In these proceedings, Bega Valley Shire Council (the Council) seeks orders that an adjudication determination made in favour of Kenpass Pty Ltd (Kenpass) pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act) be declared void and set aside, and that Kenpass be permanently restrained from enforcing the determination.
In summary, the Council contends that the adjudicator did not comply with the requirements of s 22(2) of the Security of Payment Act, that there was a substantial denial of procedural fairness, and that these matters constituted jurisdictional error.
The Council's complaints related only to that part of the adjudication determination concerning the quantification of delay damages. The Council did not assert any jurisdictional error in respect of the adjudicator's determination of the Council's liability to pay delay damages, or in respect of any other part of the determination.
Before considering the specific issues raised by the Council, I set out the relevant background, focussing on the contentions before the adjudicator, and the conclusions reached by the adjudicator, regarding the quantification issue.
[2]
The Contract
On 16 July 2021, the Council entered into a contract with Kenpass (Contract). The works to be performed under the Contract were the demolition of the existing bridge over Whipstick Creek in Wyndham, NSW, and the construction of a concrete road bridge.
The Contract included a Schedule "B1", which set out the lump sum price for the works and provided a breakdown of the elements of that lump sum; and a Schedule "B2", which was headed "Rates for Variations". The latter schedule stated that (emphasis in original):
"These rates are only to apply IF additional works to the lump sum scope of work are required under the Contract. No additions or variations shall be recognised or payment for variation to the scope of work made unless addition or variation is formally approved by the Principal and written instructions issued."
One of the items set out in the Schedule B2 was item 3, which was as follows (emphasis in original):
"Site holding costs - all costs for holding plant & equipment on site and other site requirements including environmental IF works instructed to be stopped"
The rate payable for this item was specified to be $6,000 per day.
Clause 34.9 of the "General conditions of Contract" was headed "Delay Damages". It provided that for every day which was the subject of an Extension of Time "for a compensable cause" (being, in broad terms, an act, omission, or default by the Council), in respect of which the Contractor gives a claim for delay damages, such damages "shall be due and payable".
[3]
Payment Claim
On 29 December 2023, Kenpass served a Payment Claim on the Council pursuant to s 13 of the Security of Payment Act for the amount of $2,490,434.80. This claim included an amount of $906,000 (excl GST) for delay damages in respect of "Sidetrack Design and Agreement".
The Payment Claim attached a document headed "Adjusted Claim for Delay Damages during the Project", which was dated 29 December 2023. Section 11.0 of this document was headed "Value of Delay Damages". It stated as follows:
"In accordance with Clause 34.9 of the General Conditions of Contract for every day the subject of an EOT for a compensable cause and for which the Contractor gives the Superintendent a claim for delay damages shall be due and payable to the Contractor.
…
Calculation of Daily Value of Delay Damages
According to Contract Schedule B2 Rates for Variations
Item 3 Site Holding Costs
All costs for delaying the efficient us[e] of plant and equipment on site as a result of the Principals actions and instructions $6,000 per day"
Consistently with the above statements, the Payment Claim included a schedule which calculated the amount of $906,000 for delay damages in respect of the Sidetrack Design Agreement, by multiplying the number of calendar days of the delay (151) by the daily rate specified in Item 3 of Schedule B2 ($6,000).
[4]
Payment Schedule
On 16 January 2024, the Council served a Payment Schedule in response to the Payment Claim. The amount scheduled in response to the Payment Claim was negative $43,160.
Under the heading "Delay Damages", the Council set out clauses of the Contract which it identified as relevant to the dispute, and then stated that:
"In responding to the Delay Claims the [Council] notes its correspondence to the Contractor dated 5 December 2023".
The Payment Schedule attached a copy of the 5 December 2023 document. The front page identified that it was the "Superintendents Assessment", which was issued in response to an earlier "Claim for Delay Damages during the Project - 10/10/23", that is, a claim made by Kenpass almost three months before the Payment Claim. The Superintendent's Assessment consisted of some 34 pages. The Council relied at the hearing before me on two separate statements, made 30 pages apart. The first was that: "At no stage during the project were Kenpass instructed to stand down by the Principal, Superintendent or Superintendent's Representative". The second was as follows:
"Contractor's claimed rates
Section 13.0 and 14.0 are a summary of the claimed delays outlined in other section[s] of Kenpass' report. The value of the delay is based on the stand down rate from the Contract schedule B.2. This information in reference to the assessment is inaccurate and does not provide any new information."
After referring to the 5 December 2023 Superintendent's Assessment, the Payment Schedule set out various reasons why the Council asserted that it had no liability to pay any delay damages. Having addressed liability, the Council then made the following statements about quantum:
"Delay Damages quantum
The Contractor has not given any evidence to support the alleged quantum of its delay damages claim and, even if entitlement was accepted, the rates applied are disputed and it is not accepted that the Contractor has suffered any damages as a result of the alleged delays. Given the lack of supporting information provided, the Principal reserves the right to comment on the alleged damages further."
[5]
Adjudication Application
On 31 January 2024, Kenpass applied for an adjudication of its Payment Claim, pursuant to s 17 of the Act.
In its Adjudication Application, Kenpass claimed, relevantly, the amount of $906,000 (excl GST) for delay damages in respect of the Sidetrack Design and Agreement.
Under the heading, "Value of Delay Damages", Kenpass repeated the statements which it had made and the calculations which it had provided in the Payment Claim (see paragraphs 10-11 above). The documents attached to the Adjudication Application included a copy of the 5 December 2023 Superintendent's Assessment.
