Reasons for Decision

 

1                 The plaintiff, Ace Constructions & Rigging Pty Ltd, agreed to supply rigging supervisors to the defendant on its construction site in Port Hedland, Western Australia.  ECR International Pty Ltd, the defendant and applicant on the motion, is a civil engineering company.  The contract was governed by the provisions of the Constructions Contracts Act 2004 (WA) which is similar in most respects to the NSW Building and Construction Industry (Security of Payments) Act 1999.

2                 The Construction Contracts Act provides a mechanism for the claiming of progress payments and the adjudication of disputes concerning them.  Similar procedures are found in all analogous legislation throughout Australia.  The policy underlying this type of legislation to ensure that builders and sub-contractors carrying out construction work receive regular cash flow and do not have to await the end of a construction project to be paid. To that end, rights to litigate disputes are significantly curtailed and disputes are subject to compulsory arbitration.  Strict timetables are enforceable.

3                 The defendant moves for an order setting aside a judgment entered against it in this court after an adjudication or arbitration on the basis that the judgment was entered irregularly.  Rule 36.15 of the Uniform Civil Procedure Rules gives the court a discretion to set aside judgments entered “irregularly, illegally or against good faith.”  The judgment in question was entered after a determination was made by an adjudicator pursuant to s.31(2) of the Construction Contracts Act 2004.  Section 43 provides that such determinations may be enforced in the same manner as judgments entered in a court of competent jurisdiction.  It is conceded by the applicant, ECR, that the NSW Local Court is such a court.

4                 ECR, however, argues that, for three reasons, the determination ought not to have been registered as a judgment in the Local Court of NSW.  In summary, it says, first, that the determination was a nullity because the adjudicator failed to apply the rules of natural justice when asked by the defendant to disqualify himself.  Second, it says that the adjudicator had no jurisdiction to deal with the dispute because it was time-barred by the Construction Contracts Act.  Third, it submits that the adjudicator also denied the defendant natural justice by disregarding the defendant’s formal written response to the claimant’s application for an adjudication.

5                 ACE’s position is that the application is premature because no declaration that the adjudicator’s determination is void has been made.  (This court, of course, has no power to offer equitable relief in the nature of declarations or certiorari.)  Second, it contends that s.46 of the Construction Contracts Act places strict limits on the circumstances in which an adjudicator’s determination may be reviewed judicially.  The current case does not fall within the scope of s.46.  Third, it argues that the determination was, in any event, a fair and correct one and that there is no proper basis on which it could be found to have been tainted or vitiated by procedural unfairness.

The issues

6                 Taking these arguments into account, the issues distilled are these:  first, the threshold question is whether this court has jurisdiction to entertain the current application.

7                 Second, if the court does have such jurisdiction, the ultimate question is whether the judgment was entered irregularly?  That question can only be answered by considering whether the applicant was denied natural justice by the adjudicator.  Within that broader topic, two further questions arise:  was the adjudicator obliged to disqualify himself after seeing “without prejudice” correspondence between the parties?  And did the adjudicator deny the applicant procedural fairness by rejecting its written response to the application for adjudication on the grounds that it had not been properly served?  That in turn raises the question, what is proper service for the purposes of s.27 of the Construction Contracts Act?.

The background to the motion

8                    The facts in the matter are not significantly in dispute.  The parties entered their agreement in October 2006.  The two riggers sent by the plaintiff to work on ECR’s Port Hedland site commenced work there in November 2006.  ECR considered them to be incompetent for the work they were required to carry out.  This led to the dispute between the parties.

9                    In December 2006, Ace issued an invoice in the sum of $25,000 to ECR pursuant to the contract.  In January 2007, ECR refused to pay on the grounds that number of hours claimed for the services of the two riggers was overstated and the incompetence of the riggers.  In effect, ECR claimed a failure of consideration.

10                On 20 March 2007, ECR made a “without prejudice” offer to settle the matter.  That offer was not accepted.

11                On 1 June 2007, Ace served ECR with an application for adjudication under the provisions of the Construction Contracts Act.  In accordance with the procedures set out by the Act, on about 6 June Mr Richard Machell was appointed by the Institute of Adjudicators and Mediators Australia as the adjudicator.  Unfortunately, among the papers served upon the Institute with the application, was the “without prejudice” letter of 20 March 2007.  Mr Machell read that letter.

12                On 8 June, ECR’s solicitors, having discovered that Mr Machell had read the letter, requested that he disqualify himself from determining the dispute on the grounds of apprehended bias.  It made written submissions to him on that point.  Ace’s solicitors informed ECR’s that it had no objection to Mr Machell disqualifying himself if he chose that course.

13                On 12 June, Mr Machell delivered a decision in which he declined to disqualify himself.  In a written decision of some 33 paragraphs, he set out his reasons.  ECR’s solicitors notified Mr Machell that it continued its involvement in the arbitration under protest.  This was clearly marked on its subsequent written response to Ace’s application and other submissions made to Mr Machell.  The response was sent by email on 15 June – within the 14-day period required by s.27 of the Construction Contracts Act – to both Ace and Mr Machell.

14                The arbitration appears to have proceeded solely by way of written submissions and evidence being tendered by the parties to Mr Machell.  Both parties tendered evidence and made their submissions to him.  As noted above, Mr Machell, however, refused to admit into evidence ECR’s written response to the application because he considered that it had not been served in accordance with the requirements of s.27.  In the course of the arbitration, Mr Machell sought and received further submissions on a number of issues from the parties.  He delivered his decision on 29 June 2007.

15                On the same day, ECR’s solicitors notified Ace’s solicitors that it proposed to challenge Mr Machell’s decision in any court in which Ace sought to enforce the adjudicator’s determination.  It outlined the grounds upon which it asserted that Mr Machell’s determination was a nullity, namely, that he had denied ECR natural justice by refusing to disqualify himself; that he had, in any event, been without jurisdiction because Ace’s application for arbitration was time-barred; and, finally, Mr Machell had refused to consider ECR’s adjudication response, thus denying it natural justice.

Does this court have jurisdiction to set aside the judgment?

16                The respondent contends that the application to set aside the judgment is premature because the adjudicator’s determination has not been quashed or declared void by a court with jurisdiction to offer such relief.  (The Local Court, of course, has no such powers.)

17                Counsel for the respondent, citing the Court of Appeal’s decision in Brodyn Pty Ltd v Davenport [1], contends that, absent a declaration that the determination was void or order in the nature of certiorari quashing the determination, the judgment can only be set aside if the applicant proves that there is no determination within the meaning of the Construction Contracts Act. 

18                In Brodyn, the Court of Appeal held that the primary judge in the District Court had erred in the exercise of his discretion in refusing to set aside a judgment entered because he had wrongly forecast how prerogative relief might affect the issue.  In dealing with the question of the exercise of the discretion to set aside a judgment entered after the registration of an adjudicator’s determination under the Building and Construction Industry (Security of Payments) Act (NSW), Hodgson JA, with whom the other members of the court agreed, said[2]:

Further, in my opinion an order of the Supreme Court quashing the determination or declaring it to be void could itself support the setting aside of the judgment. In my opinion, if the determination was quashed or declared void, reliance on there being no determination to support the judgment would not be to challenge the adjudicator’s adjudication within s.25(4): this wording assumes that there is a determination which is challenged.

Indeed, even in the absence of such an order quashing the determination or declaring it void, the respondent could in my opinion seek to have the judgment set aside on the ground that there never was a determination. If for example a respondent could show that the document that was filed as being an adjudicator’s determination was a forgery, that would not be challenging the adjudicator’s determination. Similarly, in my opinion, if the respondent could show that for some other reason recognised in law a purported adjudicator’s determination did not amount to an adjudicator’s determination within the meaning of the Act, that would not be challenging an adjudicator’s determination: this, as indicated above, assumes that there is such a determination to be challenged. Conceivably, the availability of that remedy could itself be a ground for refusing relief in the Supreme Court, on the basis that the same matter could more conveniently be relied on in an application to set aside the judgment; but that was not a matter relied on by the primary judge. (Emphasis added.)

19                Thus it is open to the applicant to prove, if it can, that “for some other reason recognised in law a purported adjudicator’s determination did not amount to an adjudicator’s determination within the meaning of the Act”.  This court may entertain an application directed to that purpose.  That the determination was a nullity is precisely the argument the applicant makes.  It is unnecessary for the applicant to seek prerogative relief to proceed.

