Parkview Constructions Pty Ltd v Sydney Civil Excavations Pty Ltd & anor [2009] NSWSC 61 (19 February 2009)

Last Updated: 20 February 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
Parkview Constructions Pty Ltd v Sydney Civil Excavations Pty Ltd & anor [2009] NSWSC 61


JURISDICTION:
Equity Division
Technology & Construction List

FILE NUMBER(S):
55103/08

HEARING DATE(S):
8 December 2008

JUDGMENT DATE:
19 February 2009

PARTIES:
Parkview Constructions Pty Ltd (plaintiff)
Sydney Civil Excavations Pty Ltd (first defendant)
Ted Smithies (second defendant)

JUDGMENT OF:
Brereton J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr M Rudge SC w Mr A Vincent (plaintiff)
Mr S Goldstein (first defendant)

SOLICITORS:
Salim Rutherford Lawyers (plaintiff)
TressCox Lawyers (first defendant)
Phillip Davenport (second defendant)



CATCHWORDS:
BUILDING AND CONSTRUCTION – Adjudication under (NSW) Building and Construction Industry Security of Payment Act 1999 – claim that Adjudicator’s decision invalid – that adjudicator did not evaluate claim under s 27(2A) – whether under guise of s 27(2A) lost profit on termination can be recovered – whether adjudication application advanced a matter outside the scope or ambit of the payment claim – whether adjudicator failed properly to evaluate s 27(2A) claim – where one party does not make a contention as to quantum to adjudicator

LEGISLATION CITED:
(NSW) Building and Construction Industry Security of Payment Act 1999

CATEGORY:
Principal judgment

CASES CITED:
Brodyn Pty Limited v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421
Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229
Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd [2005] NSWCA 228; (2005) 63 NSWLR 385
Downer Construction (Australia) Pty Ltd v Energy Australia [2007] NSWCA 49; (2007) 69 NSWLR 72
Holmwood v Halkat [2005] NSWSC 1129
John Holland Pty Limited v Cardno MBK (NSW) Pty Limited [2004] NSWSC 258
Minister for Commerce v Contrax Plumbing [2004] NSWSC 823
Pacific General Securities Ltd and Anor v Soliman and Sons Pty Ltd [2006] NSWSC 13; (2006) 196 FLR 388
Quasar Constructions v Demtech Pty Ltd [2004] NSWSC 116
Shell Refining (Australia) Pty Limited v A J Mayr Engineering Pty Limited [2006] NSWSC 94
Timwin Construction Pty Limited v Facade Innovations Pty Limited [2005] NSWSC 548

TEXTS CITED:


DECISION:
Proceedings dismissed with costs



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
TECHNOLOGY AND CONSTRUCTION LIST


BRERETON J

Thursday, 19 February 2008

55103/08 Parkview Constructions Pty Limited v Sydney Civil Excavations Pty Limited & Anor

JUDGMENT

1 HIS HONOUR: The plaintiff Parkview Constructions Pty Limited is the project manager of a residential apartment development at 3-7 Lorne Avenue, Killara, and the first defendant Sydney Civil Excavations Pty Limited was contracted by it to perform excavation works. Sydney Civil commenced the works in about March 2008. Parkview terminated the contract with Sydney Civil on or about 24 September 2008. On 11 November 2008, the second defendant adjudicator Mr Smithies made a determination under the (NSW) Building and Construction Industry Security of Payment Act 1999 in favour of Sydney Civil in the amount of $556,903.56, inclusive of GST. Parkview seeks a declaration that the adjudication determination is void, and has obtained an interlocutory injunction restraining its implementation in the meantime. Although the Technology List Statement and the Plaintiff’s Outline of Submissions agitated many other matters, ultimately the only basis on which the determination was impugned related to the allowance of an amount of $149,362 in respect of a claim for loss of the income which Sydney Civil would have made under the contract but for its purported termination, in respect of which Parkview submitted:

· that the allowance was in the nature of damages for repudiation and not a progress payment for construction work, and thus not recoverable under the Act;

· that it was not open to Sydney Civil to advance a claim under s 27(2A) in its adjudication application, because it had not been made in the payment claim; and

· that there was no proper adjudication because the adjudicator did not evaluate the s 27(2A) claim but merely adopted by default Sydney Civil’s submissions in that respect.

2 For the reasons set out below, all those contentions fail, and I conclude that the adjudication determination is not invalid.

