Bhatt v YTO Construction Pty Ltd [2023] NSWCA 318
Misleading and deceptive conduct under s18 of the Australian Consumer Law (ACL) is often raised as a defence to summary judgment proceedings where the respondent has failed to serve a payment schedule or to pay a scheduled amount, for example proceedings under s16(a)(a)(i) and s17(2)(a)(i) of the Building and Construction Industry Security of Payment Act 2002 (Vic) or analogous provisions in other jurisdictions.
On 15 December 2023, the NSW Court of Appeal in the case of Bhatt v YTO Construction Pty Ltd (YTO Constructions)1 held that misleading and deceptive conduct occurring during an adjudication process was not ‘in trade or commerce’ for the purposes of s18 of the ACL. The outcome may appear surprising given the conduct in question involved fraud.
The decision highlights the need for parties to carefully consider the question of ‘trade or commerce’ before relying on s18 of the ACL to try and reverse an adverse adjudication determination. Where deliberate deception is involved an action in fraud (which does not depend on any requirement for conduct to be ‘in trade or commerce’) may be a better option.
As discussed below, the Court of Appeal’s decision is difficult to reconcile with Bitannia Pty Ltd v Parkline Constructions Pty Ltd (Bitannia)2 and, more recently, Marques Group Pty Ltd v Parkview Constructions Pty Ltd (Marques Group)3.
The decision in YTO Constructions does not overrule either of these decisions. Read together, it seems that YTO Constructions is limited to misleading and deceptive conduct specifically arising during the adjudication process rather than before its commencement or as part of a payment claim or payment schedule (or the manner in which both were served).
Background
In July 2017 YTO Constructions Pty Ltd (YTO) entered into a contract with Innovative Civil Pty Ltd (Innovative) for the excavation and removal of organic material. Mr Ashish Bhatt (Bhatt) was the sole director of Innovative.
On 11 January 2018, Innovative issued a payment claim to YTO pursuant to s13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act) which included $490,000 (plus GST) for the removal of 70 loads of excavated general solid waste (GSW).
YTO issued a payment schedule disputing Innovative’s payment claim. On 7 February 2018, Innovative lodged an adjudication application pursuant to s17 of the SOP Act.
Adjudication
On 22 February 2018, an adjudicator determined YTO owed Innovative $1,535,377.51 which included an amount of $462,000 (plus GST) for the removal of 66 loads of excavated GSW.
In assessing the GSW claim, the adjudicator relied upon an invoice submitted by Innovative in its adjudication application. The invoice was deliberately misleading as Innovative had ‘whited out’ its actual costs to subcontractors for GSW cartage and inflated them by $254,100 (Misrepresentation).
Supreme Court proceeding for misleading and deceptive conduct
Initially, YTO brought proceedings against Innovative seeking to set aside the adjudicator’s determination on the basis that it was procured by fraud.
Upon Innovative being placed into external administration those proceedings were abandoned.
YTO then commenced proceedings in the NSW District Court against Mr Bhatt personally for misleading and deceptive conduct arising from the Misrepresentation. The NSW District Court upheld that claim and awarded damages to YTO in the amount of $306,763.10 (including interest).
Mr Bhatt appealed the ruling on the grounds that the Misrepresentation was not made ‘in trade or commerce’.
Trade and commerce
The Court of Appeal upheld Mr Bhatt’s appeal.
Referring to the High Court’s decision of Concrete Constructions (NSW) Pty Ltd v Nelson, 4 the Court of Appeal noted that the line between what is in trade or commerce and what is not in trade or commerce is difficult to draw.
The Court noted that a distinction is made between:
- activities which are not, of their nature, of a trading or commercial character but which are undertaken in the course of, or as incidental to, the carrying on of an overall trading or commercial business, and which could include a wide range of activities, for example even a failure by a driver to give the correct hand signal when driving a truck in the course of a corporation’s haulage business; and
- activities or transactions which, of their nature, bear a trading or commercial character.
The narrower (second) construction is preferred.
Mr Bhatt argued that the Misrepresentation did not fall within the narrower definition. Drawing an analogy between adjudication and litigation, he relied on decisions that have held that ‘statements made during the course of litigation cannot be categorised as statements made in trade and commerce nor can they be categorised as representations’5.
YTO, on the other hand relied on Probuild Constructions (Aust) Pty Ltd v Shade Systems Ltd,6 in which McDougall J held that based on his years on the Court, those in the building and construction industries routinely use litigation as a means of carrying on their commercial aims and that on this basis litigation could be conduct in ‘trade or commerce’.