20                Hodgson JA observed that even where, for various reasons, an adjudicator’s determination is void, once a determination has been filed, “the resulting judgment is not void.”  He explained, however, that application can then be made to set aside the judgment.[3]  It is implicit in His Honour’s judgment, however, that a judgment entered on the basis of a void determination is liable to be set aside as having been entered irregularly.

21                The second jurisdictional argument made by the respondent is that s.46, the privative clause in the Construction Contracts Act, excludes judicial review of decisions made by adjudicators. It contends that, by its motion, the applicant effectively seeks a review of the determination.  It submits that this is problematic for three reasons:  the privative clause excludes virtually all reviews; the body vested with the limited power to conduct such reviews is the Western Australian State Administrative Tribunal; and the Local Court, being an inferior court of limited jurisdiction, is not vested with powers of judicial review in any event.

22                It is true that s. 46 provides that a decision or determination of an adjudicator on an adjudication cannot be appealed against or reviewed except in very limited circumstances, none of which apply in this case.  This, however, is not an application for a review of the adjudicator’s decision or determination.  The applicant’s submission is that there was, in fact, no determination because the purported determination was void ab initio.  I will come to that point shortly, but it suffices to say that a review of the determination is essentially a review of the merits of that decision.  That is beside the point here:  the question raised by the applicant is not whether the correct or preferable decision was made but whether a decision falling within the scope of the relevant provisions of the Construction Contracts Act ever came into existence.  That is an issue this court can investigate.

23                I conclude, therefore, that this court has jurisdiction under Rule 36.15 to deal with the motion.

Was the determination a nullity?

(i)   The adjudicator’s refusal to disqualify himself for apprehended bias

24                The first limb of the argument raised by the applicant raises the question whether the adjudicator, by reading the “without prejudice” letter and refusing the applicant’s request, on the grounds of apprehended bias, to disqualify himself, vitiated the arbitration process so as to render the determination void from the outset.

25                The applicable test whether an adjudicator should disqualify him- or herself is exactly the same, making the necessary changes, as the test in relation to the judiciary.  When it is alleged that a judicial officer has been or may be actuated by bias, the High Court has on many occasions held that the test to be applied is “whether fair-minded people might reasonably apprehend or suspect that the judge has prejudged or might prejudge the case.” [4]  In Gascor v Ellicott [5], the Victorian Court of Appeal stated that the test in relation to adjudicators was “whether, in all the circumstances, a fair-minded lay observer with knowledge of the material objective facts might entertain a reasonable apprehension that the [adjudicator] might not bring an impartial and unprejudiced mind to the resolution of the matters before him.”

26                This is a question of fact.  There is no rule of law or practice that the mere fact that a judge or adjudicator has innocently seen a “without prejudice” document requires his or her disqualification.  All the relevant circumstances must be examined.

27                Before considering the facts of this matter, it is convenient to survey the relevant principles and how they have been applied in other cases.  Counsel for the applicant referred to three cases.  In Pindan Pty Ltd v Uniseal Pty Ltd [6], McKechnie J heard an application to set aside an adjudicator’s award.  Three matters were raised which were said by the applicant, singly and taken together, to constitute grounds for a reasonable apprehension of bias on the adjudicator’s part.  The application was dealt with ex tempore by His Honour.

28                One of the matters raised by the applicant was that two days after his award was released, the adjudicator had received a copy of a “without prejudice” letter with an offer of settlement sent by one of the parties to the other.  His Honour commented, without further elaboration, “This letter would have inevitably raised a reasonable apprehension of bias had the adjudicator seen it and in that event I would have no apprehension in acting [to remove the adjudicator]”[7].

29                In the circumstances of the case, however, McKechnie J considered that no reasonable apprehension of bias had arisen.  The adjudicator had not read the letter, was unaware of its contents other than the fact that it was an offer of settlement and had ordered its destruction.

30                Five points should be made.  First, while it is obvious, as McKechnie J said, that “communications of this nature by one party to the adjudicator are always dangerous”[8], all the circumstances require examination.

31                Second, His Honour’s remarks were expressed in the context of an ex tempore judgment in which he did not carry out a close analysis of the finer nuances and possible variations on the theme he was addressing nor conduct a close assay of the authorities on the question.

32                Third, while his remarks were trenchant, because they were obiter dicta he did not expose his reasoning process.  No doubt he would have done so had the adjudicator read the letter. While his opinion has attractive simplicity, it does not seem to me to be inevitable that a reasonable apprehension of bias arises whenever an adjudicator or, for that matter, a member of the judiciary is accidentally and innocently exposed to the contents of a “without prejudice” letter. McKechnie J cannot have intended to imply that such a fixed and unyielding rule will always be applicable.

33                Fourth, there is no particular reason why well-trained, independent, impartial adjudicators should be any less capable than the judiciary of putting aside irrelevantly prejudicial material forwarded by one party from their considerations.  The problem with such communications as these is that a reasonable view may be taken that one party has secretly sought and possibly found favour with the judge or adjudicator. Transparency in declaring the mishap may, in some circumstances, be sufficient to allay any reasonable apprehensions that would otherwise be inevitable.

34                Finally, as is shown in the next case to be considered, the greater danger of prejudice being caused by a decision-maker reading “without prejudice” material lies in the possibility of distortion of the decision-making process rather than in one party surreptitiously gaining an unfair advantage.  Parties must have confidence that their negotiations will remain confidential and that, if their settlement discussions are unfruitful, the court will decide the case on the merits of the admissible evidence and submissions, and will not be distracted from that task by irrelevant material which may be misleading or be misused.

35                In MW Nominees Pty Ltd v Copland  [9], a decision of the South Australian Supreme Court, the appellants sought an order that a magistrate be disqualified from hearing a civil matter.  The magistrate had declined to disqualify himself.  Among the grounds upon which the appellants had requested the magistrate to disqualify himself was a contention that, during interlocutory proceedings, the magistrate had read “highly prejudicial statements” made in an affidavit sworn by the unrepresented defendant.  Bleby J held that this was, of itself, insufficient to justify disqualification:  “Judges and Magistrates must often read highly prejudicial material for the purpose of determining its admissibility which they must then ignore if the evidence is not admitted.  That is a necessary part of the judicial function and cannot result in disqualification.”[10]

36                More significantly, however, the magistrate had presided at a type of conciliation conference in which “without prejudice” negotiations were conducted.  Bleby J said[11]:

Whether, [after participating in such a conference], the magistrate is disqualified will depend on the perceptions of a reasonable person as to what the magistrate was told and what he or she said at the conference.  There are many ways in There are many ways in which a judicial officer can assist parties to come to a resolution of their differences without compromising the officer’s further participation in the proceedings. However, once the officer becomes aware of offers or other material which would normally be without prejudice and not come to his or her attention in the course of a trial, then the perception of the judicial officer’s role and the perception of bias takes on a different complexion. Indeed, that appears to be recognised in r89(3) of the Magistrates Court (Civil) Rules 1992:

“(3) No offer or admission made at a conciliation or listing conference or directions hearing may be communicated to the judicial officer hearing the trial of the action, until final judgment is given.”

On the evidence before me, there was information of that kind exchanged in the presence of the Magistrate, such as to cause a fair-minded person reasonably to apprehend that the Magistrate might not decide the case impartially, but rather according to his perception of how far one party or the other might be prepared to go. That perception can only be reinforced by the contemporaneous observation of the Magistrate to the effect that, as a result of his participation in the conference, he would be disqualified from hearing the case.

37                It is because the judiciary may be perceived as being liable to be swayed, or as having been swayed, by the knowledge of how far one or both parties are prepared to go, or because they may in fact be subconsciously swayed, that there are strict rules of evidence and procedure that quarantine settlement negotiations from the courts.  Courts are obliged to make their findings and decisions on the legal merits.  The pragmatic commercial considerations that parties take into their settlement discussions are irrelevant and apt to mislead or to distort the court’s decision-making processes, or to give rise to the impression that they may do so, if revealed in the course of the proceedings.

