Eastland Truss & Timber Pty Limited v Matthew John Byrnes t/as Qualibuilt... [2014] NSWSC 1461 | Case summary

9On 15 May 2014, the plaintiff served a letter which it advised was to be taken as a Payment Schedule in response to the Payment Claim. It included the following: The scheduled amount for payment claim sent 5 May 2014 is $0.00. The scheduled amount is $0.00 for the following reasons: 1. You have failed to provide a Subcontractor Statement as required by the contract. 2. You have failed to provide a copy of your current Workcover Insurance certificate as required by the contract. 3. You have failed to provide a copy of your current public liability insurance certificate as required by the contract. 4. You are indebted to Eastland Truss & Timber Pty Ltd for back charges and other costs associated with the material and services that you failed to perform in accordance the contract (sic). As has (sic) you have been previously advised, the significant costs our client has incurred, which are now passed on to you as back charges, are a direct result of your failure to comply with the schedules for the contract, your quality of work and your failure to complete the work to which you were contracted to perform. Each of these issues are supported by correspondence to you and also received from other parties associated with the project, including but not limited to representatives from A.W. Edwards. ... In light of the quantum of the back charges, it apparent that taking into consideration the contract sum, variations and back charges, you are indebted to Eastland Truss & Timber Pty Ltd in the sum of $21,295.20 (including GST). You should note that this does not include any provision for retention in accordance with the contract. For your reference, this is calculated as follows (with all amounts inclusive of GST): Description Amount Contract sum - including variations $87,450.00 Less Back charges ($93,345.20) Payments made to Qualibuilt ($15,400.00) Total amount due and owing to Eastland Truss & Timber Pty Ltd $21,295.20 10The parties filed the adjudication submission and the adjudication response, and the adjudication Determination was issued on 18 June 2014. 11The plaintiff claims that jurisdictional error has occurred. The List Statement contends that the adjudicator: failed to discharge his duty to determine whether the construction work identified in the first defendant's Payment Claim has been carried out (par 7). failed to discharge his duty to determine the value of any work the subject of the Payment Claim found by the second defendant to have been carried out by the first defendant (par 8). simply rejected the plaintiff's submissions and allowed the first defendant's claim in full without examination of the merits of that claim (par 9); and simply rejected the plaintiff's submissions and allowed the first defendant's claim in full without examination of the value (if any) of that claim (par 10). 12The issues raised today are fairly limited. Both counsel, Mr MWE Maconachie for the plaintiff and Mr TO Bland for the defendant, have sensibly curtailed their submissions to deal with the nub of the point raised by Mr Maconachie. That point is that the adjudicator committed a jurisdictional error by failing to comply with the fundamental and basic requirement as referred to in the following passage in Brereton J's judgment in Pacific General Securities Ltd v Soliman & Sons Pty Ltd [2006] NSWSC 13; 196 FLR 388 at [98]: However, adjudication of a payment claim (which requires as a minimum determination of whether the construction work the subject of the claim has been performed, and of its value) is one of the basic and essential requirements of validity of a determination. 13Mr Maconachie submitted that the adjudicator failed to comply with the basic requirement to determine whether the construction work had been performed or its value. He accepted that the points raised in this particular application were not put to the adjudicator, rather, at that time the focus was on reasons for the assessment at $0 outlined in the Schedule referred to above. However, Mr Maconachie submitted that it was not necessary to make any of these submissions to the adjudicator in relation to the valuation of the work or indeed whether the work had been done, because that is a basic requirement for any adjudicator. He submitted that in any event, there was a real issue before the adjudicator as to whether the construction work had been carried out. 14The nature of the regime under the Act has been described variously over the years in a number of cases. Section 22 governs the obligations of the adjudicator, it provides relevantly: 22 Adjudicator's determination (1) An adjudicator is to determine: (a) the amount of the progress payment (if any) to be paid by the respondent to the claimant (the adjudicated amount), and (b) the date on which any such amount became or becomes payable, and (c) the rate of interest payable