Background

3 On 25 August 2008, Sydney Civil served payment claim no. 7 under the Act on Parkview, for a sum of $203,106.49. Parkview responded on 5 September 2008 with a payment schedule in the sum of $128,851.88. On or about 18 September 2008, Sydney Civil lodged an adjudication application (“the first adjudication application”), and Parkview served an adjudication response on 25 September 2008. On 24 September 2008 at 11:35am, Sydney Civil issued a notice of intention to suspend the works, pursuant to s 16(2)(b) of the Act, in respect of the amount allegedly owing to it in respect of progress payment no. 7. On the same day, at 3:45pm, Parkview acknowledged receipt of the notice of intention to suspend, and at 4:51pm, issued a notice that purported to terminate the contract. On 1 October, the adjudicator determined the first adjudication application, finding that Sydney Civil was entitled to the sum of $128,851.88 (the sum asserted by Parkview in its payment schedule). On 3 October, Parkview paid Sydney Civil that sum.

4 On 25 September 2008, following the purported termination of the contract, Sydney Civil served payment claim no. 8 on Parkview for $996,716.23. Included in it was a claim as follows:

Item Description

D Loss of Income – 20% of Contract Balance

....

D Loss of Income Sub Total $149,362.50

5 On 10 October 2008, Parkview responded with a payment schedule dated 5 October 2008, for the sum of $nil. In response to the claim for “Loss of Income”, Parkview asserted that Sydney Civil was not entitled to damages for loss of income as, inter alia, there was no jurisdiction to entertain such a claim under the Act.

6 On or about 24 October 2008, Sydney Civil lodged an adjudication application in respect of its payment claim dated 25 September 2008, which was again referred to Mr Smithies. The adjudication application relevantly stated (paragraph 4.10), in respect of the claim for “loss of income”:

This is calculated by simply adding 20%, being the cost of overhead and margin applied to all projects, against the balance of the original works. Loss of income is claimed pursuant to section 27(2A) of the Act ... The claimant has incurred a loss in exercising their rights to suspension as a result of the termination of the works by the respondent.

7 On 3 November 2008, Parkview lodged with Mr Smithies and served on Sydney Civil its adjudication response, in which (paragraph 163) it submitted that the claim was made on a new basis (under s 27(2A)) not referred to in the payment claim, and thus could not be raised in the adjudication application, or entertained by the adjudicator. Then, without prejudice to that submission, Parkview made a number of further submissions (in paragraphs 166 to 175 of its adjudication response), to the effect that Sydney Civil was not entitled to any amount under s 27(2A). Amongst those grounds, in paragraph 173, Parkview submitted that Sydney Civil had not provided any evidence in support of its claim for a loss of income in the amount of 20% of the contract price, and then referred back to 16 paragraphs in the payment schedule.

8 The adjudicator made his determination in relation to the second adjudication application on 11 November 2008. The adjudicated amount was $556,903.56, and included the sum of $149,362.50 for “loss of income” per s 27(2A). In his reasons, the adjudicator said:

... I am satisfied that the Claimant has not introduced a new reason and that the Claimant has made a submission in the adjudication application relating to section 27(2A) without contravening Section 20(2B) of the Act.

9 On Tuesday 18 November 2008, the Court granted an ex parte application by Parkview to restrain Sydney Civil from, in effect, enforcing the adjudication determination in its favour until 21 November 2008 on condition that it pay security of $200,000 into Court by 5pm on 21 November 2008. This was later extended until further order.

Impugning adjudication determinations

10 The grounds upon which an adjudication determination under the Act can be impugned in judicial review proceedings were considered by the Court of Appeal in Brodyn Pty Limited v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421. McDougall J concisely distilled their essence in Timwin Construction Pty Limited v Facade Innovations Pty Limited [2005] NSWSC 548, [1], where his Honour said that judicial review was available in the following circumstances:

· First, where an adjudicator fails to comply with the basic and essential requirements prescribed in the Act for there to be a valid determination;

· Secondly, where the adjudication determination does not amount to an attempt in good faith to exercise the relevant power, having regard to the subject matter of the legislation;

· Thirdly, where a party has been denied natural justice (for which purpose the narrow statutory scheme limits the extent of natural justice required); and

· Fourthly, where the adjudication determination was procured by fraud in which the adjudicator was complicit.

11 Where any of those circumstances apply, an adjudicator's determination is not a "determination" within the meaning of the Act at all, and is not merely voidable, but void [Brodyn, [52]]. In Holmwood v Halkat [2005] NSWSC 1129, I expressed the view that Brodyn was correctly to be understood as saying that mere error of fact or law, including in the interpretation of the Act or contract, does not invalidate an adjudicator's determination, and endeavoured to explain that although Hodgson JA eschewed the terminology of jurisdictional error – at least in the context of when non-compliance with what his Honour called the "more detailed requirements", as distinct from the “basic and essential requirements”, would result in invalidity – the concept of jurisdictional error remains a useful one in identifying which requirements were intended to be essential pre-conditions to a valid determination, since traditionally jurisdictional error results in the decision being void, and, although the Act contains no privative clause, Brodyn limits the availability of judicial review to decisions which are void [Holmwood v Halkat, [45]-[51]].