38                In Smales Jewellers v Protea Diamonds Pty Ltd [12], a decision of the WA District Court, the court heard an appeal from a magistrate who had refused to disqualify herself from hearing a matter.  During a pre-trial directions hearing, she had inquired whether there were prospects of settlement.  For reasons that are unclear, counsel for the plaintiff then spent some time outlining the “without prejudice” communications between the parties.  This appears to have been done without protest from the defendant and without interruption from the magistrate.  Yeats DCJ remarked [13]:

While the Local Court Act clearly refers to “evidence” the overall intention and the principles of pre-trial case management require that those settlement negotiations will not be brought to the attention of the trial Magistrate. Whether they come there as evidence or come through submissions from the Bar table, I consider that the intention of the Act is that parties should not be prejudiced in any way by settlement negotiations conducted prior to trial…

Once the plaintiff’s counsel set out the details of not only what had gone on at the pre-trial conference but also the “without prejudice” negotiations between the parties, the learned Magistrate should have arranged for another Magistrate to hear this matter. Once those matters have been raised with her I consider that she has been tainted and should not conduct the trial. In her Reasons for refusing the application to disqualify herself the learned Magistrate said she no longer can remember what was said to her. That is not an answer. In this area, it is the apprehension by the parties or a reasonable member of the public of bias that is of concern, not actual bias. The test which is to be applied when bias is raised has been clearly laid down.

39                In Re The Queen and Judge Leckie; Ex parte Felman [14], the issue for the High Court arose when a County Court judge ordered that the applicant, whom the judge had placed on a recognizance for five years, be called up to determine whether Mr Felman had breached his recognizance.  At the time the alleged breach was reported and Mr Felman was called up, the judge had seen court papers and other materials of a prejudicial nature.  When the matter came on for hearing, Mr Felman requested that the judge disqualify himself because he had seen that material.  He declined.  When the matter eventually came to the High Court, Mr Felman’s application was again unsuccessful. Gibbs J made a number of noteworthy observations:

The rules of natural justice will not be infringed unless the suspicion that the judge has prejudged the case, or is biased, or will act unfairly is a reasonable one in all the circumstances.  It must be a suspicion that a right-minded person would form.  An irrational and groundless suspicion is not enough…

40                Even where there is a communication between a judge and a party or a party’s lawyers, Gibbs J did not consider that the judge would invariably be disqualified.  “The question remains”, he said, “whether the fact that such a communication has been made would raise a reasonable suspicion that the judge will not or cannot deal with the case fairly or impartially.”[15]  In Felman, he took the view that no fair-minded person “could believe that the judge would decide this matter, not on the evidence laid before him, but because of something he had read in the material previously put before him.” [16]

41                This may have been an optimistic assessment of what people can and cannot believe about the judiciary but it is qualified by the fact that the test presupposes the notional observer has full knowledge of all the relevant facts and is fair-minded.

42                Jacobs J had a firm view on the question[17]:

There is no rule that, when information about a matter outside the evidence or prior to the hearing inter partes is made known to a judge, that judge is or even may be disqualified upon the ground that there is a real and reasonable suspicion that the information may create prejudice in the mind of the judge.  It may be different in some circumstances when the tribunal is a quasi-judicial one because its members are not necessarily trained to be free of prejudice.  It may be different again when a judicial tribunal is composed of lay persons.  But a judge is selected for judicial office because of his learning and training in the law, his integrity and capacity for impartiality.  The combination of these factors results in a judge being assumed to bring a detached mind to his task of judgment even if material may have been placed before him results in a prima facie view being formed by him on those facts.  The clearest example is the application for ex parte injunction.  I deplore any generalizations on the subject matter of natural justice in relation to suspicion of bias, and I resist the proposition that superior courts in their supervisory function can apply to all inferior tribunals, however constituted, in determining whether or not there has been a breach of the rules of natural justice relating to suspected bias.

43                In this case, Ace argues that the adjudicator correctly declined to disqualify himself for a number of reasons.  It says, first, that ECR bears the onus of proving that the “without prejudice” document was inadmissible before the adjudicator but that it cannot do so because the adjudicator is not bound by the rules of evidence.

44                It is true that the adjudicator is not bound by the rules of evidence but that is not an answer to the complaint made by ECR.  Its position is that, once the adjudicator was acquainted with the terms of the “without prejudice” letter, he was tainted because, through no fault of his own, he had been placed in a position where he knew how far ECR was prepared to go to settle the matter.

45                More significantly, however, Ace says that ECR, in an open letter sent one day before the “without prejudice” letter, conceded a sum of $17,000 plus GST whereas the offer of settlement was for less than this.  It argues, therefore, that it cannot be said that there is any prejudice to be suffered by the disclosure of the sum offered in the “without prejudice” letter.  Ace argues that a fair-minded observer with knowledge of those facts would, therefore, be unlikely to apprehend that the adjudicator would be unduly and improperly swayed.

46                Ace also argues that there is no evidence suggesting that the adjudicator was actually biased or that he relied in any way on the document in question.  That may be correct but, notwithstanding the approach taken by McKechnie J in Pindan, it seems to me to be an irrelevant consideration when the question is one of apprehended bias. Apprehension is a consideration or attitude relating to future events. In this case, the relevant time to ask a question about apprehended bias, as opposed to actual bias, was after the adjudicator received the letter and before he delivered his determination.  Whether events or evidence proved after the event that he was unbiased is irrelevant to the question whether there was a reasonable apprehension before his decision was made that he may have been prejudiced by the letter.

47                Nevertheless, I agree with the remarks of Jacobs J in Felman.  I do not think that there is a rigid rule to be applied regardless of circumstances.  I do not understand the remarks of McKechnie J in Pindan or those of Bleby J in MW Nominees v Copland to state otherwise.  Given the authorities I have considered, it seems to me that it is probably fair to assume that there is a rebuttable presumption that if an adjudicator or judge reads “without prejudice” material, a reasonable apprehension of bias arises in such circumstances.  At the very least, an evidentiary burden must lie upon the party asserting that it does not.

48                In this case, it seems to me that the peculiar circumstance of ECR openly conceding a liability in the sum of $17,000 (plus GST) one day before making a lesser settlement offer negatives any untoward influence the “without prejudice” letter might have had upon the attitude and analysis of the adjudicator as to the true merits of the case.   When those circumstances are taken into account, I think that it is unlikely that the notional fair-minded observer, armed with full knowledge, would have apprehended bias or prejudgment on Mr Machell’s part.

49                The contention that the determination is a nullity on this ground therefore fails.

(ii)        Did the adjudicator deny ECR a fair hearing by rejecting its Response?

50                The third argument made by the applicant is that determination is a nullity because the adjudicator denied ECR natural justice by refusing to consider its adjudication response of 15 June 2007.  Here I think the applicant is on stronger ground. Raising an issue of natural justice, this argument falls within the same broad category of arguments as the first and, for convenience, I will deal with it out of order.

51                Before considering the arguments, it is necessary to sketch in the legislative architecture for the adjudication of disputes under the Construction Contracts Act. 

52                Section 14 provides that construction contracts imply a condition that contractors are entitled to be paid for performing their obligations under such contracts.  Section 15 then provides that contractors are entitled to make progress payment claims. Divisions 3, 4 and 5 of Schedule 1 of the Act set out the procedure for making progress claims and responding to them. It is unnecessary to set out the details here.

53                Like similar legislation in other states, the Construction Contracts Act, to keep up a steady cash flow for construction contractors, institutes a mechanism for the quick and relatively informal resolution of payment disputes.  In the ordinary case, s. 26 allows 28 days after a dispute arises for a party to apply for adjudication of the dispute.  Section 27 then requires that, within 14 days of service of the application for adjudication, the respondent serve its written response on the applicant and the appointed adjudicator.

54                In this case, the application for adjudication was served on 1 June 2007.  On 8 June, the respondent requested the adjudicator to disqualify himself.  On 12 June, Mr Machell delivered his decision declining to do so.  On 15 June, the adjudication response was sent to Mr Machell.  It was emailed on that day and faxed on 18 June.  Mr Machell acknowledged receipt on 20 June when he sought further submissions from both parties. The response was also emailed to Ace on 15 June.  It appears to have been caught by Ace’s email spam-killer software.  According to Ace’s solicitors, it was only on 18 June that they became aware of the fact that the email had been sent.

55                On 26 June 2007, Ace wrote to Mr Machell submitting that he should not have regard to the adjudication response (which it described as a “purported Response”) because ECR had not served it on Ace by hand or by mail in accordance with the statutory requirements of the Interpretation Act 1984 (WA).  Section 75 of that Act deals with service by post.  Section 76 has wider significance.  It provides that service may be effected by various means including personal delivery, delivery by post, by leaving the document at the last known place of abode or business of the person to be served or, in the case of a corporation, by delivering or leaving the document at its principal place of business or principal office in WA, or by posting it to that address. The methods of service outlined in the section do not, however, include email or fax.

56                Ace, having put the argument that the adjudicator should not have regard to the response, then proceeded in great detail to analyse and criticise ECR’s adjudication response as if it had been properly served.