On 5 February 2024, Mr Tuhtan, the Second Defendant, (the Adjudicator) accepted his appointment as adjudicator.
[6]
Adjudication Response
On 7 February 2024, the Council provided its Response to the Adjudication Application.
The Adjudication Response referred to and repeated the statements which had been made in the Payment Schedule about "Delay Damages Quantum" (set out in paragraph 15 above). The submissions made by the Council in its Adjudication Response in relation to the quantification of the delay damages included the following matters:
"ii. Invalid Claim for delay damages
116 The Claimant has failed to submit any valid claim for delay damages under the Contract as it has failed to provide evidence to substantiate the quantum of the Delay Amount.
…
iii. Incorrect Rates
120 Further, and in any event, the Claimant has applied the incorrect rates in calculating the Delay Amount.
121 The Claimant has calculated the Delay Amount by reference to item 3 of Schedule B2 to the Contract. Item 3 provides as follows:
Site holding costs - all costs for holding plant & equipment on site and other site requirements, including environmental IF works instructed to be stopped
122 For reasons unknown, the Claimant has deliberately sought to mislead the Adjudicator that this was an agreed daily rate for holding costs for delays. This rate was agreed where the Contractor was fully underway with construction and was instructed to maintain full deployment on site until an issue was resolved …
[The terms of Schedule B2 to the Contract were then set out]
123 Schedule B2 is entitled '[r]ates for Variations', and as such, the Respondent submits that its application is limited only to approved variations under the Contract.
124 No daily rate in the form of delay damages has been specified. It follows that, in the Respondent's contention, the Claimant is not entitled to delay damages at a rate of $6,000.00 per day as this figure is only applicable to variations.
...
The Claimant has suffered no loss
130 The Claimant is not entitled to the Delay Amount under the Contract as it has not incurred additional costs as a result of the Claimant [sic].
131 In PND Civil Group Pty Ltd v Bastow Civil Constructions Pty Ltd [2017] NSWCA 159 it was held that, in order for the Claimant to be entitled to damages under a contract for internal resources (i.e. staff, plant and equipment owned by the Claimant), it must demonstrate actual loss. …
132 The Claimant appears to solely be claiming for internal costs for its delay claim. No subcontractor invoices have been provided. The Claimant has wholly failed to prove that it has suffered any loss. While the Claimant claims it has suffered substantial loss, it has failed to provide any material to verify its claims.
133 As such, the Claimant is not entitled to the Delay Amount for failure to demonstrate loss on its part.
…
134 The Claimant claims $906,000.000 including GST in damages for alleged delays incurred by the Claimant under an alleged extension of time claim served on 10 October 2023.
…
Summary of Respondent's Position
137 The Respondent disagrees with this position and contends:
…
c. In respect of the claim for damages for these events, even if the Claimant was entitled to damages by reason of a compensable cause, the Claimant has deliberately failed to provide any evidence that it has in fact suffered any damages and instead misrepresented a variation rate as being an agreed rate for delay damages. As noted above, given the Claimant had in fact not mobilised to site (because it was not ready to do so until 31 October) it cannot be said the Claimant has suffered any delay damages. By its own admission, its resources were fully employed at the Murrabrine Project it was performing for the Respondent before being transferred to focus on this project at Whipstick; …
…
140 For the above reasons, the Adjudicator should find the Claimant is entitled to nil for this claim item."
[7]
Determination
On 29 February 2024, the Adjudicator issued the Determination in favour of Kenpass, which relevantly included an amount of $906,000 (excl GST and interest) in respect of delay damages.
There are, for present purposes, three main aspects to the reasoning in the Determination.
First, the Adjudicator concluded that the Council had not, in its Payment Schedule, advanced any "valid reasons" for withholding payment, stating as follows:
"223 In relation to the quantum claimed by the Claimant provides the following as a reason for withholding payment in the Payment Schedule.
'The Contractor has not given any evidence to support the alleged quantum of its delay damages claim and, even if entitlement was accepted, the rates applied are disputed and it is not accepted that the Contractor has suffered any damages as a result of any of the alleged delays. Given the lack of supporting information provided, the Principal reserves, the right to comment on the alleged damages further.'
224 That is not a valid reason for withholding payment. The minimum content for a reason for withholding payment is set out below in Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSWSC 1140.
225 Accordingly, I have decided the Respondent provided no objection to the quantum claimed nor did it provide any objections to the daily delay rate being claimed to which the Claimant could respond."
Secondly, the Adjudicator concluded that the reasons for withholding payment that were set out by the Council in the Adjudication Response were "new reasons", which the Adjudicator was not permitted to consider, stating as follows:
"226 In the response, the Respondent has provided new reasons for withholding payment not previously raised in the payment schedules.
…
[The Adjudicator then quoted, in paragraphs 227 and 228, the terms of s 14(3) and s 20(2B) of the Security of Payment Act]
…
229 In Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSWSC 1140, Palmer J explained the purpose of the prohibition set out in section 20(2B) of the Act as follows:
[The Adjudicator then quoted paragraphs 67, 68 and 70 of that decision]
230 Accordingly, I am not permitted by the Act to consider the Respondent's new reasons for withholding payment that are set out in the Response."
Thirdly, having decided, in relation to the claim for delay damages, that there were no "valid reasons" in the Payment Schedule for withholding payment, and that he was not permitted to consider the "new reasons" in the Adjudication Response, the Adjudicator proceeded to resolve the issue of quantum as follows:
"294 The term delay damages is not defined in the Contract.