Inclusion of allowance for lost income

12 Section 27(2A) of the Act relevantly provides:

If the claimant, in exercising the right to suspend the carrying out of construction work ... incurs any loss or expenses as a result of the removal by the respondent from the contract of any part of the work or supply, the respondent is liable to pay the claimant the amount of any such loss or expenses.

13 Section 13 (Payment claims) relevantly provides:

(1) A person referred to in section 8 (1) who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment.

(2) A payment claim:

(a) must identify the construction work (or related goods and services) to which the progress payment relates, and

(b) must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount), and

(c) must state that it is made under this Act.

(3) The claimed amount may include any amount:

(a) that the respondent is liable to pay the claimant under section 27 (2A), or

(b) that is held under the construction contract by the respondent and that the claimant claims is due for release.

14 Parkview submitted that a claim for damages in the nature of the loss of income claim as advanced by Sydney Civil in its payment claim is impermissible under the Act, as it was a claim for damages for repudiation of the contract and not a claim for a progress payment for construction work. Parkview submitted that the adjudicator determined that the loss of income claim by Sydney Civil was a claim “for loss of income following termination of the contract by the Respondent”, which (it said) was “a pure damages claim for loss of profit”; that there was no basis under the Act to make an award of damages of that kind; and that by awarding damages for loss of profit, the adjudicator breached the basic and essential requirement to take into consideration all provisions of the Act, by failing to take into account the proper definition of a progress payment relating to construction work and not relating to pure damages for breach of contract.

15 However, the Act does not say that an amount for damages cannot in any circumstances be included in an award, as the passage cited by Parkview from the judgment of Hodgson JA in Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd [2005] NSWCA 228; (2005) 63 NSWLR 385 shows:

[41] In my opinion, the circumstance that a particular amount may be characterised by a contract as “damages” or “interest” cannot be conclusive as to whether or not such an amount is for construction work carried out or for related goods and services supplied. Rather, any amount that a construction contract requires to be paid as part of the total price of construction work is generally, in my opinion, an amount due for that construction work, even if the contract labels it as “damages” or “interest”; while on the other hand, any amount which is truly payable as damages for breach of contract is generally not an amount due for that construction work

16 The principle for which the cases stand is not that an award can never under any guise include an amount which is in substance in the nature of damages, but that damages for breach of contract are usually not within the concept of a progress payment for construction work. Thus, in Quasar Constructions v Demtech Pty Ltd [2004] NSWSC 116, Barrett J said:

[32] There has been some discussion in earlier cases of the question whether inclusion in a payment claim of an element for extension of time, delay or disruption invalidates the payment claim because the subject matter of such items does not bear the relationship to construction work envisaged by the word “for” in s 13(2). The decision has been that, because of the nature of a payment claim as a statement of the claimant’s demands and contentions, it would not be correct to regard it as invalid because of the inclusion of matter arguably beyond its permitted scope: see, in particular, Walter Construction Group Ltd v CPL (Surry Hills) Pty Ltd [2003] NSWSC 266 and Paynter Dixon Constructions Pty Ltd v J F & C G Tilston Pty Ltd [2003] NSWSC 869.

[33] As Bergin J pointed out in the last-mentioned case, however, it is quite another thing to say that an element on account of extension of time, delay, disruption or any other perceived wrong can properly be taken into account in an adjudication, as distinct from a payment claim. Referring specifically to the matter of damages for repudiation, her Honour said:

I am not satisfied that Nicholas J's judgment [in Walter v CPL] is authority for the proposition for which the defendant also contends that the claim for damages for wrongful repudiation of the contract is a matter that the adjudicator can determine. His Honour was considering a claim in respect of services provided under a construction contract that specifically dealt with an entitlement in the subcontractor to an amount for such costs. That is a very different matter to a claim for damages for wrongful repudiation of a contract. The adjudicator will decide what amount, if any, the plaintiff is to pay the defendant having regard to the matters he is obliged to consider pursuant to s 22 of the Act.

[34] The clear message throughout the Act is, in my opinion, that any “progress payment”, including one within paragraph (a), (b) or (c) of the definition of “progress payment”, can only have that character if it is “for” work done or, where some element of advance payment has been agreed, “for” work undertaken to be done. The relevant concepts do not extend to damages for breach of contract, including damages for the loss of an opportunity to receive in full a contracted lump sum price. Compensation of that kind does not bear to actual work the relationship upon which the “progress payment” concept is founded.

17 None of those observations was directed to the inclusion in a payment claim, pursuant to s 13(3)(a), of the amount of an asserted liability under s 27(2A). Section 13(3)(a) expressly authorises the inclusion in a payment claim of such an amount, in addition to a claim for a progress payment for construction work. It is beside the point that claims for damages do not fall within the concept of progress payments for work done, where the statute specifically authorises the inclusion of claims for loss arising from the removal of work from the scope of the contract. It is equally beside the point that such claims might be characterised as claims for damages for repudiation, where the statute specifically authorises their inclusion.