57                The adjudicator took the view that response had not been served in accordance with the methods outlined by the Interpretation Act and therefore had not been validly served in accordance with the requirements of the Construction Contracts Act. He concluded that service of the response by mail or hand delivery in accordance with s.76 of the Interpretation Act was required before the response could be considered in the course of the adjudication and that ECR’s response was, therefore, inadmissible.

58                The applicant argues that the adjudicator was wrong in accepting Ace’s submissions.

59                In relation to service, ECR argues that s.76 of the Interpretation Act is facultative rather than prescriptive and that the methods of service set out in the section do not constitute not a fixed or closed list.

60                In Capper v Thorpe [18], the High Court considered the proper construction of s.76 in the context of a case in which a vendor had purported to serve a purchaser with a default notice in accordance with the terms of a conveyancing contract.  In the first place, it held that s.6 of the Sale of Land Act 1970 (WA) concerning service of written notice was a protective provision and should not be construed so as to “undermine or frustrate the achievement of the clear legislative purpose.”[19]  It considered the concept of “service” under the general law [20]:

Under s 6 of the Act, a terms contract cannot be determined or rescinded on account of breach by the purchaser unless “the vendor has served on the purchaser” the requisite notice in writing. The notice must give 28 days to remedy the breach where the breach consists of a failure to pay money, or give a reasonable time to remedy the breach where it does not involve the payment of money. Where a statutory provision, such as s 6, requires a document to be “served”, the statutory command is ordinarily perceived as requiring the contents of the document to be delivered to the person to be served. However, unless the statute says so, a document may be “served” although it is not personally served. Thus, it may be served by posting it to the person required to be served. In many statutory contexts, a document may also be “served” when it is brought to the notice of the person who has to be served. At all events, it will be “served” in such contexts if the efforts of the person who is required to serve the document have resulted in the person to be served becoming aware of the contents of the document. Thus, in Ex parte Portingell [1892] 1 QB 15 at 16, the English Court of Appeal held that a notice of objection had been “served on” the applicant for renewal of a licence when it was handed to a boy of 14 on the licensed premises and the magistrates inferred that “the notice had in fact come to the hands of the applicant”.

61                It later went on to hold that “the ordinary meaning of ‘served on the purchaser … in writing’ therefore requires that the writing be brought to the attention of the purchaser by the efforts of the vendor or those acting on his or her behalf.  That meaning is extended by the terms of ss.75 and 76.” [21]

62                These observations make clear that, in the particular case, the High Court was reluctant to construe protective legislation in a way that would reduce or result in the loss of rights.  In Capper v Thorpe, in the paragraph preceding the passage just cited, the Court said [22]:

But it is one thing to hold that the Legislature recognised that, by reason of s 31 [of the repealed 1918 Interpretation Act], situations could arise where the contract would be terminated although the purchaser had not received the notice. It is a different matter altogether to conclude that the Legislature intended that any attempted communication that was apt to bring a notice to the attention of the purchaser meant that “the vendor [had] served on the purchaser a notice in writing”. In particular, it does not follow that in enacting s 6 the Legislature of Western Australia accepted that the parties could agree that the purchaser should be deemed to be served by communications or attempted communications falling outside the provisions of ss 75 and 76. There is nothing in the language of s 6 or the legislative debates which gives any ground for inferring that the Legislature intended that s 6 should cover cases of deemed service other than those laid down in the then s 31 of the 1918 Act.

63                Read in one way, this passage appears to provide support for Ace’s contention that s.76 closed the categories of methods of service.

64                A closer reading, however, shows that the High Court’s construction was intended to limit the ways in which persons to whom notices were sent or addressed could be deemed to have received them.  As the Court noted in the passage cited above at [60], a notice “will be ‘served’ … if the efforts of the person who is required to serve the document have resulted in the person to be served becoming aware of the contents of the document.” [23]

65                In my view, provided that the person to be served is made aware of the contents of the document, s.76 of the Interpretation Act does not exclude service in ways other than those listed in the section.  It merely increases the number of methods by which the contents of the documents are deemed or presumed to have been brought to the attention of the person served.

66                If Ace’s spam-killer software siphoned the email message and attachments into a “junk mail” folder on its email system, this was, from an administrative perspective, no different to it misplacing and failing to open a postal mail delivery. ECR, of course, was not in a position to know what arrangements the solicitors had for email filtering. It could not, from its end of the digital pipeline, open the document for Ace. For all practical purposes, in my opinion, it acted reasonably in bringing its response to Ace’s attention and, therefore, had properly served its response on Ace.

67                It follows therefore that the adjudicator’s decision on this point was incorrect and that he should have read and taken ECR’s response into consideration.

68                If I am wrong in taking the view that the email constituted sufficient service, the adjudicator was, nevertheless, well aware that, within a few days of the email being sent, Ace had discovered the emailed document, had digested its contents, had prepared submissions in response to it and was in no way prejudiced by the method or timing of the service of the response.  He was aware that there had been substantial compliance with s.27 for all practical purposes, the object of the section being that applicants and adjudicators be served within 14 days with a documented response.  That had been achieved.

69                Section 30 of the Construction Contracts Act states that “the object of an adjudication of a payment dispute is to determine the dispute fairly and as quickly, informally and inexpensively as possible.”  Section 32 provides that the adjudicator must take into account any properly served response and is not bound by the rules of evidence.  It provides that the adjudicator may inform him- or herself “in any way he or she thinks fit”.  To obtain the required information, the adjudicator may request submissions and information and may set timetables for the provision of that material. The adjudicator is also given wide investigative powers of inspection and appointment of experts.

70                The applicant contends that the purpose of the scheme is to resolve disputes on their merits after a fair and informal inquisitorial process.  It argues that, even if the response was not served with all due formality under the procedure required by s.27, because he was obliged and entitled to inform himself about all relevant data, the adjudicator had the statutory discretion to admit the response and ought to have done so.

71                Ace, on the other hand, argues that this court is not entitled to consider questions of procedural fairness or natural justice because to do so would be, in effect, to conduct a judicial review of the adjudicator’s decision, a process specifically excluded by operation of s.46.  For the reasons given above at [21]-[24], however, I consider that this is not a review and the argument misconceived.  It also argues that there is, in any event, no evidence of procedural unfairness.

72                I disagree. The refusal by the adjudicator to admit and consider the response resulted in a process that inevitably was procedurally unfair.  Natural justice or procedural fairness consists essentially in two things:  a fair, detached tribunal and each party having an appropriate opportunity of being heard [24].  No suggestion of bad faith on Mr Machell’s part is made but the fact remains that ECR was incorrectly refused the chance to put its case.  Ordinarily, a material denial of natural justice will render a subsequent decision void.  In Plaintiff S157/2002 v The Commonwealth [25], Gleeson CJ said:

Subject to any such statutory provision, denial of natural justice or procedural fairness will ordinarily involve failure to comply with a condition of the exercise of decision-making power, and jurisdictional error. In 1885, the consequences of such failure were described by Lord Selborne in Spackman v Plumstead District Board of Works (1885) 10 App Cas 229, a case concerning the potential for judicial review of an architect’s decision as to where a building line should be. The architect’s decision-making authority was conferred by statute. His Lordship said (at 239) that, by directing the architect to decide the building line, the statute (by implication) imposed upon him a duty to decide it to the best of his judgment, independently and impartially. His Lordship then said (at 240):

“No doubt, in the absence of special provisions as to how the person who is to decide is to proceed, the law will imply no more than that the substantial requirements of justice shall not be violated. He is not a judge in the proper sense of the word; but he must give the parties an opportunity of being heard before him and stating their case and their view. He must give notice when he will proceed with the matter, and he must act honestly and impartially and not under the dictation of some other person or persons to whom the authority is not given by law. There must be no malversation of any kind. There would be no decision within the meaning of the statute if there were anything of that sort done contrary to the essence of justice.”

73                As this determination was produced by a fatally flawed process, there was “no decision within the meaning of the statute” to register as an enforceable judgment in NSW.  It follows that the judgment was entered irregularly and should be set aside.

74                The second issue broached by the applicant was the question whether Ace’s application was time-barred.  Given that I have concluded for another reason that the judgment should be set aside, it is unnecessary to deal with that issue.

