Biseja v NSI Group
[2006] NSWSC 835
Supreme Court of New South Wales -- Equity Division4 August 2006
McDougall J.
Ex tempore
[1] The plaintiff (Biseja)
carried out a number of property development projects in the region north of
Sydney from about 2001 to 2005. The builder on at least three of those projects
was the defendant (NSI). At least at the commencement of that business
relationship, Mr Malcolm Downie of Biseja and Mr Emade Semaan of NSI were
brothers in law.
[2] This dispute relates to a
project known as the North Entrance Stage 2 Project. NSI's case is that it
agreed with Biseja to perform the building work at cost and agreed separately
to provide project management services for a fee of 10% of the cost of the
building works. NSI says further that it was agreed between it and Biseja that
the fee could be satisfied by the transfer of three units in the completed
development.
[3] The factual background
suggests that somewhat similar arrangements had been entered into between NSI
and Biseja in relation to something called the Swansea Project and something
called the North Entrance Stage 1 Project. It is, in any event, NSI's case that
this was so.
[4] Biseja and NSI fell into
dispute in relation to the North Entrance Stage 2 Project and NSI made a claim
on Biseja for payment of the Stage 2 project management fee. Whatever else may
be in dispute in these proceedings (and it would appear that much is) it is, I
think, common ground that the project management services that NSI claims to
have provided to Biseja on the North Entrance Stage 2 Project would be
"related goods and services" for the purposes of the Building and
Construction Industry Security of Payment Act 1999 (the Act). NSI's claim was a
payment claim for the purposes of the Act.
[5] Biseja did not provide a
payment schedule in relation to NSI's payment claim. Accordingly, NSI filed an
adjudication application. Biseja provided neither a payment schedule (the
opportunity to do which it had under s 17(2)(b) of the Act), nor an
adjudication response.
[6] Mr Robert Hunt (the
adjudicator) was nominated as adjudicator and accepted the appointment. He gave
his determination on 7 June 2006. He found that NSI was entitled to be paid
$1,774,494, compared to its claim of $2,268,095.08 (both inclusive of GST).
[7] Biseja's case both before the
adjudicator and in this Court is that the Act did not apply to the agreement
relied upon by NSI for the provision of project management services. In
particular, Biseja relied on s 7(2)(c) of the Act, which relevantly provides that
the Act does not apply to:
a
construction contract under which it is agreed that the consideration payable
for ... related goods and services supplied under the contract, is to be
calculated otherwise than by reference to the value of ... the related goods
and services supplied.
[8] Thus, Biseja submits, the
determination was defective in a fundamental respect, and void, having regard
to the decision of the Court of Appeal in Brodyn Pty Ltd v Davenport
(2004) 61 NSWLR 421. It will be recalled that Hodgson JA, who gave the leading
judgment in that case (Mason P and Giles JA agreeing), said at 441 [52] that
for a determination to be valid, "it must satisfy whatever are the
conditions laid down by the Act as essential ...". At 441 [53], his Honour
identified the first of those "basic and essential requirements" as
being "the existence of a construction contract between the claimant and
the respondent, to which the Act applies (s 7 and s 8)."
[9] It is apparent from the
determination that the adjudicator was alive to, and turned his mind to, the
issue under s 7(2)(c). He addressed this in para 39 of his determination,
saying:
In
particular, the fact that the parties agreed that the fee may be paid by the
transfer of units in the North Entrance [Stage 2] Project does not mean that
the consideration payable is to be calculated otherwise than by reference to
the value of the work carried out or the value of the goods and services
supplied (see section 7(2)(c) of the Act).
[10] Mr Corsaro SC, who appeared
for Biseja, submitted that the finding made by the adjudicator in para 39 was ambiguous.
On one view, he submitted, it might be read as a finding that the agreement was
for a consideration of 10% of the building cost, that could be acquitted
(either completely or pro tanto) by the transfer of three units. Alternatively,
he submitted, it could be read as a finding that there was an agreement for a
consideration of three units. He submitted that the first view of what the
finding was would not have been open to the adjudicator on the facts, and that
the second view of it would mean that the agreement for project management
services was caught by s 7(2)(c).