295 Accordingly, it was open to the Claimant, acting reasonably, to claim its delay damages arising from the act, default, or omission of the Superintendent or the Respondent.
296 The Respondent raised no objections to the calculation of the extension of time claimed by the Claimant in the Payment Claim in its Payment Schedule.
297 Similarly, the Respondent raised no objections to the Claimant's method of valuation of delay damages claimed or the rates used to calculate the quantum of delay damages claimed in the Payment Claim in its Payment Schedule
298 I note the Respondent raised objections to these in its Response concerning the abovementioned items. These are essentially new reasons for withholding payment.
299 For the reasons outlined above at paragraphs 112) to 129) above and in particular under section 20(2B) of the Act, I am not permitted to consider further those objections for withholding payment.
300 Furthermore, in the context that the Respondent has not raised any objections to the quantum or to the method of calculating the quantum of this claim for delay damages, I rely on the authorities set out above at paragraph 128) and I am permitted to accept the Claimant's valuation of this claim for a variation without further inquiry.
301 I note that at section 11 of the delay damages claim that formed a part of the Payment Claim, the Claimant claimed payment of delay damages for a total of 151 calendar days, which is less than the number that the Contract and the above facts would have permitted.
302 I have also considered the rates used by the Claimant against the rates agreed by the parties on 11 October 2022 and the rates set out in section 2B of the Contract and consider those as being reasonable.
303 Accordingly, I have decided the Claimant is entitled to payment of the amount claimed, which is $906,000.00."
[8]
Issues raised for determination
In paragraph 11 of its List Statement, the Council pleads that:
"The [Adjudicator] failed to exercise jurisdiction and discharge his obligations under section 22(2) of the Act and denied the plaintiff natural justice by:
a. Failing to consider the Reasons within the payment schedule and the Response in so far as the claims for delay damages is considered;
b. Finding that the plaintiff did not, by the payment schedule and the Response object to the quantum of delay damages claimed, the daily rate claimed by the first defendant and the first defendant's calculation of the extension of time claimed; and
c. Finding that he was entitled to accept the first defendant's quantification of its claim for delay damages without having regard to any of the mandatory considerations in section 22(2) of the Act, including he provisions of the Contract which governed quantification of stand-down rates and the absence of any agreed rates for delay damages."
In submissions, the Council contended that the Adjudicator failed to comply with the requirements of s 22(2) of the Security of Payment Act and denied the Council natural justice in three main respects, namely:
1. by failing to consider the reasons for objecting to the quantification of delay damages which were set out in the Payment Schedule;
2. by failing to consider the reasons for objecting to the quantification of delay damages which were set out in the Adjudication Response; and
3. by accepting Kenpass's quantification of delay damages without considering whether such quantification was supported by the provisions of the Contract or any evidence.
I deal with each of these matters in turn below.
[9]
Failure to consider reasons in Payment Schedule
There were two main aspects to the Council's contention that the Adjudicator failed to consider the Council's objections to Kenpass's quantification of delay damages that were set out in the Payment Schedule. The Council submitted:
1. first, that the Adjudicator failed to consider the reasons for disputing quantification which were set out in the Payment Schedule (and which he quoted) on the basis that they were not "valid reasons"; and
2. secondly, that the Adjudicator did not refer to, or address, the further reasons for disputing quantification that were set out in the 5 December 2023 Superintendent's Assessment, which was attached to and incorporated into the Payment Schedule.
[10]
Matters stated in Payment Schedule not "valid" reasons
Section 22 of the Security of Payment Act provides that, in determining an adjudication application, "the adjudicator is to consider the following matters only":
"(a) the provisions of this Act,
(b) the provisions of the construction contract from which the application arose,
(c) the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim,
(d) the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule,
(e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates."
The Council contended that the Adjudicator thereby failed to comply with the mandatory requirements of s 22(2)(d), in that he failed to consider "the payment schedule … to which the application relates".
In paragraph 223 of the Determination, the Adjudicator quoted the entirety of the section of the Payment Schedule headed "Delay Damages quantum" (see paragraph 15 above), and acknowledged that these matters were put forward as a reason for withholding payment in the Payment Schedule:
"223 In relation to the quantum claimed by the Claimant provides the following as a reason for withholding payment in the Payment Schedule.
'The Contractor has not given any evidence to support the alleged quantum of its delay damages claim and, even if entitlement was accepted, the rates applied are disputed and it is not accepted that the Contractor has suffered any damages as a result of any of the alleged delays. Given the lack of supporting information provided, the Principal reserves, the right to comment on the alleged damages further.'"
The Council submitted that the quoted passage identified three reasons for disputing the amount of delay damages claimed by Kenpass, namely that:
1. Kenpass had not provided evidence to support the quantum claimed;
2. the rates applied by Kenpass in calculating the quantum of delay damages were disputed; and
3. the Council did not accept that any damage has been suffered as a result of delay.
The Council did not place any significance, at the hearing before me, on the reservation of right in the final sentence of the quoted passage, with Counsel acknowledging that: "Reserving the right to comment doesn't take the matter any further, I don't rely on those words."
The Council complained that the Adjudicator, having quoted the matters set out above, and having identified them "as a reason for withholding payment in the Payment Schedule", did not engage with those matters.
"224 That is not a valid reason for withholding payment. The minimum content for a reason for withholding payment is set out below in Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSWSC 1140.
