Service Of Notices By Email Under The Building And Construction Industry Security Of Payment Act

Reed v Eire [2009] NSWSC 678

In Brief

A head contractor sought to challenge an adjudication under the Building and Construction Industry Security of Payment Act 1999 (NSW).

An important issue arose as to the precise date of service by email of a Payment Claim, and noting the Electronic Transaction Act 2000 (NSW).

In the particular circumstances, the Adjudicator's decision could not be challenged. The court also found that arguably incorrect statements in the Adjudication Application were not misleading or deceptive, and that there had been no denial of natural justice.

Background

The plaintiff head contractor entered into a construction contract with the defendant sub-contractor on 10 November 2006, covering civil works associated with a rising main to a water treatment plant.

The contract¹ specified the manner in which notices were to be served. These included that notices may be sent by email to a specified officer of the plaintiff at a specified email address.

On 6 November 2008, Ms Barr of the defendant sent an email to several email addresses of the plaintiff. This attached a Payment Claim pursuant to the Building and Construction Industry Security for Payment Act 1999 (NSW) (SOPA) for $610,179.32 claimed to be due to the defendant under the contract. It was sent to the email address of Mr M Diver, an officer of the plaintiff, and also copied to three other persons, one of whom was the authorised contact person of the plaintiff under the contract.

On 7 November 2008 at 5.30 pm the defendant received an electronic Read Receipt by email, indicating that "mdiver" had opened and acknowledged receipt of the email sent the day before.

On 21 November 2008, the plaintiff sent a Payment Schedule pursuant to s 14 of SOPA to the defendant, which disputed all but $52,487.50 of the amount in the Payment Claim. This was precisely 10 business days after 7 November 2008, and therefore within the period required by Division 1 of the Act if the Payment Claim had been served on that day, but not if it had been served on 6 November 2008.

On 5 December 2008, the defendant lodged an Adjudication Application with an authorised adjudicator under SOPA. The Adjudication Application set out a number of contentions on behalf of the defendant, one of which was that the Payment Claim had been served on the plaintiff on 6 November 2008 (i.e. the date on which the email had been sent by Ms Barr).

The plaintiff was entitled to lodge an Adjudication Response under SOPA setting out substantive responses to the allegations in the Adjudication Application². It had until 16 December 2008 to do this. However it did not do so. Rather, on 12 December 2008, the plaintiff lodged a written submission with the Adjudicator, which contended that on the basis of a date of service of the Payment Claim of 6 November 2008, the plaintiff had failed to serve its Payment Schedule in response within 10 business days. Therefore s 17(2) of SOPA was engaged, which the plaintiff contended should have prevented the defendant from commencing the adjudication process when it did.

The defendant lodged counter-submissions on 15 December 2008, which inter alia attached Mr Diver's Read Receipt, and submitted that service of the Payment Claim had actually been effected on 7 November 2008, when he (apparently) received the email, and that this was in fact within the 10 business day period prescribed by Division 1 of SOPA. The plaintiff lodged further submissions in reply on 17 December 2008.

The adjudicator considered the submissions of both sides. He made a finding that service of the payment claim was actually effected on 7 November 2008, as indicated by the Read Receipt. It followed that the payment schedule was served within the 10 business days, and there was therefore no need to for him to determine whether compliance with s 17(2) of SOPA had occurred. The adjudicator made a determination in favour of the defendant for $555,602.82

Application to Supreme Court of NSW

The plaintiff applied to the Equity Division of the Supreme Court of NSW to set aside the adjudicator's determination. The application came before Macready AsJ. He noted that the plaintiff's challenge was made on three grounds:

First Ground: challenge to the adjudicator's finding that service of the payment claim was effected on 7 November 2008

The plaintiff argued that the adjudicator's decision was a nullity because he wrongly held that service of the Payment Claim was effected on 7 November 2008, instead of 6 November 2008.

Macready AsJ noted that the Adjudicator had not considered s 13(3) of the Electronic Transactions Act 2000 (NSW).³ His Honour held that "an email address is not simply a passive description of where mail should go but it is an active information system which performs a function within the meaning of the Electronic Transactions Act".⁴ However, no evidence had been provided to the adjudicator indicating when or if the email had reached such an active information system, ie an email server from which the recipient could access the email. There was therefore some doubt as to whether the adjudicator had sufficient evidence to reach any conclusion on the date and time when service by email was effected.