Order

75                The motion is granted.

76                The judgment registered in the Downing Centre Registry on 25 July 2007 is set aside.

77                The respondent, Ace, is to pay the applicant’s costs of disposal of the motion.

Hugh Dillon

Magistrate

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Reasons for Decision

 

1                 The plaintiff, Ace Constructions & Rigging Pty Ltd, agreed to supply rigging supervisors to the defendant on its construction site in Port Hedland, Western Australia.  ECR International Pty Ltd, the defendant and applicant on the motion, is a civil engineering company.  The contract was governed by the provisions of the Constructions Contracts Act 2004 (WA) which is similar in most respects to the NSW Building and Construction Industry (Security of Payments) Act 1999.

2                 The Construction Contracts Act provides a mechanism for the claiming of progress payments and the adjudication of disputes concerning them.  Similar procedures are found in all analogous legislation throughout Australia.  The policy underlying this type of legislation to ensure that builders and sub-contractors carrying out construction work receive regular cash flow and do not have to await the end of a construction project to be paid. To that end, rights to litigate disputes are significantly curtailed and disputes are subject to compulsory arbitration.  Strict timetables are enforceable.

3                 The defendant moves for an order setting aside a judgment entered against it in this court after an adjudication or arbitration on the basis that the judgment was entered irregularly.  Rule 36.15 of the Uniform Civil Procedure Rules gives the court a discretion to set aside judgments entered “irregularly, illegally or against good faith.”  The judgment in question was entered after a determination was made by an adjudicator pursuant to s.31(2) of the Construction Contracts Act 2004.  Section 43 provides that such determinations may be enforced in the same manner as judgments entered in a court of competent jurisdiction.  It is conceded by the applicant, ECR, that the NSW Local Court is such a court.

4                 ECR, however, argues that, for three reasons, the determination ought not to have been registered as a judgment in the Local Court of NSW.  In summary, it says, first, that the determination was a nullity because the adjudicator failed to apply the rules of natural justice when asked by the defendant to disqualify himself.  Second, it says that the adjudicator had no jurisdiction to deal with the dispute because it was time-barred by the Construction Contracts Act.  Third, it submits that the adjudicator also denied the defendant natural justice by disregarding the defendant’s formal written response to the claimant’s application for an adjudication.

5                 ACE’s position is that the application is premature because no declaration that the adjudicator’s determination is void has been made.  (This court, of course, has no power to offer equitable relief in the nature of declarations or certiorari.)  Second, it contends that s.46 of the Construction Contracts Act places strict limits on the circumstances in which an adjudicator’s determination may be reviewed judicially.  The current case does not fall within the scope of s.46.  Third, it argues that the determination was, in any event, a fair and correct one and that there is no proper basis on which it could be found to have been tainted or vitiated by procedural unfairness.

The issues

6                 Taking these arguments into account, the issues distilled are these:  first, the threshold question is whether this court has jurisdiction to entertain the current application. 

7                 Second, if the court does have such jurisdiction, the ultimate question is whether the judgment was entered irregularly?  That question can only be answered by considering whether the applicant was denied natural justice by the adjudicator.  Within that broader topic, two further questions arise:  was the adjudicator obliged to disqualify himself after seeing “without prejudice” correspondence between the parties?  And did the adjudicator deny the applicant procedural fairness by rejecting its written response to the application for adjudication on the grounds that it had not been properly served?  That in turn raises the question, what is proper service for the purposes of s.27 of the Construction Contracts Act?.

The background to the motion

8                    The facts in the matter are not significantly in dispute.  The parties entered their agreement in October 2006.  The two riggers sent by the plaintiff to work on ECR’s Port Hedland site commenced work there in November 2006.  ECR considered them to be incompetent for the work they were required to carry out.  This led to the dispute between the parties.

9                    In December 2006, Ace issued an invoice in the sum of $25,000 to ECR pursuant to the contract.  In January 2007, ECR refused to pay on the grounds that number of hours claimed for the services of the two riggers was overstated and the incompetence of the riggers.  In effect, ECR claimed a failure of consideration.

10                On 20 March 2007, ECR made a “without prejudice” offer to settle the matter.  That offer was not accepted.

11                On 1 June 2007, Ace served ECR with an application for adjudication under the provisions of the Construction Contracts Act.  In accordance with the procedures set out by the Act, on about 6 June Mr Richard Machell was appointed by the Institute of Adjudicators and Mediators Australia as the adjudicator.  Unfortunately, among the papers served upon the Institute with the application, was the “without prejudice” letter of 20 March 2007.  Mr Machell read that letter.

12                On 8 June, ECR’s solicitors, having discovered that Mr Machell had read the letter, requested that he disqualify himself from determining the dispute on the grounds of apprehended bias.  It made written submissions to him on that point.  Ace’s solicitors informed ECR’s that it had no objection to Mr Machell disqualifying himself if he chose that course.

13                On 12 June, Mr Machell delivered a decision in which he declined to disqualify himself.  In a written decision of some 33 paragraphs, he set out his reasons.  ECR’s solicitors notified Mr Machell that it continued its involvement in the arbitration under protest.  This was clearly marked on its subsequent written response to Ace’s application and other submissions made to Mr Machell.  The response was sent by email on 15 June – within the 14-day period required by s.27 of the Construction Contracts Act – to both Ace and Mr Machell. 

14                The arbitration appears to have proceeded solely by way of written submissions and evidence being tendered by the parties to Mr Machell.  Both parties tendered evidence and made their submissions to him.  As noted above, Mr Machell, however, refused to admit into evidence ECR’s written response to the application because he considered that it had not been served in accordance with the requirements of s.27.  In the course of the arbitration, Mr Machell sought and received further submissions on a number of issues from the parties.  He delivered his decision on 29 June 2007. 

15                On the same day, ECR’s solicitors notified Ace’s solicitors that it proposed to challenge Mr Machell’s decision in any court in which Ace sought to enforce the adjudicator’s determination.  It outlined the grounds upon which it asserted that Mr Machell’s determination was a nullity, namely, that he had denied ECR natural justice by refusing to disqualify himself; that he had, in any event, been without jurisdiction because Ace’s application for arbitration was time-barred; and, finally, Mr Machell had refused to consider ECR’s adjudication response, thus denying it natural justice.

Does this court have jurisdiction to set aside the judgment?

16                The respondent contends that the application to set aside the judgment is premature because the adjudicator’s determination has not been quashed or declared void by a court with jurisdiction to offer such relief.  (The Local Court, of course, has no such powers.)

17                Counsel for the respondent, citing the Court of Appeal’s decision in Brodyn Pty Ltd v Davenport [1], contends that, absent a declaration that the determination was void or order in the nature of certiorari quashing the determination, the judgment can only be set aside if the applicant proves that there is no determination within the meaning of the Construction Contracts Act.    

18                In Brodyn, the Court of Appeal held that the primary judge in the District Court had erred in the exercise of his discretion in refusing to set aside a judgment entered because he had wrongly forecast how prerogative relief might affect the issue.  In dealing with the question of the exercise of the discretion to set aside a judgment entered after the registration of an adjudicator’s determination under the Building and Construction Industry (Security of Payments) Act (NSW), Hodgson JA, with whom the other members of the court agreed, said[2]:

Further, in my opinion an order of the Supreme Court quashing the determination or declaring it to be void could itself support the setting aside of the judgment. In my opinion, if the determination was quashed or declared void, reliance on there being no determination to support the judgment would not be to challenge the adjudicator’s adjudication within s.25(4): this wording assumes that there is a determination which is challenged.

Indeed, even in the absence of such an order quashing the determination or declaring it void, the respondent could in my opinion seek to have the judgment set aside on the ground that there never was a determination. If for example a respondent could show that the document that was filed as being an adjudicator’s determination was a forgery, that would not be challenging the adjudicator’s determination. Similarly, in my opinion, if the respondent could show that for some other reason recognised in law a purported adjudicator’s determination did not amount to an adjudicator’s determination within the meaning of the Act, that would not be challenging an adjudicator’s determination: this, as indicated above, assumes that there is such a determination to be challenged. Conceivably, the availability of that remedy could itself be a ground for refusing relief in the Supreme Court, on the basis that the same matter could more conveniently be relied on in an application to set aside the judgment; but that was not a matter relied on by the primary judge. (Emphasis added.)

19                Thus it is open to the applicant to prove, if it can, that “for some other reason recognised in law a purported adjudicator’s determination did not amount to an adjudicator’s determination within the meaning of the Act”.  This court may entertain an application directed to that purpose.  That the determination was a nullity is precisely the argument the applicant makes.  It is unnecessary for the applicant to seek prerogative relief to proceed.