225 Accordingly, I have decided the Respondent provided no objection to the quantum claimed nor did it provide any objections to the daily delay rate being claimed to which the Claimant could respond."
The Council submitted that s 14(3) of the Security of Payment Act requires that the payment schedule specifies "the respondent's reasons for withholding payment", and does not contain any requirement that those reasons be "valid". The Council contended that the Adjudicator, having recognised that the Council had specified in the Payment Schedule the "reasons for withholding payment", was obliged under s 22(2)(d) to consider those reasons and failed to do so.
The Council relied on Ceerose Pty Ltd v A-Civil Aust Pty Ltd [2023] NSWCA 215. In that decision, Payne JA (with whom Ward ACJ and Basten AJA agreed) said (at [69]) that "failure to refer to a submission on a centrally important matter, clearly articulated and based on uncontested facts, may demonstrate a failure to consider at all", and therefore may constitute a "breach of the duty to consider the matters set out in s 22(2)". The Council argued that the failure to consider the matters set out in the Payment Schedule was plainly demonstrated here, since the Adjudicator referred to, and said that he would not consider, those matters. The Council submitted that this was a substantial denial of procedural fairness, such as to lead to substantial practical injustice in the circumstances, and therefore was sufficient to establish invalidity: see Demex Pty Ltd v McNab Building Services Pty Ltd [2023] NSWCA 261 at [32] per Kirk JA (with whom Mitchelmore and Adamson JJA agreed).
However, this is not a case where there was a "failure to refer to a submission on a centrally important matter" (emphasis added). The Adjudicator in fact quoted, in full, the submissions made by the Council in the Payment Schedule in respect of "Delay Damages Quantum".
Nor is this a case where the Adjudicator failed to "consider" the reasons given in the Payment Schedule. The Adjudicator did "consider" the submissions stated in the Payment Schedule for the purpose of considering whether they comprised "a valid reason for withholding payment", and determined that they did not.
The Adjudicator's reasoning on this issue is brief. However, any criticism of the extent of the reasons given must take account of the statutory parameters within which the Adjudicator was performing his function.
The object of the Security of Payment Act is to "ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services": s3(1). In Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4, the High Court observed that the Act seeks to ensure prompt interim payments to avoid the interruption of cashflow which is "apt to create the risk of financial failure"; and that the Act imposes "brutally fast" deadlines on the claimant, respondent and adjudicator in order to ensure that any disputed claim is resolved promptly (at [40]). Those timeframes "are not conducive to lengthy consideration by an adjudicator of detailed submissions on all questions of law" (at [41]). An entitlement to payment is to be "determined informally, summarily and quickly" (at [44]).
In Ceerose v A Civil, Payne JA observed that:
1. "reasons are not necessarily, or even usually, a comprehensive statement of all aspects of a decision-maker's thinking" (at [63]);
2. "the scope of the reasons will inevitably reflect the practical circumstances under which the adjudicator is operating" (at [64]); and
3. "it is not unusual for the material supplied to an adjudicator to run into hundreds and even thousands of pages" (as it did in this case) and it is "inevitable that … an adjudicator will spend more time on some items within a claim than on others" (at [65]).
At the same time, although adjudication determinations "should not be viewed through the prism of legal concepts or examined with a fine-tooth comb", the Adjudicator was "obliged to afford the parties procedural fairness and … to stand, the Determination must reveal an evident and intelligible justification": CPB Contractors Pty Ltd v Heyday5 Pty Ltd [2020] NSWSC 1625 at [35]-[36].
Here, there was an evident and intelligible justification for the Adjudicator's conclusion that the reasons set out in the Payment Schedule were not "valid" reasons, namely, that they did not comply with the "minimum content for a reason for withholding payment [as] set out below in Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSWSC 1140" (Determination at [224]).
The reference to this judgment being "set out below" is a reference to the passage from the decision of Palmer J which is quoted in paragraph 229 of the Determination. Before quoting this passage, the Adjudicator set out "[f]or the avoidance of doubt", the terms of s 14(3) of the Security of Payment Act, which provides as follows:
14 Payment Schedules
…
(3) If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent's reasons for withholding payment.
The Adjudicator also set out the terms of s 20(2B), to which I will return below when dealing with the Adjudication Response. He then quoted paragraphs [67], [68] and [70] of Multiplex Constructions v Luikens, describing those paragraphs as providing Palmer J's explanation of "the purpose of the prohibition set out in section 20(2B) of the Act". The passage quoted in the Determination is as follows, including the emphasis added by the Adjudicator:
"[67] … The evident purpose of s.13(1) and (2), s.14(1), (2) and (3), and s.20(2B) is to require the parties to define clearly, expressly and as early as possible what are the issues in dispute between them; the issues so defined are the only issues which the parties are entitled to agitate in their dispute and they are the only issues which the adjudicator is entitled to determine under s.22. It would be entirely inimical to the quick and efficient adjudication of disputes which the scheme of the Act envisages if a respondent were able to reject a payment claim, serve a payment schedule which said nothing except that the claim was rejected, and then 'ambush' the claimant by disclosing for the first time in its adjudication response that the reasons for the rejection were founded upon a certain construction of the contractual terms or upon a variety of calculations, valuations and assessments said to be made in accordance with the contractual terms but which the claimant has had no prior opportunity of checking or disputing. In my opinion, the express words of s.14(3) and s.20(2B) are designed to prevent this from happening.
