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Falgat Constructions v Masterform

FALGAT CONSTRUCTIONS PTY V MASTERFORM PTY LTD [2005] NSWSC 728

Supreme Court of New South Wales – 3 August 2005

FACTS

Falgat Constructions Pty Ltd (‘Falgat’) entered into a construction contract with Masterform to carry out works building works at 23 to 25 Chesterfield Parade, Bronte. A contractual dispute arose and proceedings commenced in the Consumer Trader & Tenancy Tribunal (‘CTTT’). At the same time as these proceedings were on foot, Masterform submitted a Payment Claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’) for $20,541.49. Falgat, at the time of receiving the claim believed it was simply a statement much the same as previous months statements. Falgat responded, demanding delivery dockets for steel and concrete and did not provide a Payment Schedule under the Act.

Masterform submitted an Adjudication Application under section 17(2) of the Act to the Master Builders Association who awarded the full amount to Masterform. However, Masterform did not provide Falgat with a notice that it intended to apply for Adjudication prior to submitting its Adjudication Application in accordance with section 17(2) of the Act. Section 17(2) provides that if a party intends to apply for adjudication, that party must notify the other of its intention within 20 business days of the due date of the payment and allow a further 5 business days for the provision of a payment schedule before the adjudication application is made to the authorised nominating authority and served on the other party.

Falgat appealed to the Supreme Court contending that the Adjudication Determination was void on the grounds that there was a substantial breach of natural justice due to the failure of Masterform to properly notify Falgat of the Adjudication Application such that Masterform was given no opportunity to file an Adjudication Response.

ISSUE

Whether there had been a breach of natural justice.

FINDING

The Court found that the scheme of section 17 had not been followed because the Adjudication Application had already been lodged. Accordingly, there had been a breach of natural justice.

QUOTE

Macready AsJ at paragraph 36 commented:

“It is plain that the scheme of s17, in a case where there has been a failure to provide a payment schedule, is to allow a further five days after notice for the respondent to provide a payment schedule and thereafter it allows a further ten days for the lodgment of the Adjudication Application. No doubt this is intended to allow the person who is intending to make an Application to do so by reference to the other party’s stated position in the payment schedule which they are given a second opportunity to serve. Section 17(3)(f) requires the Application to identify both the relevant payment claim and payment schedule.”

Macready AsJ at paragraph 42 held:

“The Act has specified the time frames for the completion of the steps so as to balance the ability of the parties to prepare the requisite material with the efficiency required to determine these matters. The plaintiff was not given the opportunity to properly put its case to the Adjudicator because it assumed that the time had passed within which it could respond. In my opinion the failure of the defendant to abide by the timetable of the Act constitutes a substantial breach of the measure of natural justice expressly afforded by the Act in accordance [with] the decision of Brodyn.”

IMPACT

If a Claimant intends to apply for an Adjudication, where the Respondent has failed to provide a Payment Schedule, the Claimant should ensure that the scheme set out in section 17 is strictly followed as a failure to do so will result in a breach of natural justice and miscarriage of the Adjudication process.

Falgat Constructions v Masterform

FALGAT CONSTRUCTIONS V MASTERFORM [2005] NSWSC 525

Supreme Court of New South Wales – 23 June 2005

FACTS

Falgat Constructions (‘Falgat’) entered into a construction contract with Masterform to carry out works building works at 23 to 25 Chesterfield Parade, Bronte. A contractual dispute arose and proceedings commenced in the Consumer Trader & Tenancy Tribunal (‘CTTT’). At the same time as these proceedings were on foot, Masterform submitted a Tax Invoice deemed to be a Payment Claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’) for $20,541.49. Falgat, at the time of receiving the claim believed it was simply a statement much the same as previous months’ statements. Falgat responded, demanding delivery dockets for steel and concrete, however, there was no payment schedule under the Act. Masterform submitted an Adjudication Application under section 17(2) of the Act to the Master Builders Association who awarded the full amount to Masterform.

Masterform served a statutory demand under section 459G of the Corporations’ Act. Falgat then brought proceedings seeking to set aside the statutory demand on the grounds that there was a genuine dispute as to the amount due between the parties.

Falgat also raised res judicata, that as a result of the CTTT proceedings Masterform could not agitate the same issues that were the subject of another proceeding as the Adjudicator held the status of a judicial Tribunal. Further, Falgat submitted the demand should be set aside as there was an offsetting claim.

ISSUE

Whether an Adjudication Determination is final and conclusive for the purpose of setting aside a statutory demand similar to the decision of a Court or Tribunal.

FINDING

The Court found that an Adjudication Determination is conclusive and res judicata is applicable as an Adjudicator is akin to a judicial Tribunal. The Court approved the decision of Plus 55 Village Management Pty Ltd v Parisi Homes Pty Ltd [2005] NSWSC 559 and held that a genuine dispute as to the terms of the contract may give rise to a genuine claim which would be the foundation for an off-setting restitutionary claim to be brought pursuant to the contract. The Court concluded that, in the circumstances, there was a genuine dispute for the purposes of section 564 of the Corporations Act.

QUOTE

In the course of determining whether or not there was a genuine dispute, Macready AsJ at paragraphs 32 and 33 held:

“[32] The use of submissions satisfies the criteria set out by Lush J to the extent that he refers to the obligation to hear argument. The Adjudicator may as well as having submissions under s 21(4) call a conference of the parties and may carry out an inspection of any matter to which the claim relates. Plainly, the liquidator does not have power to call evidence orally from witnesses. However, given the obligation to receive any documentation it seems that there is an obligation on the Adjudicator to receive written evidence. In these circumstances it would seem to me that an Adjudicator is a judicial tribunal.

[33] It does not seem to be denied that there was a judicial decision as a result of the Adjudicator’s determination.

He decided the amount of an interim payment pursuant to the provisions of the Act. Of course there has to be a final decision on the merits for res judicata to apply. There was a submission by the plaintiff that this was not a decision on the merits in that it was dealt with by the Adjudicator in default of receiving any submissions from the plaintiff.

It is plain that a judgment obtained by default, like one obtained by consent, will, unless and until set aside, conclude between the parties the matters expressly decided by its operative or declaratory parts. … Accordingly, it seems to me that the decision of the Adjudicator, to the extent that it is represented by the adjudication certificate, was a final judicial decision on the merits. In these circumstances there is res judicata as to that matter.”

IMPACT

An Adjudication Determination is conclusive and res judicata is applicable as the Adjudicator is akin to a judicial tribunal but that a genuine dispute for the purposes of setting aside a statutory demand can still exist.