Plaza West Pty Ltd v Simon's Earthworks (NSW) Pty Ltd [2008] NSWCA 279

What the court decided

Plaza West Pty Ltd was the proprietor of a commercial development at Parramatta, and Simon's Earthworks (NSW) Pty Ltd was its earthworks contractor [2]. Merrmac Pty Ltd was a subcontractor of Simon's Earthworks for some of the work [3]. On 28 February 2008 Merrmac served a payment claim on Simon's Earthworks [6]. On the same day Simon's Earthworks served a payment claim on Plaza West for $958,553.53, which included the amount of Merrmac's claim [7]. Plaza West took the remaining work out of Simon's Earthworks' hands on 5 March 2008 [8].

Under clause 37 of the contract, a progress claim on which the Superintendent did not issue a progress certificate within 14 days was deemed to be the progress certificate, and none was issued [10].

The adjudicator determined that $958,553.53 was payable [15]. In doing so he accepted Simon's Earthworks' argument that the contract created a deemed valuation of the full sum claimed, which was the amount payable under section 9(a) [21], [23], [25]. Plaza West paid that amount less the Merrmac claim, and judgment was then entered against it in the District Court [16], [18]. Hammerschlag J refused to interfere with the adjudication or to restrain reliance on the judgment [1], [19].

On appeal, Allsop P gave the leading reasons and Giles JA agreed with him [51]. Hodgson JA agreed with the order and reasons of Allsop P and added comments of his own [52].

Plaza West's first argument was that the primary judge should have concluded that the adjudicator had not undertaken his statutory task [24]. It said the deeming provision was a mechanism in the contract, not a calculation made in accordance with the contract's terms [26]. Simon's Earthworks did not submit that the adjudicator's approach was correct in law, but argued that any error did not vitiate the adjudication [27]. Allsop P noted that the primary judge had followed authorities of the Court holding that an adjudicator's error of fact or law was not enough to vitiate an adjudication, and, citing Brodyn among other cases, said the question was whether the adjudicator had attended to his task under section 22 [27]. No challenge was made to those principles [28].

Allsop P held that Plaza West's arguments on this ground were without substance [31]. In his view, the adjudicator had dealt with every submission put to him, and concluded that he need not examine the payment schedule line by line because of his view of clause 37 and section 9(a), which Allsop P described as erroneous on the hypothesis that Plaza West's argument was right [31].

There may have been a legal error, he said, but that did not mean the adjudicator had failed to fulfil his task under section 22 [32]. He said this was especially so because the legal submission based on earlier Court of Appeal decisions had not been put to the adjudicator, so that the error arose from the way the parties had run the adjudication [26], [32]. He accepted that a tribunal following the parties' approach may on occasion still be seen to have failed to attend to its task, but held that this adjudicator had dealt with the matters section 22(2) required [32].

Hodgson JA adhered to his earlier view that the words "calculated in accordance with the terms of the contract" in section 9(a) did not engage contractual mechanisms that fix what is due independently of calculations referable to the work performed [53]. On that view, he said, a contractor was not entitled to payment merely because a deeming provision such as clause 37(2) operated [54]. He therefore held that the adjudicator did make an error of law [55]. Because the adjudicator had nevertheless addressed his task under section 22 and considered all the submissions, Hodgson JA held that the adjudication was not vitiated [56].

Plaza West's second argument was that by not dealing with its payment schedule line by line the adjudicator denied it procedural fairness [33]. Plaza West accepted in argument that this depended in substance on the first argument, so it failed with that argument [34]. Allsop P nevertheless said there was no denial of procedural fairness, because the adjudicator attended to all the submissions and dealt with Plaza West's on the basis of his view of clause 37, which Allsop P there called erroneous [34]. He distinguished two first instance decisions, Firedam Civil Engineering v KJP Constructions and Reiby Street Apartments v Winterton Constructions, on the basis that this adjudicator had not disregarded or ignored the submissions [35], [36].

Allsop P reserved the question whether the reasoning in both cases was correct, while not necessarily questioning their results [37]. He said it was "at best a problematic proposition" that an adjudicator's failure to deal with an aspect of a payment schedule he mistakenly thought did not arise was a denial of procedural fairness [37]. He added that procedural fairness should still be afforded to the parties in an adjudication [37]. Hodgson JA also reserved the correctness of all the reasoning in those cases while seeing no substantial reason to doubt their results [57].

Plaza West's third argument was that, as it had paid the Merrmac claim, reliance by Simon's Earthworks on the District Court judgment could not be sustained [38]. The primary judge's reasons for holding that the preconditions for restitution were not met were not attacked on appeal [40], [41]. Plaza West relied instead on clause 38 of the contract [41]. It argued that by claiming the Merrmac money without the evidence of payment of subcontractors that the clause required, Simon's Earthworks impliedly requested Plaza West to pay Merrmac, and that by later declining to meet Merrmac's claim it impliedly adopted the payment as its own [43].

Allsop P rejected those submissions, holding that no implied request arose from the contract and that the absence of the evidence was a basis on which Plaza West could have withheld money [44], [45]. He noted that the point had not been raised before the adjudicator or the primary judge [44]. The appeal was dismissed with costs [47], [50].

Allsop P acknowledged that the result might be seen as unusual or arbitrary, but said the Act gave Plaza West a mechanism to vindicate any assertion of overpayment through proceedings of the kind contemplated by section 32(3) [48], [49]. Hodgson JA agreed that any remedy would have to be sought in proceedings under section 32 [59]. He observed that if, in such proceedings, a judgment under the Act was shown on an interlocutory application to be unmeritorious, a judgment debtor might obtain a stay or an injunction restraining enforcement [59].

Why it matters

The decision concerns the New South Wales Act and the authorities, including Brodyn, as they stood in 2008. On that footing, the Court of Appeal held that an adjudicator's error of law in valuing a payment claim did not invalidate the determination where he had addressed his statutory task and dealt with the parties' submissions. For Allsop P, this was especially so where the legal submission had not been put to the adjudicator, though a tribunal following the parties' approach may still fail its task.

Allsop P proceeded on the hypothesis that the appellant's argument was right, and Hodgson JA held that there was an error of law. Allsop P and Hodgson JA each left open the correctness of the reasoning in two first instance decisions on procedural fairness in adjudication. Both said that any remedy for the principal here lay in proceedings under section 32 of the New South Wales Act.

Victorian readers should check the Victorian security of payment Act's own provisions before relying on the decision.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.