[11] The only material before the
adjudicator was that provided by NSI. The adjudicator referred to a statutory
declaration dated 9 June 2006 made by Mr Semaan on behalf of NSI. He set out
substantial extracts from that statutory declaration in para 34. It is I think
apparent that he accepted, for whatever it proved, what Mr Semaan said; and
indeed, given as I have said that there was no material in opposition, it would
have been strange if he did not do so.
[12] Mr Semaan's evidence, as
recounted by the adjudicator, commenced with discussions which apparently took
place in about 2001, when Mr Semaan and Mr Downie (the principal of Biseja)
agreed that NSI would do building work at cost and would, in effect, recover
its profit as a project management fee of 10% of the cost of the building
works.
[13] Mr Semaan then said, in
relation to what was known as the Swansea Project, that the 10% fee of $590,000
was agreed to be payable by a transfer to NSI of one of the units in that
project.
[14] Mr Semaan's evidence then
turned to the North Entrance Stage 2 Project. Mr Semaan said in substance that
he referred back to the agreement made in about 2001 for building work to be
done at cost and a 10% fee to be recovered as project management services. He
referred to further discussions, in February 2004, in which he says Mr Downie
confirmed that arrangement and said, "Also, I will give you three (3)
units to the value of 10% of the contract sum. This 10% will represent your
management fee." Mr Semaan said that he accepted this.
[15] Mr Semaan said that that
agreement was re-confirmed in April or May 2004 when Mr Downie said, "As we
agreed, I will give you three (3) units to the approximate value of $1,471,600.
This will represent your management fee."
[16] Mr Semaan referred to further
discussions to the same effect in about June 2004, and to discussions that he
had with an officer of the Commonwealth Bank (that bank apparently funding the
project) to the same effect. Thus, Mr Semaan concluded:
Malcolm had
agreed that he would give NSI three (3) units that would be equivalent to the
10 percent management fee.
[17] There was then some
discussion about the units nominated by Mr Downie as the ones to be transferred
to NSI. Mr Semaan said that he considered that those units did not represent
10% of the construction cost, and that Mr Downie said that he would need to
select units that did.
[18] Against that background, the
adjudicator stated the following in para 36 of his determination:
36. I am satisfied,
from the paragraphs of Mr Semann's statutory declaration extracted above, and
the documents referred to in those paragraphs, that:
(1) In 2001, there
was an oral agreement between Mr Emade Semann and Mr Malcolm Downie for the
provision of project management services by the Claimant to the Respondent in
respect of development projects to be undertaken by the Respondent, for which
the Respondent would pay the Claimant a fee of 10% of the construction cost of
the particular project plus GST.
(5) Pursuant to the
oral agreement in 2001, the Claimant and the Respondent further agreed on about
23 February 2004 that the Claimant would provide project management services in
respect of construction of Stage 2 of the North Entrance Project.
(6) It follows from
(1), (4) and (5) above that the "Management Agreement" in
respect of the North Entrance Project, to which the Payment Claim relates, was
made orally in 2001 (at some time relatively shortly before 2 March 2001), on
or about 5 February 2002 and on or about 23 February 2004.
(9) The agreement to
provide project management services in respect of Stage 2 of the North Entrance
Project was in addition to a written building contract between the Claimant and
the Respondent for performance of the building works involved in Stage 2 of the
North Entrance Project, a copy of which was provided behind Tab 3 in the
Adjudication Application in matter ADJ10267. In that building contract, the 'work
to be done at the site' is described as 'construction of seventy nine
(79) units over basement parking'." (emphasis in original)
[19] The adjudicator concluded
that the project management services to be provided were related goods or
services. As I have said, the parties do not contest this.
[20] The adjudicator turned to the
s 7(2)(c) question in para 39, the essence of which I have already set out.
[21] In my view, it is plain that
the adjudicator found that the project management fee (ie, the consideration
for the related goods and services) was to be quantified at 10% of the
construction cost. That is apparent from what he said in para 36(1) and (6).