20                Hodgson JA observed that even where, for various reasons, an adjudicator’s determination is void, once a determination has been filed, “the resulting judgment is not void.”  He explained, however, that application can then be made to set aside the judgment.[3]  It is implicit in His Honour’s judgment, however, that a judgment entered on the basis of a void determination is liable to be set aside as having been entered irregularly.

21                The second jurisdictional argument made by the respondent is that s.46, the privative clause in the Construction Contracts Act, excludes judicial review of decisions made by adjudicators. It contends that, by its motion, the applicant effectively seeks a review of the determination.  It submits that this is problematic for three reasons:  the privative clause excludes virtually all reviews; the body vested with the limited power to conduct such reviews is the Western Australian State Administrative Tribunal; and the Local Court, being an inferior court of limited jurisdiction, is not vested with powers of judicial review in any event. 

22                It is true that s. 46 provides that a decision or determination of an adjudicator on an adjudication cannot be appealed against or reviewed except in very limited circumstances, none of which apply in this case.  This, however, is not an application for a review of the adjudicator’s decision or determination.  The applicant’s submission is that there was, in fact, no determination because the purported determination was void ab initio.  I will come to that point shortly, but it suffices to say that a review of the determination is essentially a review of the merits of that decision.  That is beside the point here:  the question raised by the applicant is not whether the correct or preferable decision was made but whether a decision falling within the scope of the relevant provisions of the Construction Contracts Act ever came into existence.  That is an issue this court can investigate.

23                I conclude, therefore, that this court has jurisdiction under Rule 36.15 to deal with the motion.

Was the determination a nullity?

(i)   The adjudicator’s refusal to disqualify himself for apprehended bias

24                The first limb of the argument raised by the applicant raises the question whether the adjudicator, by reading the “without prejudice” letter and refusing the applicant’s request, on the grounds of apprehended bias, to disqualify himself, vitiated the arbitration process so as to render the determination void from the outset.

25                The applicable test whether an adjudicator should disqualify him- or herself is exactly the same, making the necessary changes, as the test in relation to the judiciary.  When it is alleged that a judicial officer has been or may be actuated by bias, the High Court has on many occasions held that the test to be applied is “whether fair-minded people might reasonably apprehend or suspect that the judge has prejudged or might prejudge the case.” [4]  In Gascor v Ellicott [5], the Victorian Court of Appeal stated that the test in relation to adjudicators was “whether, in all the circumstances, a fair-minded lay observer with knowledge of the material objective facts might entertain a reasonable apprehension that the [adjudicator] might not bring an impartial and unprejudiced mind to the resolution of the matters before him.”

26                This is a question of fact.  There is no rule of law or practice that the mere fact that a judge or adjudicator has innocently seen a “without prejudice” document requires his or her disqualification.  All the relevant circumstances must be examined.

27                Before considering the facts of this matter, it is convenient to survey the relevant principles and how they have been applied in other cases.  Counsel for the applicant referred to three cases.  In Pindan Pty Ltd v Uniseal Pty Ltd [6], McKechnie J heard an application to set aside an adjudicator’s award.  Three matters were raised which were said by the applicant, singly and taken together, to constitute grounds for a reasonable apprehension of bias on the adjudicator’s part.  The application was dealt with ex tempore by His Honour. 

28                One of the matters raised by the applicant was that two days after his award was released, the adjudicator had received a copy of a “without prejudice” letter with an offer of settlement sent by one of the parties to the other.  His Honour commented, without further elaboration, “This letter would have inevitably raised a reasonable apprehension of bias had the adjudicator seen it and in that event I would have no apprehension in acting [to remove the adjudicator]”[7]. 

29                In the circumstances of the case, however, McKechnie J considered that no reasonable apprehension of bias had arisen.  The adjudicator had not read the letter, was unaware of its contents other than the fact that it was an offer of settlement and had ordered its destruction.

30                Five points should be made.  First, while it is obvious, as McKechnie J said, that “communications of this nature by one party to the adjudicator are always dangerous”[8], all the circumstances require examination. 

31                Second, His Honour’s remarks were expressed in the context of an ex tempore judgment in which he did not carry out a close analysis of the finer nuances and possible variations on the theme he was addressing nor conduct a close assay of the authorities on the question. 

32                Third, while his remarks were trenchant, because they were obiter dicta he did not expose his reasoning process.  No doubt he would have done so had the adjudicator read the letter. While his opinion has attractive simplicity, it does not seem to me to be inevitable that a reasonable apprehension of bias arises whenever an adjudicator or, for that matter, a member of the judiciary is accidentally and innocently exposed to the contents of a “without prejudice” letter. McKechnie J cannot have intended to imply that such a fixed and unyielding rule will always be applicable. 

33                Fourth, there is no particular reason why well-trained, independent, impartial adjudicators should be any less capable than the judiciary of putting aside irrelevantly prejudicial material forwarded by one party from their considerations.  The problem with such communications as these is that a reasonable view may be taken that one party has secretly sought and possibly found favour with the judge or adjudicator. Transparency in declaring the mishap may, in some circumstances, be sufficient to allay any reasonable apprehensions that would otherwise be inevitable.

34                Finally, as is shown in the next case to be considered, the greater danger of prejudice being caused by a decision-maker reading “without prejudice” material lies in the possibility of distortion of the decision-making process rather than in one party surreptitiously gaining an unfair advantage.  Parties must have confidence that their negotiations will remain confidential and that, if their settlement discussions are unfruitful, the court will decide the case on the merits of the admissible evidence and submissions, and will not be distracted from that task by irrelevant material which may be misleading or be misused.

35                In MW Nominees Pty Ltd v Copland  [9], a decision of the South Australian Supreme Court, the appellants sought an order that a magistrate be disqualified from hearing a civil matter.  The magistrate had declined to disqualify himself.  Among the grounds upon which the appellants had requested the magistrate to disqualify himself was a contention that, during interlocutory proceedings, the magistrate had read “highly prejudicial statements” made in an affidavit sworn by the unrepresented defendant.  Bleby J held that this was, of itself, insufficient to justify disqualification:  “Judges and Magistrates must often read highly prejudicial material for the purpose of determining its admissibility which they must then ignore if the evidence is not admitted.  That is a necessary part of the judicial function and cannot result in disqualification.”[10]

36                More significantly, however, the magistrate had presided at a type of conciliation conference in which “without prejudice” negotiations were conducted.  Bleby J said[11]:

Whether, [after participating in such a conference], the magistrate is disqualified will depend on the perceptions of a reasonable person as to what the magistrate was told and what he or she said at the conference.  There are many ways in There are many ways in which a judicial officer can assist parties to come to a resolution of their differences without compromising the officer’s further participation in the proceedings. However, once the officer becomes aware of offers or other material which would normally be without prejudice and not come to his or her attention in the course of a trial, then the perception of the judicial officer’s role and the perception of bias takes on a different complexion. Indeed, that appears to be recognised in r89(3) of the Magistrates Court (Civil) Rules 1992:

 

“(3) No offer or admission made at a conciliation or listing conference or directions hearing may be communicated to the judicial officer hearing the trial of the action, until final judgment is given.”

 

On the evidence before me, there was information of that kind exchanged in the presence of the Magistrate, such as to cause a fair-minded person reasonably to apprehend that the Magistrate might not decide the case impartially, but rather according to his perception of how far one party or the other might be prepared to go. That perception can only be reinforced by the contemporaneous observation of the Magistrate to the effect that, as a result of his participation in the conference, he would be disqualified from hearing the case.

37                It is because the judiciary may be perceived as being liable to be swayed, or as having been swayed, by the knowledge of how far one or both parties are prepared to go, or because they may in fact be subconsciously swayed, that there are strict rules of evidence and procedure that quarantine settlement negotiations from the courts.  Courts are obliged to make their findings and decisions on the legal merits.  The pragmatic commercial considerations that parties take into their settlement discussions are irrelevant and apt to mislead or to distort the court’s decision-making processes, or to give rise to the impression that they may do so, if revealed in the course of the proceedings. 