18 The Adjudicator was satisfied that Sydney Civil had met the requirements of the Act in suspending the Works; that Sydney Civil’s entitlements with respect to suspension applied from the date of the suspension notice; and that Parkview’s termination was an attempt to avoid the requirements of the Act. Even if the Adjudicator erred in his interpretation of s 27(2A) of the Act, that would not invalidate his determination. As Hodgson JA said in Hargreaves (at [46]):

I would add that in my opinion, if a determination is valid because the basic and essential requirements of the Act are complied with, an error of law by the adjudicator, even in interpreting the Act itself, would not make the determination unlawful and thus liable to restraint by injunction.

19 Accordingly, inclusion in the award of a component in respect of lost income under s 27(2A) does not invalidate the adjudicator’s determination. As s 13(3)(a) expressly authorises the inclusion in a payment claim of the respondent’s liability under s 27(2A) to pay the amount of any loss incurred by the claimant in exercising the right to suspend the carrying out of construction work as a result of the removal by the respondent from the contract of any part of the work or supply, it matters not that such loss may also be characterised as damages, and the determination is not vitiated by the inclusion of a component in respect of such liability. The first basis of challenge to the determination fails.

Was it open to Sydney Civil to make a claim under s 27(2A) in its adjudication application?

20 The payment claim did not elaborate the basis of the claim for the item in the sum of $149,362.50 described as “Loss of Income – 20% Contract Balance”; all that appeared was that description, and no reference was made to its being founded on any particular provision of the Act. Parkview responded in its payment schedule by refuting that Sydney Civil was entitled to be awarded damages for loss of income. It was only in the Adjudication Application that Sydney Civil first characterised the claim for loss of income by reference to s 27(2A).

21 Parkview contended that Sydney Civil was not entitled to propound in its adjudication application, and the adjudicator was not entitled to take cognisance of, a claim under s 27(2A), because no such claim had been raised in the payment claim. This was founded on the submission that a claimant under the Act is not permitted to propound a claim in an adjudication application unless it has been raised in the payment claim, and that any adjudication determination that takes into account matters raised by the claimant not in the payment claim but only in subsequent documentation is void, either for denial of natural justice, or for breach of a basic and essential requirement of the Act.

22 In my view, what the cases invoked by Parkview establish is that an applicant may not rely on, and an adjudicator may not consider, material that is included in an adjudication application which is outside the scope or ambit of the claim described in the payment claim. Parkview referred to the observations of Einstein J in John Holland Pty Limited v Cardno MBK (NSW) Pty Limited [2004] NSWSC 258, in which His Honour said:

Approaching the question in terms of section 20 (2B)

[22] The primary touchstone it seems to me, is section 20 (2B). Whilst a claimant which provides the most minimal amount of information in its payment claim may even so, be seen to technically comply with section 13, such a claimant will expose itself to an abortive adjudication determination if it be that:

· the respondent is simply unable to discern from the content of the payment claim, sufficient detail of that claim to be in a position to meaningfully verify or reject the claim: hence not then being in a position to do otherwise than to reject the whole of the claim on the basis of its inability to verify any part of the claim;

· the claimant then elects to include the missing detail in the adjudication application with the inexorable consequence that the respondent is barred by section 20 (2B) from dealing with that detail/matter in its adjudication response;

· the adjudicator relies in determining the adjudication application upon the detail supportive of the payment claim which first emerged as part of the adjudication application

[23] For those reasons whilst it is not permissible to construe section 13 as providing that in order to be a valid payment claim, such a claim must do more than satisfy the requirements stipulated for by subsection 2 (a), (b) and (c), the consequence to a claimant which does not include sufficient detail of that claim to be in a position to permit the respondent to meaningfully verify or reject the claim, may indeed be to abort any determination.

Approaching the question in terms of the adjudicator's power

[24] The matter may also be analysed by reference to the power of an adjudicator. An adjudicator does not have the power to consider materials supplied by a claimant in its adjudication application which go outside [ie fall outside the ambit or scope of] the materials which were provided in the payment claim, for the reason that the adjudicator only has power to make a determination based upon:

· The payment claim [together with the claimant's submissions (and relevant documentation) in the adjudication application, which submissions have to have been "duly made by the claimant in support of the (payment) claim": see section 22 (2) (c)].

· The payment schedule (if any) [together with the respondents submissions (and relevant documentation) in the adjudication response, which submissions have to have been “duly made by the respondent in support of the (payment) schedule”: see section 22 (2) (d)].

· The provisions of the Act: see section 22 (2) (a).

· The provisions of the construction contract from which the application arose: see section 22 (2) (b).

· The results of any inspection carried out by the adjudicator of any matter to which the claim relates: see section 22 (2) (e).