[68] Section 14(3) requires that if the respondent to a payment claim has 'any reason" for "withholding payment' , it must indicate that reason in the payment schedule. To construe the phrase 'withholding payment' as meaning 'withholding payment only by reason of a set-off or cross claim' is to put a gloss on the words which their plain meaning cannot justify. The phrase, in the context of the subsection as a whole, simply means 'withholding payment of all or any part of the claimed amount in the payment claim'. If the respondent has any reason whatsoever for withholding payment of all or any part of the payment claim, s.14(3) requires that that reason be indicated in the payment schedule and s.20(2B) prevents the respondent from relying in its adjudication response upon any reason not indicated in the payment schedule. Correspondingly, s.22(d) requires the adjudicator to have regard only to those submissions which have been 'duly made' by the respondent in support of the payment schedule, that is, made in support of a reason for withholding payment which has been indicated in the payment schedule in accordance with s.14(3).
…
[70] … For a respondent merely to state in its payment schedule that a claim is rejected is no more informative than to say merely that payment of the claim is 'withheld': the result is stated but not the reason for arriving at the result. Section 14(3) requires that reasons for withholding payment of a claim be indicated in the payment schedule with sufficient particularity to enable the claimant to understand, at least in broad outline, what is the issue between it and the respondent. This understanding is necessary so that the claimant may decide whether to pursue the claim and may know what is the nature of the respondent's case which it will have to meet if it decides to pursue the claim by referring it to adjudication."
Having regard to the terms of the quoted passage (and in particular, those parts emphasised by the Adjudicator), and the remarks made by the Adjudicator, it is tolerably clear that the Adjudicator reached the view that the statements made by the Council did not comply with the "minimum content for a reason for withholding payment", and were therefore not "valid reasons", since (to adopt the language of Palmer J) they did not "define clearly, expressly and as early as possible what are the issues in dispute" in relation to quantum and, in substance, amounted to saying "nothing except that the claim was rejected".
There is an unexpressed step in this reasoning: the Adjudicator did not set out his interpretation of the relevant passage of the Payment Schedule. Presumably, he regarded the statements by the Council that it did not "accept" that there was damage, that it "disputed" the rates applied, and that it had not been given "evidence to support" the claim as being uninformative as to what particular aspects of quantum were in dispute, and on what basis, and instead as tantamount to a simple rejection of the claim. The Council disputed that this was a reasonable interpretation of its Payment Schedule. However, any error by the Adjudicator in interpreting the Payment Schedule, or in understanding the reasons given in it, is not a reviewable error.
In Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2018] NSWCA 339 at [16], Basten JA (with whom Meagher and Leeming JJA agreed) observed that it is implicit in the requirement for the adjudicator to consider "the payment claim" that the adjudicator "is to act upon his or her understanding … of the content of the payment claim". That is, "the Act implicitly confers on the adjudicator the power to form an opinion" as to "the scope of the payment claim" for the purposes of the adjudication, and the adjudication cannot be set aside because an error of law as to the scope of the payment claim appears on the face of the record, including in the reasons of the adjudicator: ibid. His Honour said (at [19]):
"It follows that it was no part of the primary judge's function to examine the payment claim to determine whether he considered that the approach adopted by the adjudicator was erroneous. Even if it were erroneous, it would not constitute jurisdictional error to act upon such an erroneous view. …"
At [32], his Honour held that:
"The statute requires that the adjudicator 'is to consider' … the payment claim. However, an error … in understanding the payment claim does not constitute jurisdictional error and therefore cannot form a basis upon which the adjudication can be quashed."
Those observations are equally applicable to an adjudicator's obligation under s 22(2)(d) of the Security of Payment Act "to consider" the Payment Schedule, and to any error in "understanding" the payment schedule made by the adjudicator. In John Holland Pty Ltd v Roads and Traffic Authority of New South Wales (RTA) [2007] NSWCA 19 at [78], Basten JA observed that:
"it is not appropriate for this Court to construe the payment schedule, or indeed to construe the contract or the Building Payment Act as applied by the adjudicator, for the purpose of determining the validity of an adjudicator's determination. For the purpose of a payment under the Act, authority to determine those matters conclusively is vested in the adjudicator."
Similarly, in Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157 at [67], Giles JA (with whom McColl and Young JJA agreed) stated that:
"In my opinion, what a payment schedule indicates as the reasons for the scheduled account being less than the claimed amount and for withholding payment is also a matter for the adjudicator, and if the adjudicator makes an error in that respect it does not invalidate the determination. … By s 22(2) the legislature has committed to the adjudicator consideration of the payment claim, any payment schedule, and all submissions duly made. There is no reason to regard a correct view of what a payment schedule indicates as more basic and essential to a valid determination than an adjudicator's view of what a payment claim identifies or indicates, or whether a submission has been duly made."
Similarly, any error by the Adjudicator in interpreting s 14(3), or in understanding and applying Palmer J's reasoning in Multiplex Constructions v Luikens, is not a jurisdictional error. In Perform (NSW) v MEV-AUS at [71], Giles JA noted that the error by the adjudicator in that case could be said to be a misconstruction of s 14(3), and observed (at [76]) that:
"In my opinion, the correct construction and application of s 14(3) were not essential preconditions for a valid determination. Accordingly, although I consider the adjudicator to have been incorrect in the respect considered earlier in these reasons, the determination was not thereby void."
Further, it must be recognised that the question as to whether the reasons given in a payment schedule are expressed with sufficient specificity involves an evaluation not only of the statements contained in the payment schedule, but also the purposes of the statutory regime and, in particular, s 14 of the Security of Payment Act.