38                In Smales Jewellers v Protea Diamonds Pty Ltd [12], a decision of the WA District Court, the court heard an appeal from a magistrate who had refused to disqualify herself from hearing a matter.  During a pre-trial directions hearing, she had inquired whether there were prospects of settlement.  For reasons that are unclear, counsel for the plaintiff then spent some time outlining the “without prejudice” communications between the parties.  This appears to have been done without protest from the defendant and without interruption from the magistrate.  Yeats DCJ remarked [13]:

While the Local Court Act clearly refers to “evidence” the overall intention and the principles of pre-trial case management require that those settlement negotiations will not be brought to the attention of the trial Magistrate. Whether they come there as evidence or come through submissions from the Bar table, I consider that the intention of the Act is that parties should not be prejudiced in any way by settlement negotiations conducted prior to trial…

Once the plaintiff’s counsel set out the details of not only what had gone on at the pre-trial conference but also the “without prejudice” negotiations between the parties, the learned Magistrate should have arranged for another Magistrate to hear this matter. Once those matters have been raised with her I consider that she has been tainted and should not conduct the trial. In her Reasons for refusing the application to disqualify herself the learned Magistrate said she no longer can remember what was said to her. That is not an answer. In this area, it is the apprehension by the parties or a reasonable member of the public of bias that is of concern, not actual bias. The test which is to be applied when bias is raised has been clearly laid down.

39                In Re The Queen and Judge Leckie; Ex parte Felman [14], the issue for the High Court arose when a County Court judge ordered that the applicant, whom the judge had placed on a recognizance for five years, be called up to determine whether Mr Felman had breached his recognizance.  At the time the alleged breach was reported and Mr Felman was called up, the judge had seen court papers and other materials of a prejudicial nature.  When the matter came on for hearing, Mr Felman requested that the judge disqualify himself because he had seen that material.  He declined.  When the matter eventually came to the High Court, Mr Felman’s application was again unsuccessful. Gibbs J made a number of noteworthy observations:

The rules of natural justice will not be infringed unless the suspicion that the judge has prejudged the case, or is biased, or will act unfairly is a reasonable one in all the circumstances.  It must be a suspicion that a right-minded person would form.  An irrational and groundless suspicion is not enough…

40                Even where there is a communication between a judge and a party or a party’s lawyers, Gibbs J did not consider that the judge would invariably be disqualified.  “The question remains”, he said, “whether the fact that such a communication has been made would raise a reasonable suspicion that the judge will not or cannot deal with the case fairly or impartially.”[15]  In Felman, he took the view that no fair-minded person “could believe that the judge would decide this matter, not on the evidence laid before him, but because of something he had read in the material previously put before him.” [16]

41                This may have been an optimistic assessment of what people can and cannot believe about the judiciary but it is qualified by the fact that the test presupposes the notional observer has full knowledge of all the relevant facts and is fair-minded.

42                Jacobs J had a firm view on the question[17]:

There is no rule that, when information about a matter outside the evidence or prior to the hearing inter partes is made known to a judge, that judge is or even may be disqualified upon the ground that there is a real and reasonable suspicion that the information may create prejudice in the mind of the judge.  It may be different in some circumstances when the tribunal is a quasi-judicial one because its members are not necessarily trained to be free of prejudice.  It may be different again when a judicial tribunal is composed of lay persons.  But a judge is selected for judicial office because of his learning and training in the law, his integrity and capacity for impartiality.  The combination of these factors results in a judge being assumed to bring a detached mind to his task of judgment even if material may have been placed before him results in a prima facie view being formed by him on those facts.  The clearest example is the application for ex parte injunction.  I deplore any generalizations on the subject matter of natural justice in relation to suspicion of bias, and I resist the proposition that superior courts in their supervisory function can apply to all inferior tribunals, however constituted, in determining whether or not there has been a breach of the rules of natural justice relating to suspected bias.

43                In this case, Ace argues that the adjudicator correctly declined to disqualify himself for a number of reasons.  It says, first, that ECR bears the onus of proving that the “without prejudice” document was inadmissible before the adjudicator but that it cannot do so because the adjudicator is not bound by the rules of evidence.

44                It is true that the adjudicator is not bound by the rules of evidence but that is not an answer to the complaint made by ECR.  Its position is that, once the adjudicator was acquainted with the terms of the “without prejudice” letter, he was tainted because, through no fault of his own, he had been placed in a position where he knew how far ECR was prepared to go to settle the matter. 

45                More significantly, however, Ace says that ECR, in an open letter sent one day before the “without prejudice” letter, conceded a sum of $17,000 plus GST whereas the offer of settlement was for less than this.  It argues, therefore, that it cannot be said that there is any prejudice to be suffered by the disclosure of the sum offered in the “without prejudice” letter.  Ace argues that a fair-minded observer with knowledge of those facts would, therefore, be unlikely to apprehend that the adjudicator would be unduly and improperly swayed.

46                Ace also argues that there is no evidence suggesting that the adjudicator was actually biased or that he relied in any way on the document in question.  That may be correct but, notwithstanding the approach taken by McKechnie J in Pindan, it seems to me to be an irrelevant consideration when the question is one of apprehended bias. Apprehension is a consideration or attitude relating to future events. In this case, the relevant time to ask a question about apprehended bias, as opposed to actual bias, was after the adjudicator received the letter and before he delivered his determination.  Whether events or evidence proved after the event that he was unbiased is irrelevant to the question whether there was a reasonable apprehension before his decision was made that he may have been prejudiced by the letter.

47                Nevertheless, I agree with the remarks of Jacobs J in Felman.  I do not think that there is a rigid rule to be applied regardless of circumstances.  I do not understand the remarks of McKechnie J in Pindan or those of Bleby J in MW Nominees v Copland to state otherwise.  Given the authorities I have considered, it seems to me that it is probably fair to assume that there is a rebuttable presumption that if an adjudicator or judge reads “without prejudice” material, a reasonable apprehension of bias arises in such circumstances.  At the very least, an evidentiary burden must lie upon the party asserting that it does not.

48                In this case, it seems to me that the peculiar circumstance of ECR openly conceding a liability in the sum of $17,000 (plus GST) one day before making a lesser settlement offer negatives any untoward influence the “without prejudice” letter might have had upon the attitude and analysis of the adjudicator as to the true merits of the case.   When those circumstances are taken into account, I think that it is unlikely that the notional fair-minded observer, armed with full knowledge, would have apprehended bias or prejudgment on Mr Machell’s part.

49                The contention that the determination is a nullity on this ground therefore fails.

(ii)        Did the adjudicator deny ECR a fair hearing by rejecting its Response?

50                The third argument made by the applicant is that determination is a nullity because the adjudicator denied ECR natural justice by refusing to consider its adjudication response of 15 June 2007.  Here I think the applicant is on stronger ground. Raising an issue of natural justice, this argument falls within the same broad category of arguments as the first and, for convenience, I will deal with it out of order.

51                Before considering the arguments, it is necessary to sketch in the legislative architecture for the adjudication of disputes under the Construction Contracts Act. 

52                Section 14 provides that construction contracts imply a condition that contractors are entitled to be paid for performing their obligations under such contracts.  Section 15 then provides that contractors are entitled to make progress payment claims. Divisions 3, 4 and 5 of Schedule 1 of the Act set out the procedure for making progress claims and responding to them. It is unnecessary to set out the details here.

53                Like similar legislation in other states, the Construction Contracts Act, to keep up a steady cash flow for construction contractors, institutes a mechanism for the quick and relatively informal resolution of payment disputes.  In the ordinary case, s. 26 allows 28 days after a dispute arises for a party to apply for adjudication of the dispute.  Section 27 then requires that, within 14 days of service of the application for adjudication, the respondent serve its written response on the applicant and the appointed adjudicator.

54                In this case, the application for adjudication was served on 1 June 2007.  On 8 June, the respondent requested the adjudicator to disqualify himself.  On 12 June, Mr Machell delivered his decision declining to do so.  On 15 June, the adjudication response was sent to Mr Machell.  It was emailed on that day and faxed on 18 June.  Mr Machell acknowledged receipt on 20 June when he sought further submissions from both parties. The response was also emailed to Ace on 15 June.  It appears to have been caught by Ace’s email spam-killer software.  According to Ace’s solicitors, it was only on 18 June that they became aware of the fact that the email had been sent.

55                On 26 June 2007, Ace wrote to Mr Machell submitting that he should not have regard to the adjudication response (which it described as a “purported Response”) because ECR had not served it on Ace by hand or by mail in accordance with the statutory requirements of the Interpretation Act 1984 (WA).  Section 75 of that Act deals with service by post.  Section 76 has wider significance.  It provides that service may be effected by various means including personal delivery, delivery by post, by leaving the document at the last known place of abode or business of the person to be served or, in the case of a corporation, by delivering or leaving the document at its principal place of business or principal office in WA, or by posting it to that address. The methods of service outlined in the section do not, however, include email or fax.

56                Ace, having put the argument that the adjudicator should not have regard to the response, then proceeded in great detail to analyse and criticise ECR’s adjudication response as if it had been properly served. 

