concluded: "In the alternative [Laing O'Rourke] has provided a reason for withholding payment as being [Monford] has not demonstrated entitlement and reduced the claimed amount to $nil. [Monford] has provided daily timesheets signed by [Laing O'Rourke] and a Purchase Order detailing costs incurred. Based on the above I find in favour of [Monford]." 1. As to variation 47, the adjudicator dealt with Laing O'Rourke's Preliminary Points and concluded: "In the alternative [Laing O'Rourke] has provided a reason for withholding payment as being [Monford] has not demonstrated entitlement and reduced the claimed amount to $nil. [Monford's] variation submission details the location by 'Platform' and provides a number of bolts per Platform and or 'Grid Line'. I am of the view [Laing O'Rourke] could make a defined assessment based on information provided. Based on the above, I find in favour of [Monford]." 1. As to variation 55, the adjudicator dealt with Laing O'Rourke's Preliminary Points and concluded: "Other than the above, I note [Laing O'Rourke] has not disputed the claimed amount. Based on the above I find in favour of [Monford]." Consideration 1. In the case of each variation, the adjudicator expressed his conclusions to be "based on the above". 2. If words "based on the above" should be taken to mean, in relation to each variation considered by the adjudicator, the reasons set forth in the immediately preceding paragraphs concerning that particular variation, the adjudicator's reasons show that he: 1. determined each of the 12 challenged variation claims in favour of Monford simply on the basis of rejecting Laing O'Rourke's contentions concerning those variations and without any consideration of whether Monford had carried out the work, or the value of any work carried out; and 2. the case of variations 11, 35, 46, 47, 55 and 57, without considering whether the work constituted a variation of the contract (as opposed to work that Monford was in any event obliged to perform for the contract sum). 1. With his customary candour, Mr Roberts SC, who appears for Monford, accepted that if this is how the adjudication determination should be read, it showed that the adjudicator had not performed his duty as required by Coordinated Construction and Pacific General Securities and the other cases to which I have referred at [1] to [5] above and that this bespoke jurisdictional error. 2. That concession is sufficient to dispose of the proceedings as, on my reading of the adjudication determination, the adjudicator, by using the words "based on the above" was directing attention to, and only to, the reasons he had set out in relation to each variation. 3. However, as Mr Robertson submitted, even if words "based on the above" should be taken to refer to everything that the adjudicator had hitherto set out in the adjudication determination, the matter is taken no further. That is because nowhere in the earlier parts of the adjudication determination, did the adjudicator demonstrate that he had come to any view as to whether Monford had done the work in question, the value of that work and, in the case of variations 11, 35, 46, 47, 55 and 57, that the work constituted a variation of the contract. 4. It is true, as Mr Roberts pointed out, that at par 12 the adjudicator said: "Both parties have made detailed submissions on this matter. Whilst I have reviewed and considered the submissions I shall not be referring to each and every aspect of those submissions." 1. But that paragraph casts no light on whether the adjudicator had come to a view as to the critical questions. Conclusion 1. The adjudication determination was made without jurisdiction and is void. 2. I invite the parties to bring in short minutes to give effect to these reasons. ********** 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: 20 April 2018