[25] The emphasis upon submissions "duly made" makes clear that the scheme really addresses the issues which have been thrown up once the payment claim has been served and the responsive payment schedule then served. The steps which follow generally concern the materials to be exchanged and most particularly furnished to the adjudicator. The adjudication application will relate to a particular payment claim and payment schedule [section 17 (3) (f)]. The central significance of the entitlement of the applicant to include submissions as part of its adjudication application is because those submissions have to be supportive of the payment claim. Those submissions cannot constitute a payment claim or part of it. The central significance of the entitlement of the respondent to include submissions as part of its adjudication response is because those submissions have to be supportive of the payment schedule. Those submissions cannot constitute a payment schedule or part of it.

23 In Minister for Commerce v Contrax Plumbing [2004] NSWSC 823, McDougall J said:

The John Holland issues

The decision in John Holland

[49] In John Holland, it was submitted to Einstein J that considerations of procedural fairness demanded that a restriction similar to that contained in s 20(2B) be read into s 17(3), to the effect that a claimant in an adjudication application is restricted to raising only matters canvassed in its payment claim. While his Honour thought that considerations of "logic", and "consistency" with the situation of respondents, suggested that this submission be accepted (at [4]), his conclusion was that the "accepted principles of statutory construction" would not permit the suggested implication to be made (at [21]). This conclusion was bolstered by the fact that, in contrast to the situation of respondents when preparing payment schedules pursuant to s 14(3), it is not an "essential condition" of s 13 that the claimant include any reasons whatsoever in a payment claim (at [18]).

[50] Einstein J dealt with the problem in a different way. He said that when an adjudication application put a claim on a basis that had not been advanced in the payment claim, the adjudicator, as a matter of jurisdiction, could not deal with it; and there would also be denial of natural justice (at [41]). That was because (as his Honour explained at [40]), s 20(2B) would prevent the respondent from including in its adjudication response any reasons relating to the new claim; but it could not deal with a new claim except by doing that which was prevented by s 20(2B). To determine such a new claim upon a basis that the respondent could not answer was, his Honour said, a denial of natural justice

...

Analysis

[56] Section 20(2B) of the Act prevents a respondent from including in its adjudication response any reasons for withholding payment that were not included in the payment schedule provided to the claimant. There is no equivalent limitation, in the case of adjudication applications, in s 17 of the Act; and, as Einstein J held in John Holland at [21], no such limitation could be implied by any process of statutory construction.

[57] What Einstein J said in John Holland was that a claimant that did not provide sufficient details in its payment claim to enable the respondent to verify or reject (ie, assess) the claim could not include the missing details in its adjudication application. That was because, since the respondent was barred by s 20(2B) from replying to those details (ie, of responding in its adjudication response in a way that did deal with the merits of the claim) the result “may indeed be to abort any determination”: at [23]. His Honour said, alternatively, that an adjudicator did not have power to consider materials supplied by a claimant in its adjudication application which went outside the materials provided in the payment: at [24]. Materials would go outside what had already been provided if they fell outside the ambit or scope of that earlier material.

24 Moreover, determination of the parameters of the payment claim, and whether a submission has been “duly made” in relation to it, is a matter for the adjudicator, and a reasonable but erroneous decision in this respect by the adjudicator does not invalidate the determination. In Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229, Hodgson JA said (emphasis added):

[24] ... Accordingly, the task of the adjudicator is to make a determination within the parameters of the payment claim, although that is not to say that, if an adjudicator were to make an error which can later be seen as taking the determination outside those parameters, it necessarily invalidates the determination.

...

[26] In my opinion, failure adequately to set out in a payment claim the basis of the claim could be a ground on which an adjudicator could exclude a relevant amount from the determination. Further, even if in such a case a clamant adequately set out the basis of the claim in submissions put to the adjudicator, the adjudicator could take the view that, because the respondent was unable adequately to respond to this subsequent material (because of the provisions of s 20(2B) and s 22(2)(c) of the Act), he or she is not appropriately satisfied of the claimant’s entitlement. Generally however, in my opinion, it is for the adjudicator to determine if the basis of the claim is adequately set out in the payment claim, and if not, whether on this ground a relevant amount claim should be excluded from the amount of the progress payment determined under s 22(1).

25 In the same case, Basten JA said (emphasis added):

[42] On the other hand, it may be that the distinction between a “claim” and a “reply” by way of a payment schedule (see s 14(1)), on the one hand and “submissions” on the other suggest that the precise contractual for the entitlement may not need to be identified in the claim nor addressed in the response. Rather, the claim should assert, in full, the factual basis upon which it is made, including the provision of documents where necessary, whereas the reliance on a relevant contractual provision may be dealt with by way of submissions, if the matter comes before an adjudicator. It would follow then follow that the requirement in s 20(2B) that the “reasons” for withholding payment must be limited to those identified in the payment schedule, would not preclude the principal from undertaking the same exercise, in its submission, namely the identification of the absence of justification in terms of specific contractual provisions.