on any such amount. (2) 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. (3) The adjudicator's determination must: (a) be in writing, and (b) include the reasons for the determination (unless the claimant and the respondent have both requested the adjudicator not to include those reasons in the determination). (4) If, in determining an adjudication application, an adjudicator has, in accordance with section 10, determined: (a) the value of any construction work carried out under a construction contract, or (b) the value of any related goods and services supplied under a construction contract, the adjudicator (or any other adjudicator) is, in any subsequent adjudication application that involves the determination of the value of that work or of those goods and services, to give the work (or the goods and services) the same value as that previously determined unless the claimant or respondent satisfies the adjudicator concerned that the value of the work (or the goods and services) has changed since the previous determination. 15Mr Maconachie relied particularly on the following provisions of s 10: 10 Valuation of construction work and related goods and services (1) Construction work carried out or undertaken to be carried out under a construction contract is to be valued: (a) in accordance with the terms of the contract, or (b) if the contract makes no express provision with respect to the matter, having regard to: (i) the contract price for the work, and (ii) any other rates or prices set out in the contract, and (iii) any variation agreed to by the parties to the contract by which the contract price, or any other rate or price set out in the contract, is to be adjusted by a specific amount, and (iv) if any of the work is defective, the estimated cost of rectifying the defect. 16It was submitted that the adjudicator failed to value the construction work as required under s 10 of the Act. 17In dealing with the Payment Claim, the adjudicator set out the adjusted contract figure and the payments that had been made inter parties to reach an outstanding amount of approximately $65,000 excluding GST (par 5). The adjudicator also referred to the attempts by the parties to reconcile their differences and the fact that the defendant made certain adjustments to his claim when the payment claim was submitted and served on 5 May 2014 (par 6). The adjudicator observed that this was in an apparent acceptance of labour costs of $15,130.06 (par 25). 18There was an issue about extra labour being required on the site during the course of the Project. The adjudicator had before him correspondence that indicated that there had been delays because installers had not completed aspects of the Project on the agreed dates (Ex PD: 126). The program had been agreed between the plaintiff and the defendant so that the completion of the works could occur so that each of the blocks were available by no later than 27 July 2013 (Ex PD: 124). However, by 16 July 2013 it was clear that the other trades and/or services being provided to the plaintiff had caused difficulties for the defendant in complying with those timeframes (Ex PD: 126). In those circumstances, it was necessary to have additional labour on site as is apparent from the correspondence contained in the documents that were placed before the adjudicator. 19In any event, the adjudicator noted that the plaintiff had suggested that the Payment Claim did not satisfy the requirements under the Act and then said: 8 The Payment Claim: (a) was served by facsimile on both the Respondent and the Respondent's solicitor; (b) identifies the construction work to which is relates; (c) indicates the claimed amount; and (d) (though not necessary under the current version of the Act) indicates that it is a payment claim made under the Act. 9 Accordingly, I determine that the Payment Claim meets the requirements of the Act. 20The reasons that the plaintiff gave in the Payment Schedule were divided sensibly by the adjudicator into two categories: Reasons 1 - 3 together, and Reason 4 separately. Reasons 1 to 3 related to the failure to provide the various documents referred to above at [9]. The adjudicator dealt with those matters from paragraphs 11 - 18 of the Determination. No issue was raised in respect of those reasons. 21The focus has been on Reason 4 in respect of the back charges and other costs associated with the material and services with the allegation that the defendant had failed to perform in accordance with the contract. 22Mr Maconachie submitted that it was incumbent upon the adjudicator to undertake a valuation process of what work had been done for the purposes of determining the Payment Claim. It is true that the adjudicator did not refer specifically to s 22 of the Act in dealing with Reason 4. Nor did he refer specifically to s 10 of the Act. However, what he did was to dissect each and every claim made by the plaintiff by way of labour costs, accommodation costs, material costs and defect rectification. He took into account the amounts claimed by the plaintiff being respectively $15,607.49; $4,160; $12,199 and $61,378.71. The adjudicator also broke those figures down in paragraph 19 of the Determination. 