In Multiplex Constructions v Luikens, Palmer J held that "precision and particularity must be required [in a payment schedule] to a degree reasonably sufficient to apprise the parties of the real issues in the dispute" (at [76]) and that "some want of precision and particularity is permissible as long as the essence of 'the reason' for withholding payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication" (at [78]). In Style Timber Floor Pty Ltd v Krivosudsky [2019] NSWCA 171, the Court of Appeal considered Palmer J's decision in Multiplex Constructions v Luikens. Bell P observed (at [2]) that:
"Whilst it is correct that the valuable observations of Palmer J in Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140, as endorsed by this Court in Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448; [2005] NSWCA 391 at [31], indicate that the payment schedule provided for in s 14 of the Building and Construction Industry Security of Payment Act 1999 (NSW) need not be attended with the same degree of formality that might be required in other areas or other legal contexts, his Honour's judgment is not a licence for informality or an excuse for vague, generalised objections to payment."
Leeming JA said (at [47]-[48]) that:
"When dealing with the requirements of a payment claim, Palmer J's analysis was endorsed by this Court in Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448; [2005] NSWCA 391 at [31]. While it is clear that an abbreviated description, falling short of a pleading, will suffice, the passages emphasised indicate that the payment schedule must sufficiently describe the dispute so as to enable the claimant to determine whether to proceed in the knowledge of the nature of the case it will have to meet.
It is established that even where a respondent proposes to pay no part of a payment claim, it is still required to indicate reasons in accordance with s 14(3): Barclay Mowlem v Tesrol Walsh Bay [2004] NSWSC 1232 at [15]-[16]; Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA) Pty Ltd [2007] QSC 333 at [24]. That, with respect, must be so having regard to, inter alia, the limiting effect of s 20(2B). It was not suggested in this Court that s 14(3) did not apply to Style Timber Floor on the basis that it refused to pay the entirety of the claim."
Whether a payment schedule provides only "vague, generalised objections to payment" or whether it "sufficiently describe[s] the dispute so as to enable the claimant to determine whether to proceed in the knowledge of the nature of the case it will have to meet" are questions of degree on which minds may reasonably differ. In Witron Australia Pty Ltd v Turnkey Innovative Engineering Pty Ltd [2023] NSWCA 305 at [27], Kirk JA (with whom Leeming and Payne JJA agreed) observed that:
"the sufficiency of reasons in satisfying the requirements of s 14(3), and in informing consideration of what matters were raised for the purposes of ss 20(2B) and 22(2)(d), is to be assessed in a purposive manner, taking account of the significance of the payment schedule in the statutory scheme".
Having regard to those matters, I am not satisfied that any jurisdictional error has been established in respect of the Adjudicator's conclusion that the matters stated in the Payment Schedule concerning the issue of quantum did not meet the minimum requirements for a "reason for withholding payment" within the meaning of s 14(3).
[11]
Failure to refer to Superintendent's Assessment
The Council submitted that the Adjudicator failed to refer to the Superintendent's Assessment of 5 December 2023, which was attached to the Payment Schedule and which explained the reasons why the Payment Schedule stated that the Council "disputed" the rates applied by Kenpass to calculate the quantum of damages.
The Council submitted that the Superintendent's Assessment was incorporated into the Payment Schedule and the Adjudicator's failure to address the matters raised in it amounted to a failure "to consider" the Payment Schedule, as required by s 22(2)(d), and also amounted to a substantial denial of procedural fairness.
A number of the observations which I have previously made are equally applicable here. It was a matter for the Adjudicator to interpret the Payment Schedule, including any documents attached to it. If there was an error in interpreting the Payment Schedule, it was not a jurisdictional error. Similarly, if there was an error in ignoring a document which was attached to, and incorporated into, the Payment Schedule, that was not a jurisdictional error. That was the situation which arose in Perform (NSW) v MEV-AUS, where it was held that the adjudicator was wrong to conclude that s 14 does not permit the incorporation of a document into the Payment Schedule by reference, but that this error did not invalidate his determination.
Further, this could not be said to be a situation where there was a failure to refer to a "clearly articulated" submission on a centrally important matter (Ceerose v A-Civil at [69]). There is nowhere in the Payment Schedule, or in the Superintendent's Assessment, a clear statement to the effect that the Council disputes the rates applied by Kenpass because those rates can only apply where a stand down instruction has been issued. Instead, the position is as follows:
1. in the section of the Payment Schedule dealing with "Delay Damages Quantum", there is a statement made, without elaboration, that "the rates applied are disputed";
2. in a separate section of the Payment Schedule, dealing with the liability to pay delay damages, the Council states as follows: "In responding to the Delay Claims the Principal notes its correspondence to the Contractor dated 5 December 2023" (emphasis added). There is no identification, other than by attaching this document, of any specific propositions stated in it upon which the Council relies, either on the question of liability or quantum; and
3. in the Superintendent's Assessment, there are two separate statements, almost 30 pages apart, that:
1. "At no stage during the project were Kenpass instructed to stand down by the Principal, Superintendent or Superintendent's Representative"; and
2. Kenpass's calculation of the "value of the delay is based on the stand down rate from the Contract schedule B.2".
The relevance of the Superintendent's Assessment to the dispute before the Adjudicator was unexplained. Such relevance may not have been immediately apparent to the Adjudicator, given that that Superintendent's Assessment was issued on 5 December 2023, in response to a previous claim for delay damages that had been made by Kenpass on 10 October 2023, and not in response to the Payment Claim, which was made on 29 December 2023.