26 After referring to what Hodgson JA said at paragraphs [24] and [26], Basten JA continued:

[44] However, it does not follow that the Court should set aside a determination in circumstances where, in its view, the claim does not satisfy those requirements, or the determination goes beyond the parameters of the claim, properly understood. Intervention on that basis will only be justified if the legislature has imposed an objective requirement, rather than one which the adjudicator has the power to determine.

27 And in Downer Construction (Australia) Pty Ltd v Energy Australia [2007] NSWCA 49; (2007) 69 NSWLR 72, Giles JA, with whom Santow and Tobias JJA agreed, concluded (with reference to the above judgments of Hodgson and Basten JJA):

[86] It may be added that in John Holland Pty Ltd v Roads & Traffic Authority of New South Wales (2007) NSWCA 19, decided after the hearing of the present appeals and cross appeal, whether a submission had been “duly made” (s 22(2)) was said to be a matter for the adjudicator, whose error in that respect would not invalidate his determination. It was not a matter for objective determination by the Court, see per Hodgson JA, with whom Beazley JA agreed, at [57] and Basten JA at [71]-[72]: the latter referred to what he had said in Co-ordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd.

[87] In my opinion, determination of the parameters of the payment claim is a matter for the adjudicator, and a reasonable but erroneous decision by the adjudicator does not invalidate the determination. In the present case, in determining the amount of the progress payment (if any) to be made it was for the adjudicator to decide whether the water ingress fell within latent conditions for the purpose of the contract, and the parameters of the payment claim in that respect. He did so. As to both, it could not be said that the adjudicator’s decision was without foundation, and if the adjudicator addressed the matters and came to his decisions, even if other decisions could have been come to, he did what the Act required – he determined the adjudicated amount. As was stated in Minister for Commerce v Contrax Plumbing (NSW) Pty Ltd [2005] NSWCA 142 at [49] –

“... an error of fact or law, including an error in interpretation of the Act or of the contract, or as to what are the valid and operative terms of the contract, does not prevent a determination from being an adjudicator’s determination within the meaning of the Act.”

[88] There is good reason for leaving determination of the scope and nature of the payment claim to the adjudicator, apart from the purpose of the Act earlier mentioned. The scope and nature of the payment claim will often be, and in the present case was, open to be elucidated and evaluated with the benefit of the adjudicator’s specialised knowledge.

28 It was therefore the function of the adjudicator to determine whether or not the claim for loss of income, articulated in the adjudication application as being founded on s 27(2A), fell within the ambit or scope of the payment claim. The adjudicator addressed the issue, and determined that it did. Even if he were in error in so concluding, it would have been an error within jurisdiction, which would not invalidate the determination. But in my view he was not in error: the explanation of the claim as being brought under s 27(2A) was not a new or different claim from that advanced in the payment claim; it was simply an explanation of its statutory basis. It was an articulation of the basis of the claim already made, and was entirely within the scope of the payment claim.

29 Accordingly, the reference in the adjudication application to s 27(2A) was not outside the scope or ambit of the payment claim, but merely explained the statutory basis for the claim the parameters of which were already described in the payment claim. In any event, this was a matter for the adjudicator, and even if he were wrong it would have been an error within jurisdiction which would not invalidate his determination. The second basis of challenge to the validity of the determination therefore fails.

Did the Adjudicator fail properly to evaluate the s 27(2A) claim?

30 Parkview’s primary submission was that the adjudicator failed properly to determine the value of the s 27(2A) claim, because he did not evaluate Sydney Civil’s loss of income, and made no attempt to ascertain the actual profit it would have made or whether or not it actually suffered any relevant loss by virtue of having no alternative work available, but simply adopted by default Sydney Civil’s submissions as to the value of its loss.

31 In its adjudication application, Sydney Civil stated that the claim for loss of income was calculated by “simply applying 20% being the cost of overhead and margin applied to all projects, against the balance of the original works”. In response, Parkview submitted (paragraph 173 of its adjudication response) that Sydney Civil had not provided any evidence in support of its claim for a loss of income in the amount of 20% of the Contract Price, and then referred back to 16 paragraphs in its Payment Schedule. The adjudicator considered this claim first by identifying the outstanding works that had been removed from the contract by termination, and the applicable contract price; then, noting that the basis of the claim was a claim for overhead and margin, and that of the 16 paragraphs referred to by Parkview in its adjudication response, the only one that gave a reason at all relevant to this issue was that which asserted that the claimant did not provide any evidence in support of its claim for 20% margin, and the respondent did not the basis on which the claimant calculated that it was entitled to 20%. The adjudicator then observed:

The Respondent’s reason is only that it does not know, it does not challenge that the amount is too much or too little. The Respondent offers no alternate valuation. Accordingly, I do not consider this a valid reason for which I can give any further consideration.