The Court of Appeal, acknowledged that, at a general level, the receipt of progress claims had a commercial character. It also recognised that delivering a payment claim, seeking an adjudication under the SOP Act and making submissions to an adjudicator are everyday events in the construction industry.
However, it found that a distinction should be made between:
- On the one hand, the dispute that sends the parties to adjudication, which might arise out of a commercial transaction; and
- the particular conduct in issue, namely representations made to the adjudicator in the adjudication application commenced under s 17(1)(a)(i) of the SOP Act, following YTO’s service of a payment schedule.
As the relationship between the adjudicator and the parties is not a trading or commercial one, the conduct in (b) was not in trade or commence. A claim based on s18 of the ACL was, therefore, not available against Mr Bhatt in respect of the Misrepresentation.
Discussion
The outcome of the decision may appear somewhat perverse given the flagrant nature of Innovative’s deception. Effectively, it means that a party can lie to an adjudicator and the respondent and avoid a claim under s18 of the ACL.
It is, however, worth noting that such a party is unlikely to escape an action in fraud, which does not depend on the conduct being ‘in trade or commerce’ and in earlier proceedings against Innovative, the Court of Appeal, in fact, found the fraud claim against Innovative to be arguable.7 It is unclear why fraud was not pressed against Mr Bhatt rather than the ACL claim.8
Putting this to one side, the decision is difficult to reconcile with Bitannia Pty Ltd v Parkline Constructions Pty Ltd,9 where the NSW Court of Appeal (Basten JA) found that the misleading and deceptive conduct in the form of service of a payment claim was ‘in trade or commerce’, and, more recently, the decision of Marques Group Pty Ltd v Parkview Constructions Pty Ltd involving false statutory declarations attached to a payment claim.10
Bitannia appears to have been distinguished by the Court of Appeal on the basis that the Court in Bitannia was not concerned with the characterisation of conduct constituted by statements made in an adjudication application.11
With respect, the fact that the Misrepresentation was made in an adjudication application as opposed to the payment claim does not appear to be a significant distinction. The Misrepresentation was not solely directed to the adjudicator and on receipt of the adjudication application containing the invoice, YTO would have presumably been in a position to make submissions to the adjudicator but for the Misrepresentation.
In Marques Group,12 the NSW Supreme Court found that it was at least arguable that misleading and deceptive conduct in the form of false statutory declarations accompanying the payment claims could be raised as a defence to an application for summary judgment under s16(2)(a)(i) of the SOP Act.
While the issue of ‘trade or commence’ was not raised in Marques Group, there is, in our view, no real difference between a payment claim underpinned by a false invoice (albeit not served with the payment claim) and one underpinned by a false statutory declaration.
What does this mean for you?
The above criticisms aside, the case demonstrates the limitations of a claim for misleading and deceptive conduct where it is unclear whether the conduct was ‘in trade or commerce’ or not.
Misleading and deceptive conduct should still be available as a defence to a summary judgment application made under ss16(a)(a)(i) and 17(2)(a)(i) of the Vic SOP Act (or analogous provisions in other jurisdictions) where the contents of a payment claim or payment schedule (or the manner in which they were served) are misleading and deceptive. Where the conduct only occurs during the adjudication process, this will not be in trade or commence and defences under the ACL will not be available.
Where the deception is deliberate, an action in fraud should be considered as it avoids all these issues.
This article was written by Paul Graham, Partner, Brian Rom, Special Counsel and Ariadne Paras, Solicitor.
1[2023] NSWCA 318
2(2006) 67 NSWLR 9
3[2023] NSWSC 625
4(1990) 169 CLR 594; [1990] HCA 17
5Little v Law Institute of Victoria (No 3) [1990] VR 257; Pertzel v QLD Paulownia Forests Ltd [2008] 2 Qd R 526; [2008] QCA 287.
6[2018] NSWSC 540.
7YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2019] NSWCA 110.
8There may have been a concern that the claim could not be made on the basis of Anshun estoppel. However, the Court of Appeal found at [96] to [98] that although it was unnecessary to rule on the issue, Anshun estoppel was at least unavailable in respect of the ACL claim.
9(2006) 67 NSWLR 9.
10[2023] NSWSC 625.
11YTO Constructions, [88].
12[2023] NSWSC 625.