Thus, when he said in para 39 "that the parties agreed that the fee may be
paid by the transfer of units", he was using the word "paid" to
mean discharged or acquitted. The fee was not anything other than the 10%; the
three units that might constitute its acquittal (in whole or in part) were the
discharge of the obligation, not its quantification.
[22] In other words, I think, para
39 is to be read in the first of the senses suggested by Mr Corsaro, as
referred to above.
[23] If that is a correct reading
of para 39, then it follows inevitably that the adjudicator was correct in
concluding that the agreement for provision of project management services was
not caught by s 7(2)(c) of the Act. That is because the parties agreed that the
value of those project management services was 10% of the cost of the building
works. It matters not that they agreed that this value could be paid in a
particular way.
[24] The question then is whether
it was open to the adjudicator to reach this factual conclusion. In my view, it
was. It was open to him to take into account both the earlier dealings between
the parties (particularly bearing in mind Mr Semaan's unchallenged evidence
that the agreement for the Stage 2 Project was part of a connected series of
agreements and that the parties in substance regarded their relationship as
that first established in 2001). It was also, in my view, open to the
adjudicator to conclude (as I have found he did), in para 39 of his
determination that the agreement was clearly one for a 10% fee, but payable,
whether in whole or in part does not for present purposes matter, in kind.
Indeed, I think, on the material to which the adjudicator referred coming from
Mr Semaan's statutory declaration, any contrary finding would have verged on
the capricious.
[25] On that basis, it must follow
that the adjudicator did not fall into reviewable error in concluding that the
contract between NSI and Biseja for the provision of project management
services on the North Entrance Stage 2 Project was vitiated by error of a kind
that would enable this Court to intervene.
[26] I therefore do not find it
necessary to consider the other bases on which the parties suggested that the
decision of the adjudicator might be, as the case may be, assailed or upheld.
In particular, the conclusion to which I have come makes it unnecessary to
consider Biseja's alternative formulation of its case that the adjudicator
displayed a want of good faith (in the Brodyn sense) in coming to the
conclusion to which I have referred.
[27] Although this matter came
before me by way of notice of motion, suggesting that the application should be
treated as interlocutory, the parties agreed that it was appropriate to deal
with the precise question, with which I have dealt, on a final basis. Mr
Corsaro said, I think correctly, that the point was not going to get better by
repetition at a subsequent hearing. If the parties remain of that view, then
the appropriate course is to formulate the question that I have decided as a
separate issue, to answer it in the manner that I have indicated, and to order
that the amended notice of motion filed in Court today be dismissed. However,
if the parties on reflection think that for some reason that course may be
inappropriate, they will need to address me on the relief that should follow
from the conclusions that I have expressed in these reasons.
[28] Before I hear the parties on
costs, I will note that one of the prayers for relief in the amended notice of
motion sought an order in the nature of certiorari to quash the adjudicator's
determination. Mr Corsaro made a formal submission that in this respect the
decision in Brodyn was wrongly decided. For obvious reasons, I can do no
more than record that submission.
[29] There being a concern that the narrow ground on which I have decided the particular point may create any unintended estoppel in relation to the balance of the issues in the proceedings, the parties are agreed that, to give effect to my reasons, I should finalise the matter with which I have dealt as follows, and I will do so:
(1) I note that the plaintiff, by senior
counsel, undertakes to the Court that it will not seek to advance any other
challenge to the determination of the adjudicator.
(2) I order that the amended notice of motion
filed in Court on 4 August 2006 be dismissed.
(3) I order the applicant to pay the
respondent's costs of that notice of motion.
(4) I order that the injunction granted by
Bergin J on 27 July 2006 whereby the defendant was restrained from taking any steps
to enforce the adjudicator's determination be dissolved.
Order
See para [29] of judgment.
Counsel for the defendant: G A Moore / F P Hicks
Solicitors for the plaintiff: L Capolupo & Co
Solicitors for the defendant: William Cotsis & Associates