Adjudicator conclusion

Based on the information before me, I am satisfied that the Claimant is entitled to the amount claimed for loss and profit.

32 For an adjudication determination in respect of a claim for a progress payment to be valid, the adjudicator must properly determine the value of the subject progress payment. It is not sufficient for the adjudicator to simply adopt by default a party’s submissions on the value of a progress payment or part thereof. In Hargreaves, Hodgson JA said:

[52] The task of the adjudicator is to determine the amount of the progress payment to be paid by the respondent to the claimant; and in my opinion that requires determination, on the material available to the adjudicator and to the best of the adjudicator’s ability, of the amount that is properly payable. Section 22(2) says that the adjudicator is to consider only the provisions of the Act and the contract, the payment claim and the claimant’s submissions duly made, the payment schedule and the respondent’s submissions duly made, and the results of any inspection; but that does not mean that the consideration of the provisions of the Act and the contract and of the merits of the payment claim is limited to issues actually raised by submissions duly made: see The Minister for Commerce v. Contrax Plumbing (NSW) Pty. Ltd. [2005] NSWCA 142 at [33]- [36]. The adjudicator’s duty is to come to a view as to what is properly payable, on what the adjudicator considers to be the true construction of the contract and the Act and the true merits of the claim. The adjudicator may very readily find in favour of the claimant on the merits of the claim if no relevant material is put by the respondent; but the absence of such material does not mean that the adjudicator can simply award the amount of the claim without any addressing of its merits.

[53] Indeed, my tentative view is that, if an adjudicator determined the progress payment at the amount claimed simply because he or she rejected the relevance of the respondent’s material, this could be such a failure to address the task set by the Act as to render the determination void.

33 In Pacific General Securities Ltd and Anor v Soliman and Sons Pty Ltd [2006] NSWSC 13; (2006) 196 FLR 388, I endeavoured to explain this:

[88] Because the adjudicator is obliged to include in the determination the reasons for it, and the reasons reveal no examination of whether the construction work the subject of the payment claim had been carried out, nor of what was its value, there is a compelling case that the adjudicator simply allowed the claim in full in default of any valid submission against it. As I have endeavoured to explain, that is not an adjudication, within the meaning of the Act, of the payment claim.

[89] It follows that one of the basic and essential requirements of validity has not been satisfied, since there has not been an adjudication, within the meaning of the Act, of the payment claim, and accordingly the adjudicator’s determination is void

34 In Shell Refining (Australia) Pty Limited v A J Mayr Engineering Pty Limited [2006] NSWSC 94, Bergin J said:

[21] In Brodyn Hodgson JA referred to what the adjudicator must do in fairly general terms, that is, that the adjudicator must “address the merits” of the claim. In Pacific General Securities Brereton J went further to suggest that “as a minimum” that would involve the adjudicator determining “whether the construction work identified in the payment claim had been carried out, and what is its value”. The plaintiff submitted that amongst the matters relevant to addressing the merits of the claims and determining their value in this case are: (1) whether the claimant had established a nexus between delays and costs said to have been incurred; (2) if so whether all delay costs were necessarily and reasonably incurred; (3) whether the claim included inter-state construction work or related goods and services; (4) whether all the rates claimed were reasonable; (5) whether the adjudicator agreed with the “subjective judgment” of the defendant as to its methodology; and (6) whether the plaintiff had already paid the defendant amounts referable to delay damages. The defendant did not demur to this submission, however, it submitted that the adjudicator did consider these matters and did address the merits of the claims. I will now consider each of these matters in turn except the third item, which I will consider later in relation to the Transport Claim.

35 These observations, however, were made in the context of claims for progress payments for construction work where the contract does not make express provision with respect to progress payments, so that the entitlement of a contractor to a progress payment is to “an amount calculated on the basis of the value of construction work carried out or undertaken to be carried out by the person (or of related goods and services supplied or undertaken to be supplied by the person) under the contract” [s 9(b)], as appears from Pacific General:

[80] What is referred to an adjudicator for determination is a claimant’s payment claim [s 17(1)], and what an adjudicator has to determine is the amount of the progress payment [s 22(1)(a)], on the basis of that claim and considering the other matters referred to in s 22(2) of the Act [Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229, [24] (Hodgson JA)]. Where a construction contract does not make express provision with respect to progress payments, the entitlement of a contractor to a progress payment is to “an amount calculated on the basis of the value of construction work carried out or undertaken to be carried out by the person (or of related goods and services supplied or undertaken to be supplied by the person) under the contract” [s 9(b)] as at the relevant reference date [s 8(2)(b)]. Although the phrase “or undertaken to be carried out” in s 9(b) creates some confusion, it seems that, as one would expect from the ordinary usage in the construction industry of the term “progress payment”, a progress claim can be made only in respect of construction work which has actually been carried out (or related goods and services which have actually been supplied) [s 13(2); s 4, definition of “claimed amount”], at least where the contract does not make express provision with respect to the matter, since a reference date can in those circumstances occur only after construction work has been carried out [s 8(2)(b); cf s 8(2)(a)]. The basis of valuation prescribed by s 10 has the result that, in the absence of express contractual provision, the amount of a progress payment will (prima facie, and subject to the impact of variations under s 10(1)(b)(iii) and defective work under s 10(1)(b)(iv)), be that proportion of the contract price as corresponds with the proportion of the contracted construction work that has actually been performed as at the relevant reference date (less any payment already made). A consequence of this is that, to found an entitlement to a progress payment, in the absence of express contractual provision, construction work must have been carried out (or related goods and services supplied), and to quantify the amount of the payment that work must be valued in accordance with the terms of the contract and, to the extent that the contract does not provide, relative to the contract price. Accordingly, adjudication of a payment claim involves, at least, a determination of what construction work has been carried out (or what related goods and services have been supplied), and the valuation in accordance with s 10 of that work.

36 A claim under s 27(2A) does not require valuation of the work done to permit quantification, but it does require assessment of the amount of the relevant loss and determination that it was incurred in the circumstances to which s 27(2A) refers. The Adjudicator plainly considered and determined, adversely to Parkview, that the losses claimed by Sydney Civil were incurred in exercising the right to suspend the carrying out of construction work, and as a result of the removal by the respondent from the contract of part of the work. If he erred in doing so, “even in interpreting the Act itself”, it was an error within jurisdiction and not such as to invalidate his determination [Hargreaves, [46](Hodgson JA)].

37 But Parkview submits that the adjudicator did not evaluate Sydney Civil’s claim that it makes a profit consistently of 20% on all projects (including such considerations as the costs incurred to engage in business being the costs of equipment, management costs, employee costs including the number of employees actually engaged on the project at any one time and their costs and other associated costs), nor whether or not Sydney Civil earned any alternative income in the period following 24 September 2008 during which time the remaining 20% of the work would have been conducted so as to mitigate its loss, but simply rejected the contrary arguments of Parkview, and allowed the claim by default without proper evaluation.

38 I agree that the absence of any contention by Parkview that the percentage claimed by Sydney Civil was inappropriate or excessive did not excuse the adjudicator from determining the quantum of Sydney Civil’s relevant loss or expense. But the absence of such contention did mean that in determining it, as he had to, on the material before him, the adjudicator was entitled to accept Sydney Civil’s assertion to the effect that 20% was the cost of overhead and margin applied to all its projects, and (using his own industry knowledge and experience) that it was not unreasonable in the context of the instant project. While in the presence of contention a bare assertion that Sydney Civil charged 20% margin on all its projects might have been of little weight, uncontested it was some evidence of the fact, and the Adjudicator was entitled to accept it. And in the absence of any contention or evidence that Sydney Civil had procured alternative work, he was not obliged to satisfy himself that it had not, even if such considerations were relevant to the inquiry under s 27(2A).

39 The adjudicator was not entitled simply to allow Sydney Civil’s claim by default. But his determination does not suggest that he did so, nor that he considered himself bound to allow the amount claimed by Sydney Civil in the absence of contention. He concluded, as he was entitled to conclude: “Based on the information before me, I am satisfied that the Claimant is entitled to the amount claimed for loss and profit”. That conclusion was based not on allowing Sydney Civil’s claim by default, but on satisfaction on the part of the adjudicator on the material before him that that was the amount properly payable.

40 Accordingly, the adjudicator did not allow Sydney Civil’s claim for 20% margin by default but, as he was entitled on the slight material before him, accepted Sydney Civil’s contention that it charged 20% on all projects.

Conclusion

41 My conclusions may be summarised as follows.

42 As s 13(3)(a) expressly authorises the inclusion in a payment claim of the respondent’s liability under s 27(2A) to pay the amount of any loss incurred by the claimant in exercising the right to suspend the carrying out of construction work as a result of the removal by the respondent from the contract of any part of the work or supply, it matters not that such loss may also be characterised as damages, and the determination is not vitiated by the inclusion of a component in respect of such liability.

43 The reference in the adjudication application to s 27(2A) was not outside the scope or ambit of the payment claim, but merely explained the statutory basis for the claim the parameters of which were already described in the payment claim. In any event, this was a matter for the Adjudicator and even if he were wrong it was an error within jurisdiction, which would not invalidate his determination.

44 The adjudicator did not allow Sydney Civil’s claim for 20% margin by default but, as he was entitled on the scant material before him, accepted Sydney Civil’s contention that it charged 20% on all projects.

45 All the challenges to the determination that were maintained fail.

46 I order that the proceedings be dismissed with costs.

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LAST UPDATED:
19 February 2009