However, Macready AsJ held that this did not matter because the adjudicator's finding on this point could not be challenged, whether right or wrong. He followed the reasoning of Rein J in JAR Developments Pty Ltd v Castleplex Pty Ltd [2007] NSWSC 737 at [49], that:

"an adjudication in which the adjudicator erroneously but bona fide and in accordance with the rules of natural justice determines, that a requisite time limit has been met, will not thereby be rendered void".

Macready AsJ held:

"given that the adjudicator in this matter has plainly considered the submissions that were put to him, there is no nullity if the adjudicator got it wrong. He was entitled to come to his decision whether right or wrong and the decision cannot be attacked on this basis".

Second ground: Misleading or Deceptive Conduct in Adjudication Application

The plaintiff complained that the defendant's Adjudication Application was misleading or deceptive, contrary to s 52 of the Trade Practice Act 1974 (Cth), in that it stated that the date of service of the Payment Claim was 6 November 2008, which therefore meant that the plaintiff must have served its Payment Schedule in response more than 10 business days later. The plaintiff complained that it had been misled into believing that there was an issue in relation to compliance with s 17(2) of SOPA, and had therefore not filed an Adjudication Response.

Macready AsJ noted that Mr Diver gave evidence, and confirmed that he opened the email serving the Payment Claim on 7 November 2008, as indicated by the Read Receipt. He would have seen that the Payment Claim actually bore the date 6 November 2008. There was evidence indicating that other managers of the plaintiff besides Mr Diver made various decisions thereafter, however the plaintiff adduced no evidence from those other managers.

Macready AsJ held that he could not be satisfied that the statement in the Adjudication Application amounted to misleading or deceptive conduct for two reasons:

In the absence of evidence from the final decision-maker(s), he could not be satisfied that the alleged misleading or deceptive conduct led to the defendant taking any particular action to its detriment.
the nature of the adjudication application, which did no more than set out one party's contention as to what would be advanced in a disputed adjudication, meant that statements therein could not be said on their face to be misleading or deceptive.

Third ground: Denial of Natural Justice

The plaintiff relied on essentially the same facts to found a claim that it had been denied natural justice. It complained that the defendant changed its position in its submission dated 15 December 2008, as it now claimed that the correct date of service of the Payment Claim was 7 November 2008 (rather than 6 November 2008 as claimed in the original Adjudication Application), and relied on the Read Receipt as evidence thereof. The plaintiff complained that the Adjudicator did not seek further submissions from the plaintiff on the point, nor indicate to the plaintiff that he was now considering the matter on an altered factual basis.

The court rejected this argument. The plaintiff raised an issue relating to service of the Payment Claim on 6 November 2008 in its submission dated 12 December 2008. On 15 December 2008 the defendant by submission responded to this and contended that service of the Payment Claim actually occurred on 7 November 2008; The plaintiff then served submissions in reply on this point, on 17 December 2008. Regardless, at all times the plaintiff and its officers were aware of the relevant facts, including those on which the defendant contended that service was on 7 November 2008. The plaintiff therefore had sufficient knowledge and time to provide an Adjudication Response if it had chosen to do so.

Furthermore, the adjudicator had considered each of the parties' submissions, thus there was no lack of procedural fairness.

Macready AsJ therefore dismissed the plaintiff's application with costs.

Implications

The issue of precise time of service of documents by email will continue to arise in relation to security of payment issues, and construction contracts generally, noting that contracts such as GC21 make specific provision for service by email.

Macready AsJ's observations on the effect of the Electronic Transactions Act 2000 (NSW) will continue to be of relevance, in particular his finding that an email address is an "information system" as defined by that Act.

When calculating the tight time requirements under Security of Payment legislation, parties to construction contracts must bear in mind that actual dates of electronic service may not be as they appear on the face of email communications.

Footnotes

1 Which included standard GC21 construction terms

2 Under the SOPA adjudication scheme, the Adjudication Application is analogous to a statement of claim in court litigation, and the Adjudication Response is analogous to a notice of grounds of defence

3 Section 13(3) of the Electronic Transactions Act 2000 (NSW) provides: "(3) For the purposes of a law of this jurisdiction, if the addressee of an electronic communication has designated an information system for the purpose of receiving electronic communications, then, unless otherwise agreed between the originator and the addressee of the electronic communication, the time of receipt of the electronic communication is the time when the electronic communication enters that information system".

4 See judgment at [30]

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.