It was left to the Adjudicator, acting within the constraints of the tight timeframes imposed by the Security of Payment Act, to read through the lengthy correspondence which is simply "noted" in the Payment Schedule, in order to work out, from putting together disparate statements made many pages apart, that the rate used is said to be confined to a situation which had not arisen. Such a proposition was not "clearly articulated" in the materials.
For those reasons, I do not consider that any jurisdictional error has been established in respect of the failure to refer to statements made in the Superintendent's Assessment which was attached to the Payment Schedule.
[12]
Determination that reasons in Adjudication Response were "new"
The Adjudicator regarded the matters set out in the Adjudication Response in relation to the quantum of delay damages as amounting to "new reasons for withholding payment not previously raised in the payment schedules", and concluded that he was "not permitted by the Act to consider the [Council's] new reasons for withholding payment that are set out in the Response" (Determination [226], [230]).
The Council submitted that the reasons for withholding payment set out in its Adjudication Response were not "new" reasons, but rather were submissions concerning the specific "reasons for withholding payment" which had been set out in the Payment Schedule, namely, the lack of supporting evidence for the quantification of the claim; the use of incorrect rates for the calculation of the delay damages; and the lack of any proof that damage had been suffered as a result of the delay. The Council argued that the Adjudicator's failure to consider its submissions on those matters amounted to a failure to comply with the requirements of s 22(2)(d) of the Security of Payment Act.
Section 22(2)(d) required the Adjudicator "to consider … all submissions (including relevant documentation) that have been duly made by the respondent in support of the [payment] schedule" (emphasis added).
In determining whether a submission has been "duly made by the respondent in support of the [payment] schedule", it is necessary to have regard to the requirements of s 20(2B) of the Security of Payment Act. It provides that that the "respondent cannot include in the adjudication response any reasons for withholding payment, unless those reasons have been included in the payment schedule provided to the claimant."
The Adjudicator had regard to that provision. He quoted the terms of s 20(2B) and emphasised (by using bold and underlining) its requirements. He then quoted the parts of Multiplex Constructions v Luikens which I have set out in paragraph 47 above, in which "Palmer J explained the purpose of the prohibition set out in" that provision (Determination [229]). The Adjudicator concluded that all of the matters raised in the Adjudication Response regarding the quantification of delay damages were new, with the result that the submissions were not "duly made" and he was not permitted to consider them.
It is well settled that whether a submission referred to in s 22(2)(d) has been "duly made" is a matter within the jurisdiction of an adjudicator and that error in identifying a submission as having been "duly made" is not jurisdictional: see Ceerose v A-Civil at [31] and the cases there cited. Further, there can be no denial of natural justice in failing to consider a submission which the Adjudicator has concluded, within jurisdiction, was not "duly made". In John Holland v RTA at [63], Hodgson JA (with whom Beazley JA agreed) made the following observations (emphasis added):
"Finally, on the question of natural justice, plainly there was no denial of natural justice if the submission in question was not 'duly made'. Even if the correct view was that the submission was duly made, I would still not find a denial of natural justice. The legislature plainly entrusts to the adjudicator the role of determining whether submissions are or are not duly made, and thus of determining whether a submission contained in an adjudication response is one that should not be there because of the effect of s 20(2B). If an adjudicator addresses that question and comes to a conclusion that the submission was not duly made, I cannot see that the adjudicator has then failed to afford the measure of natural justice contemplated by the Act."
The Council argued that this principle was subject to a "reasonableness" qualification: that is, an erroneous and unreasonable determination that a submission was not "duly made" may be a jurisdictional error. I do not consider that there is scope for assessing the objective reasonableness of the Adjudicator's conclusion on this issue, and for finding jurisdictional error where the conclusion fails to meet such a standard. I accept that in Ceerose at [31], one of the authorities cited was the decision of Hodgson JA in John Holland v RTA at [57], where his Honour stated that where an adjudicator made "a reasonable if erroneous decision that [submissions] were not duly made", there was no breach of s 22(2) such as would invalidate the determination. However, his Honour did not state the converse, namely, that an "unreasonable" decision on this issue would constitute jurisdictional error. Further, Payne JA also cited in Ceerose at [31] the decision of Giles JA in Perform (NSW) v MEV-AUS at [65], where his Honour held that the question whether a submission had been "duly made" was "not a matter for objective determination by the court".
In any case, I am not satisfied that the Council has established that the Adjudicator's determination that the submissions regarding delay damages in the Adjudication Response were not "duly made" was irrational or unreasonable. In circumstances where the Adjudicator had found that there were no valid reasons for withholding payment advanced in the Payment Schedule, it necessarily followed that any reasons for withholding payment advanced in the Adjudication Response were "new". That is, the latter conclusion was logically and rationally based on the former (which did not involve any jurisdictional error).
In reply submissions, the Council raised an issue concerning the Adjudication Response which Mr Weinberger conceded had not previously been articulated. The Council pointed to further submissions which Kenpass provided to the Adjudicator after the Adjudication Response was lodged, in which Kenpass identified that some of the matters raised by the Council in its Adjudication Response concerning quantum were "new". The Council argued that because Kenpass did not identify that every paragraph in this section of the Adjudication Response was "new" (but only the majority of them), it must be the case that Kenpass accepted that some parts of the Council's submissions were "not new". The Council submitted that:
"So to that extent the parties were ad idem, as to at least to some extent, to the scope of the dispute, which the adjudicator was bound to consider.