23Mr Maconachie focused on s 10(1)(b) and submitted that if the adjudicator was proceeding to value the work in accordance with that subsection, he had failed to comply with his obligation by not identifying the estimated cost of rectifying the defects. There may be an issue as to whether that is what was necessary in this case because it does appear that the parties proceeded before the adjudicator on the basis that there was no issue about the value of the work under the fixed price contract of $70,000 plus the variations. 24In any event, assuming an approach under s 10(1)(b) of the Act was necessary, the adjudicator did have regard to the contract price for the work. He specifically referred to it. There were no other rates or prices set out in the contract but the adjudicator accepted from the parties the agreed variation values. In doing so he had regard to those matters in s 10(1)(b)(i)-(iii) of the Act. 25There is then the matter in s 10(1)(b)(iv) of the Act that if the work was defective, it was to be valued having regard to the estimated costs of rectification. The estimated costs in respect of any work that was allegedly defective would, on the plaintiff's case, include the claims for labour, accommodation as consequential costs and materials. Far from failing to review or estimate what had been claimed the adjudicator dealt with each of those categories in the Determination. In doing so he clearly had regard to the documents that had been relied upon by the plaintiff and made assessments of those documents for the purposes of complying with his obligations under s 22 of the Act. 26In this regard Mr Bland relied upon the following passage of Hodgson JA's judgment in Coordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd [2005] NSWCA 228; 63 NSWLR 385 at [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 the 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. 27Mr Bland submitted that the material available to the adjudicator was in fact reviewed by the adjudicator. He submitted that the adjudicator analysed each of those documents to the best of his ability for the purposes of identifying the claims made by the plaintiff in its response to the adjudication application. 28The first item was the labour costs. The labour costs identified by the plaintiff in the Payment Schedule referred to various named individuals with simply the word "labour" next to them. However, the documents that were before the adjudicator included various invoices including from BDM Constructions. The general nature of the description was that it was "labour and materials to complete the works as instructed by site manager" at the student accommodation during various dates. 29On an analysis of the contract and the claims made by the plaintiff and having regard to the documents attached to the adjudication response the adjudicator concluded that he was not persuaded that the defendant agreed to the labour costs (par 23). The adjudicator also concluded that the contract did not contain any programme or completion dates and on the assumption that the alleged breaches were to be made out, he was not persuaded that those breaches alone would give rise to a unilateral right in the plaintiff to incur the expense of the labour costs to the cost of the defendant (par 23). 30The adjudicator also had regard to the submission that the plaintiff had made that the defendant was bound by the head contract. It does appear that there is a reasonably arguable case that this might have been the case. However, the adjudicator noted that no such contract had been provided to him with the materials for the purposes of his adjudication. The adjudicator also noted that no provisions within the head contract were detailed in the submissions. 31The adjudicator concluded as follows in respect of the labour costs that had been valued in the Payment Schedule: 24 It seems clear that the Respondent felt the need to engage additional labour, and it seems reasonably clear that it was facing pressure under the Head Contract as to the progress of the works under the Head Contract. What is not clear is how much of the costs the Respondent incurred in respect of that labour are (or should be) to the Claimant's account. 25 On one view, the Claimant accepted that $15,130.06 of those labour costs should be to his account when he submitted his Payment Claim for $56,919.94 and not $72,060.00. 26 In the end, though the Respondent may be entitled to damages ultimately, I am not persuaded that the Respondent had demonstrated a contractual entitlement to recover its additional labour costs from the Claimant. 