57                The adjudicator took the view that response had not been served in accordance with the methods outlined by the Interpretation Act and therefore had not been validly served in accordance with the requirements of the Construction Contracts Act. He concluded that service of the response by mail or hand delivery in accordance with s.76 of the Interpretation Act was required before the response could be considered in the course of the adjudication and that ECR’s response was, therefore, inadmissible.

58                The applicant argues that the adjudicator was wrong in accepting Ace’s submissions.

59                In relation to service, ECR argues that s.76 of the Interpretation Act is facultative rather than prescriptive and that the methods of service set out in the section do not constitute not a fixed or closed list. 

60                In Capper v Thorpe [18], the High Court considered the proper construction of s.76 in the context of a case in which a vendor had purported to serve a purchaser with a default notice in accordance with the terms of a conveyancing contract.  In the first place, it held that s.6 of the Sale of Land Act 1970 (WA) concerning service of written notice was a protective provision and should not be construed so as to “undermine or frustrate the achievement of the clear legislative purpose.”[19]  It considered the concept of “service” under the general law [20]:

Under s 6 of the Act, a terms contract cannot be determined or rescinded on account of breach by the purchaser unless “the vendor has served on the purchaser” the requisite notice in writing. The notice must give 28 days to remedy the breach where the breach consists of a failure to pay money, or give a reasonable time to remedy the breach where it does not involve the payment of money. Where a statutory provision, such as s 6, requires a document to be “served”, the statutory command is ordinarily perceived as requiring the contents of the document to be delivered to the person to be served. However, unless the statute says so, a document may be “served” although it is not personally served. Thus, it may be served by posting it to the person required to be served. In many statutory contexts, a document may also be “served” when it is brought to the notice of the person who has to be served. At all events, it will be “served” in such contexts if the efforts of the person who is required to serve the document have resulted in the person to be served becoming aware of the contents of the document. Thus, in Ex parte Portingell [1892] 1 QB 15 at 16, the English Court of Appeal held that a notice of objection had been “served on” the applicant for renewal of a licence when it was handed to a boy of 14 on the licensed premises and the magistrates inferred that “the notice had in fact come to the hands of the applicant”.

61                It later went on to hold that “the ordinary meaning of ‘served on the purchaser … in writing’ therefore requires that the writing be brought to the attention of the purchaser by the efforts of the vendor or those acting on his or her behalf.  That meaning is extended by the terms of ss.75 and 76.” [21]

62                These observations make clear that, in the particular case, the High Court was reluctant to construe protective legislation in a way that would reduce or result in the loss of rights.  In Capper v Thorpe, in the paragraph preceding the passage just cited, the Court said [22]:

But it is one thing to hold that the Legislature recognised that, by reason of s 31 [of the repealed 1918 Interpretation Act], situations could arise where the contract would be terminated although the purchaser had not received the notice. It is a different matter altogether to conclude that the Legislature intended that any attempted communication that was apt to bring a notice to the attention of the purchaser meant that “the vendor [had] served on the purchaser a notice in writing”. In particular, it does not follow that in enacting s 6 the Legislature of Western Australia accepted that the parties could agree that the purchaser should be deemed to be served by communications or attempted communications falling outside the provisions of ss 75 and 76. There is nothing in the language of s 6 or the legislative debates which gives any ground for inferring that the Legislature intended that s 6 should cover cases of deemed service other than those laid down in the then s 31 of the 1918 Act.

63                Read in one way, this passage appears to provide support for Ace’s contention that s.76 closed the categories of methods of service. 

64                A closer reading, however, shows that the High Court’s construction was intended to limit the ways in which persons to whom notices were sent or addressed could be deemed to have received them.  As the Court noted in the passage cited above at [60], a notice “will be ‘served’ … if the efforts of the person who is required to serve the document have resulted in the person to be served becoming aware of the contents of the document.” [23]

65                In my view, provided that the person to be served is made aware of the contents of the document, s.76 of the Interpretation Act does not exclude service in ways other than those listed in the section.  It merely increases the number of methods by which the contents of the documents are deemed or presumed to have been brought to the attention of the person served. 

66                If Ace’s spam-killer software siphoned the email message and attachments into a “junk mail” folder on its email system, this was, from an administrative perspective, no different to it misplacing and failing to open a postal mail delivery. ECR, of course, was not in a position to know what arrangements the solicitors had for email filtering. It could not, from its end of the digital pipeline, open the document for Ace. For all practical purposes, in my opinion, it acted reasonably in bringing its response to Ace’s attention and, therefore, had properly served its response on Ace.

67                It follows therefore that the adjudicator’s decision on this point was incorrect and that he should have read and taken ECR’s response into consideration. 

68                If I am wrong in taking the view that the email constituted sufficient service, the adjudicator was, nevertheless, well aware that, within a few days of the email being sent, Ace had discovered the emailed document, had digested its contents, had prepared submissions in response to it and was in no way prejudiced by the method or timing of the service of the response.  He was aware that there had been substantial compliance with s.27 for all practical purposes, the object of the section being that applicants and adjudicators be served within 14 days with a documented response.  That had been achieved.

69                Section 30 of the Construction Contracts Act states that “the object of an adjudication of a payment dispute is to determine the dispute fairly and as quickly, informally and inexpensively as possible.”  Section 32 provides that the adjudicator must take into account any properly served response and is not bound by the rules of evidence.  It provides that the adjudicator may inform him- or herself “in any way he or she thinks fit”.  To obtain the required information, the adjudicator may request submissions and information and may set timetables for the provision of that material. The adjudicator is also given wide investigative powers of inspection and appointment of experts.

70                The applicant contends that the purpose of the scheme is to resolve disputes on their merits after a fair and informal inquisitorial process.  It argues that, even if the response was not served with all due formality under the procedure required by s.27, because he was obliged and entitled to inform himself about all relevant data, the adjudicator had the statutory discretion to admit the response and ought to have done so. 

71                Ace, on the other hand, argues that this court is not entitled to consider questions of procedural fairness or natural justice because to do so would be, in effect, to conduct a judicial review of the adjudicator’s decision, a process specifically excluded by operation of s.46.  For the reasons given above at [21]-[24], however, I consider that this is not a review and the argument misconceived.  It also argues that there is, in any event, no evidence of procedural unfairness.

72                I disagree. The refusal by the adjudicator to admit and consider the response resulted in a process that inevitably was procedurally unfair.  Natural justice or procedural fairness consists essentially in two things:  a fair, detached tribunal and each party having an appropriate opportunity of being heard [24].  No suggestion of bad faith on Mr Machell’s part is made but the fact remains that ECR was incorrectly refused the chance to put its case.  Ordinarily, a material denial of natural justice will render a subsequent decision void.  In Plaintiff S157/2002 v The Commonwealth [25], Gleeson CJ said:

Subject to any such statutory provision, denial of natural justice or procedural fairness will ordinarily involve failure to comply with a condition of the exercise of decision-making power, and jurisdictional error. In 1885, the consequences of such failure were described by Lord Selborne in Spackman v Plumstead District Board of Works (1885) 10 App Cas 229, a case concerning the potential for judicial review of an architect’s decision as to where a building line should be. The architect’s decision-making authority was conferred by statute. His Lordship said (at 239) that, by directing the architect to decide the building line, the statute (by implication) imposed upon him a duty to decide it to the best of his judgment, independently and impartially. His Lordship then said (at 240):

“No doubt, in the absence of special provisions as to how the person who is to decide is to proceed, the law will imply no more than that the substantial requirements of justice shall not be violated. He is not a judge in the proper sense of the word; but he must give the parties an opportunity of being heard before him and stating their case and their view. He must give notice when he will proceed with the matter, and he must act honestly and impartially and not under the dictation of some other person or persons to whom the authority is not given by law. There must be no malversation of any kind. There would be no decision within the meaning of the statute if there were anything of that sort done contrary to the essence of justice.”

73                As this determination was produced by a fatally flawed process, there was “no decision within the meaning of the statute” to register as an enforceable judgment in NSW.  It follows that the judgment was entered irregularly and should be set aside.

74                The second issue broached by the applicant was the question whether Ace’s application was time-barred.  Given that I have concluded for another reason that the judgment should be set aside, it is unnecessary to deal with that issue.

Order

75                The motion is granted.

76                The judgment registered in the Downing Centre Registry on 25 July 2007 is set aside.

77                The respondent, Ace, is to pay the applicant’s costs of disposal of the motion.

 

 

Hugh Dillon

Magistrate

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