But he doesn't refer to the concessions, which in my submission is a centrally important matter. An uncontested fact is that there are no new reasons to the extent which the parties agreed. … The adjudicator then, at the very least, taking my case at its weakest, was obliged to determine the adjudication application by reference to the agreed facts. …"
The Council claimed that this issue was within its pleading since its primary position was that the Adjudicator erred in failing to consider any of the reasons advanced in the Adjudication Response on the basis that all of them were new, and it was now advancing a fallback position that the Adjudicator erred in failing to consider at least those reasons in the Adjudication Response which Kenpass accepted were "not new".
Kenpass objected to this issue being raised for the first time in reply. Kenpass submitted that it was prejudiced because the further submissions of Kenpass on which the Council relied were provided following correspondence to the Adjudicator, which was not in evidence.
I do not need to resolve whether or not the Council should be permitted to rely on this additional argument since, in any case, I do not consider that it would establish jurisdictional error. As stated above, it was a matter for the Adjudicator to determine whether submissions in the Adjudication Response raised new reasons for withholding payment, beyond the reasons given in the Payment Schedule. He could not be bound by any views of the parties in that regard (whether or not agreed).
In circumstances where the Adjudicator had determined that the Payment Schedule did not include "reasons for withholding payment" within the meaning of s 14(3), it necessarily followed that any reasons for disputing quantum which were given in the Adjudication Response were "new reasons for withholding payment". Further, having concluded this was so, it followed in accordance with ss 20(2B) and 22(2)(d) and the reasoning in Multiplex Constructions v Luikens that the submissions made on the topic of the quantum of delay damages in the Adjudication Response were not "duly made" and the Adjudicator was not permitted to consider them.
For the reasons I have given above, any error in respect of those matters was not a jurisdictional error.
[13]
Determination of claim without considering basis for quantification
The Adjudicator set out the reasons for his determination in respect of the quantum of delay damages at paragraphs [296]-[303] (quoted in paragraph 26 above). In short, the Adjudicator referred to his findings that the Payment Schedule did not set out "valid reasons" for withholding payment, and that he was not permitted to consider the "new reasons" advanced in the Adjudication Response, and concluded that in those circumstances he was "permitted to accept the Claimant's valuation of this claim for a variation without further enquiry".
The Council contended that there was "no evidentiary basis for the determination of the delay damages claim. Zero. None." The Council argued that, even if the Adjudicator ignored what was in the Payment Schedule and the Adjudication Response, there was still a "need to look at the evidence … and the construction contract", and he "still had to be satisfied" that there was a proper basis for the quantification of delay damages. The Council submitted that an absence of an objection to quantification "doesn't permit the adjudicator to simply say, I accept some wholly inappropriate inapplicable method of calculation, absent any evidence that there was actual delay costs incurred".
This submission echoed the following passage of the judgment of Hodgson JA in Coordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd (2005) 63 NSWLR 385; [2005] NSWCA 228 at [52], in which his Honour emphasised the need for the Adjudicator to be satisfied of the "true merits" of the claim made:
"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."
However, in Ceerose v A-Civil at [75], Payne JA (with whom Ward ACJ and Basten AJA agreed) said that he was "unable to agree" with the dicta set out above:
"The essence of [52] of Hargreaves is that 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' (emphasis added). There is a potential difficulty in this reasoning, at least in so far as it is being used as a test to identify jurisdictional error. The 'true construction of the contract' and the 'true merits' of the payment claim are, by reason of the structure of the Security of Payment Act I have set out above, matters where an error by an adjudicator will not be jurisdictional. As Basten JA explained at [66] of Hargreaves itself, in the light of the express restriction in s 20(2B) of the Act, there is merit in the conclusion that the adjudicator is not entitled to go beyond the terms of the adjudication response in rejecting part or all of the payment claim. Certainly, it is not a jurisdictional error for an adjudicator, having decided all the reasons advanced by the respondent were invalid, to then and without more, determine the amount of the progress payment in favour of the claimant based on the payment claim."
The Adjudicator acted consistently with the manner described by Payne JA in the passage quoted above. Having decided that the Council had not advanced any valid objections to the quantification of delay damages in the Payment Schedule, or any objections in the Adjudication Response which he was permitted to consider, he proceeded "then and without more" to "determine the amount of the progress payment in favour of the claimant based on the payment claim". It was not a jurisdictional error to do so.
In Probuild at [47], the High Court identified the "clear legislative intention" of the statutory being regime as being "to ensure that the statutory entitlement can be determined and enforced with minimal delay". It is consistent with this legislative intention that if a payment claim is made, and the adjudicator finds that the respondent does not advance in the payment schedule any valid reason for withholding payment, the adjudicator can "then and without more" determine the amount of the progress payment based on the payment claim, without independently examining and being satisfied as to the contractual basis for the claim, the merits of the claim, the proof of loss, or the quantification of damage. To the extent that there is an issue about any of those matters, the Security of Payment Act "defers the final determination of contractual rights to a different forum, in which the consequences of any erroneous determination can and must be taken into account": Probuild at [47].
[14]
Orders
For the reasons given above, the Council has not established jurisdictional error in respect of the Adjudicator's Determination.
Accordingly, I make the following orders:
1. The Summons filed 11 March 2024 be dismissed.
2. The Plaintiff pay the Defendant's costs, as agreed or assessed.
[15]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 17 April 2024