32The next item claimed as a back charge was the accommodation cost of $4,160. That was for the accommodation costs for those additional labourers who were brought in to have the Project completed. In paragraph 28 of the Determination the adjudicator detailed the documents to which he had regard and some of the content. He also referred to the submissions made by each of the parties (par 30). The adjudicator recognised the prospect that there may in the future be litigation between the parties in respect of the Project but in the process of trying to assess the circumstances of his task under s 22 of the Act the adjudicator said he was not persuaded that the plaintiff was entitled to charge these costs to the defendant on the evidence before him. 33This is not a process by which the Court is deciding whether that outcome is correct. It is clear that the adjudicator gave consideration to the claims made by the plaintiff. If there is an error in the outcome that is not a jurisdictional error. 34The next item of the back charges was the materials in the amount of $12,199. The adjudicator dealt with that matter as follows: 32 The Payment Schedule refers to a backcharge of $12,199.00 in respect of materials supplied by Perma Composites, and Annexure E-15 to the Adjudicative Response includes an invoice to that amount from Perma Composites. 33 The Claimant says that he agreed that he was responsible for $5420 of those costs. He notes that the Respondent had already accounted for that concession in a letter dated 6 September 2013 (Adjudication Response, Annexure E-2, spreadsheet item 8) and points to a letter the Claimant wrote dated 24 September 2013 (Adjudication Application, Annexure F) as evidence that he made that concession. 34 The Respondent says (paragraphs 2.43-2.45) that the additional costs (that is, the difference between $12,199.00 and $5,420) were incurred after its letter of 6 September 2013. 35 Respectfully, it seems to me that, even if it were true that the costs were incurred after the Respondent's letter of 6 September 2013, there is no contractual basis by which the Respondent may unilaterally seek to recover those costs from the Claimant. 35It is apt to make the same comments in respect of this outcome. It is clear that the adjudicator was giving consideration to the figures and the value, particularly having regard to paragraph 34. Whether he achieved the correct outcome, as I say, is not the point. He embarked on the process consistently with his obligations under s 22 of the Act. 36The next item with which the adjudicator dealt was the defect rectification. In this regard the Determination includes the following: 36 The Respondent has submitted two invoices from BDM Constructions (Annexure E-15 to the Adjudication Response), and says (paragraph 2.46 of the Adjudication Response) that "BDM Constructions were engaged to assist" with the Respondent's work under the Head Contract and that "the claimant has never requested copies of the documents". 37 The Claimant says (middle of page 3 of the Adjudication Application) that he "has never seen any invoices from BDM", that he "does not know what works BDM carried out" and that he "has never been made aware of any defects for which [sic] is responsible and which required BDM's involvement". 38 While it may be true that the Respondent engaged BDM Constructions to perform work on the project, it is far from clear that the Claimant was made aware of the costs involved in that engaged, much less is it clear that the Claimant agreed to bear those costs either in advance of them being incurred or at any time subsequently. 39 Thus, respectfully, it seems to me that (as with all the other backcharges), though the Respondent may seek to recover these costs as part of a broader damages claim, there is no contractual basis by which the Respondent may unilaterally seek to recover these costs from the Claimant. 37It is clear that the adjudicator had regard to the documents provided to him. He reviewed the amounts in the invoices and concluded that it was far from clear that the costs were in fact notified to the defendant, or that the defendant agreed to bear those costs. In reaching this conclusion, albeit that it is not put in these words, the adjudicator determined that the value of the work that had been done was that as claimed and was not to be reduced by the value contained in the invoices in the materials produced by the plaintiff. 38Accordingly, I am satisfied that the process upon which the adjudicator embarked was consistent with his obligations under s 22 of the Act and there is no jurisdictional error. The adjudicator identified the construction work within the contract and he valued that work. He concluded at paragraph 41 of the Determination that the adjudicated amount was that as claimed in the Payment Claim. 39I am satisfied that no jurisdictional error has occurred. 40The Summons is dismissed.

Eastland Truss & Timber Pty Limited v Matthew John Byrnes t/as Qualibuilt Constructions

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